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Selling Software in China

Better Than You Think

Technology companies have been taking a beating lately because of their efforts in China. Google and Yahoo are torn between the evil of government censorship and the prospect of doing business with the world's fastest-growing economy. Microsoft, Adobe, and content providers like the American movie studios face serious problems with piracy. A recent report by the China-Britain Business Council stated that only one in four people in China has purchased software legally.

Imagine my surprise then when I took over a San Jose-based enterprise software company with virtually no sales to learn that our main sales effort was in China. It's a big world, I thought, and surely we could find a safer, less controversial market. My skepticism didn't prevent me from investigating our possibilities there, however, and I'm glad it didn't. I have been pleasantly surprised by the receptive business climate, the ability of clients and other contacts to separate government ideology from business issues, and, most importantly, the size and receptivity of the market.

With an initial software licensing deal under our belts, and the prospect of more to come, I thought I could provide a few insights for others who might find themselves in my shoes.

Business, Not Politics
First of all, business people have to be able to separate political/social views from business issues. The Chinese business people I've dealt with certainly do. This doesn't mean leaving your conscience at the border, but it does mean realizing that not everybody looks at the world the same way we do. Silicon Valley is a leading source of technological innovation, and if we're going to export that technology to the world at large we must learn how to operate in different environments.

The government controls almost all aspects of Chinese society; we revel in relative freedom from government interference. Good for us, not so good for them. But my advice is simple: deal with it. I tip my hat to the U.S. tech leaders who have been grilled by Congress and often vilified in the U.S. press for "selling out" in China. To me, they are pioneers in this brave new world of capitalism co-existing with communism, and I appreciate their willingness to take their lumps in the cause of market expansion.

Intellectual Property Safety
My company's product is software, that most fragile of business products. We pour all our ingenuity and hopes for the future into bits and bytes encased in a disk or downloaded from the Internet. The very act of licensing someone else to use that software carries the implicit hope that they will respect the intellectual capital it represents and use it ethically. Is it reasonable to hope that Chinese business people will live up to their side of that bargain?

My experience, based our initial sales success in the Chinese oil and gas industry, tells me the answer is yes. China is furiously trying to develop energy supplies for its vast and growing population, and realizes it needs help to do so. It doesn't make sense that our customer, a giant oil company whose shares are traded on the New York Stock Exchange, would cheat on someone who is helping it overcome obstacles. Is this a leap of faith? Maybe, but it's one made with the realization of the tremendous opportunities in enterprise software that exist in China.

We have made a further leap in entering into an outsourcing contract with ChinaSoft Resource Co., a branch of the China Software and Technology Service Corporation (CS&S). CS&S is an example of the efforts of the Chinese government to restructure its state-owned enterprises and bring more transparency to their operations. Through this alliance we eventually hope to outsource parts of our Quality Assurance and final test process, plus other functions. Giving us confidence is the fact that among other U.S. companies using ChinaSoft are Microsoft and IBM.

Don't Go It Alone
Although many things about doing business in China surprised us, one truism remained unchanged: you need local partners. We proudly display in our reception room a plaque certifying us as members of the Zhongguancun Software Association (ZSoft), and I'm glad to be a member of its advisory committee for American software companies. This plaque is the global economy's version of a Chamber of Commerce or Rotary Club membership citation

ZSoft is an interesting example of China's efforts to catch up with the world - particularly India - in software outsourcing. Named after the Zhongguancun region of Beijing, which is widely regarded as China's Silicon Valley, it functions as U.S. trade associations do to promote China's software industry. It recently hosted an outsourcing summit on the theme "Software Changing China" that was attended by more than 300 representatives of governments, associations, companies, and institutes.

Joining ZSoft was in my company's best interests, and also served China's goal of improving its software capabilities. China graduates two million engineers a year, but its largest software outsourcing firm employs fewer than 7,000 people. Clearly there's a gap between where they are at present and where they want to be. They see contact with U.S. software companies as an opportunity to learn what skillsets they need to develop and the direction that technology is headed. As a young company trying to get a foothold in the Chinese enterprise software market, we clearly need the kind of contacts that ZSoft offers. And if they can learn a thing or two from us, that's fine, too.

Be Opportunistic, Be Smart
My overall assessment of the Chinese opportunity for U.S. enterprise software companies is optimistic. For companies in the storage and security fields, particularly, China presents an enormous opportunity. The commoditization of high-end serving technology, which bedevils companies like Sun and SGI, has opened up a large market for companies that can offer solutions for the new-era enterprise data center. China's preference for Linux-based server architectures is a real advantage for those who can deal in the Open Source environment.

It's not a perfect world in China. Its transformation from a planned economy to a market-driven economy proceeds in fits and starts. As often as you see promising developments you run into incomprehensible regulations. Piracy and lack of protection for intellectual property remain serious problems. Finding local partners with a commitment to outflanking the bureaucracy and guaranteeing IP integrity is an absolute necessity. But, in a brave new world, only the brave will thrive.

More Stories By Bud Michael

Bud Michael is CEO of San Jose, CA high-availability software company Availigent (www.availigent.com).

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