Markets and Trends

Why China is the Proving Ground for Enterprise Service Opportunities

Enterprise service China
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Following the 2014 Summer Davos Forum, China’s State Council issued a series of formal opinions in 2015 that outlined detailed general principles and measurement guidelines meant to encourage entrepreneurship and innovation, pursue innovation-driven development, and improve employment in China.

Since then, the Chinese government has massively invested resources to accelerate this national initiative. A few of the initiatives the government took on to align with this campaign include:

  • Deepened business system reforms
  • Strengthened intellectual property protection
  • Provided favorable government procurement and taxation policies
  • Offered an easier path to get funding, such as the Growth Enterprises Market Board at Shenzhen Stock Exchange
  • Leveraged government resources to help acquire needed talents, especially overseas returnees

University science parks, government high-tech parks, and many technology business incubators took notice of this government involvement and rushed to facilitate entrepreneurship and innovation. These entities worked to create better entry and operating environments, and offered more attractive incentives as well as services and training to entice top talent. Some even expanded quickly to build high-profile overseas technology hubs, such as Shanghai Lingang Economic Development (Group) Co.

It was no surprise that in October 2015, the National Development and Reform Commission (NDRC) even pushed to create an annual national “carnival” week on Mass Innovation and Entrepreneurship to further promote these initiatives.

Enterprise Services Startups are Flourishing in China

Has all this attention on mass innovation and entrepreneurship made a difference? The data shows a positive trend. Traditionally, more than 80% of startups in China eventually failed, with an average longevity of only 3 years. Student-led startups performed even worse, with a 95% fail rate.

However, the largest startup gathering in the country, WISE, declared a positive trend in terms of valuation growth of the country’s startup stars. For the 2nd year in a row, it published a valuation ranking for the top 200 Chinese start-ups that reflected a 62% YoY increase in total valuation. The event also featured a stream of insight and best practice sharing sessions from successful startup founders that revealed that the business-oriented enterprise services domain has evolved into an VC/PE investment priority.

Increased availability of large scale data centers and cloud infrastructures provide lower cost bases, but the humongous amount of data that enterprises have accumulated and increasing labor costs have prompted many enterprises to focus on operating efficiency, innovation, and digital transformation. This shift has helped boost the valuations and successes of Chinese startups.

Enterprise Organizations are Beginning to Take Notice

In fact, the fast emergence and growth of SaaS players in various verticals have contributed to 35% YoY in 2015, and will reach 26.7% CAGR from 2015-2020, according to an IDC China SaaS Market Forecast. Artificial intelligence (AI), for example, promises to be a major innovation that will propel Chinese services forward. 43% of global theses on AI have been written by Chinese, and more and more business incubators have been rapidly training talents in this area.

Given that the big majority of Chinese traditional enterprises in various verticals have lagged behind other developed countries in digital transformation, it is a good bet that traditional enterprises will start to welcome the potentially huge ROIs brought in by these service technology adoptions. These emerging Chinese enterprise service-oriented startups have a higher likelihood of survival and success in this market.

The Takeaway: Pay Attention to China’s Enterprise Services

IDC predicts that by 2020, China will be well on its way to becoming the world’s largest 3rd Platform technology market. For multi-national companies with strong imperatives to grow globally, it is time to seriously investigate business opportunities in China’s enterprise services market. Today’s high-potential startups in Enterprise Services will eventually grow into tomorrow’s Best Available Technology (BAT) equivalents. Whether its through partnerships or other investments, act now before it is too late.

Want to learn more about China’s strengthening technology market? Explore IDC’s “China IT Market Overview and Industry Trends.”