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Navigating China's Software Market: The Guide to Channel Partnerships

ADG China

Written by ADG China

02/26/2024

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This blog summarizes ADG’s key learnings from 20+ years of managing and operating foreign software sales in China. We are sharing these best practices to help software companies that are either new to China or not meeting their growth expectations and want to understand why.

For companies with good products, the most often encountered obstacles relate to not properly understanding and leveraging their channel partners in China. We cover why the strategy that works in other markets often fails in China.

Success for your company in China hinges on understanding who can help, who hinders, and how and when to use them to your advantage. Recognizing the unique roles partners can play will help you tailor an effective entry and growth strategy while avoiding the all-to-common choices companies make that are doomed to fail.

 

Key Reseller Types Explained

Understanding the key players in China's software reseller ecosystem is crucial for market expansion. Each reseller type, from cross-border facilitators to specialized VARs, uniquely connects international software companies with the Chinese market.

At a fundamental level, the types of channel partners you will encounter in China will look similar to other markers. However, when it comes to working with a foreign software providers with little or no presence in China, their strengths and weaknesses are very different. This is the key issue – you cannot rely on them to provide the roles they can play in other markets. And in many cases, due to the large information asymmetry it means your partners will often prefer to get a larger portion of a small flat market then can control then invest in helping you to grow a bigger pie.

  • Cross-border Resellers: Your gateway to the Chinese market when you don’t have a local presence. Their model is to be a software marketplace specializing in bringing global software brands to China. They are essentially order processors with little demand generation. They are usually the first reseller partner for most vendors.
    • The good: They have good reach, are easy to find, and can be a great place to test demand.
    • The bad: They don’t invest, and their cost to list your product is immaterial, which means their fee is very low - which sounds good, but once your product is listed with them, very few other resellers will invest in your product since they cannot compete on price and the market will become small one-off orders.
          • *This is the #1 mistake software vendors make, essentially preventing larger enterprise deals (most large orders need multiple vendors to bid).
  • Local China Resellers: These are key to long-term success in China. They cover every area in China and have deep customer relationships. A local China Reseller will also not invest heavily in demand generation activities but they collectively have sales teams reaching every region and industry throughout China.
    • The good: They are the core to long-term success and can bring their deep customer relationships to you. With a good partner enablement plan in place they will come to you over time or can be found at industry events.
    • The bad: There are 1,000s of them. They typically have little to no experience dealing with global software vendors. Without feet on the ground, they can be hard to find, and they need a lot of handholding and will still expect you to do all the work to close and support their customers. They must also be given large discounts relative to what the cross-border resellers will require (but it is worth it).
  • Value-Added Resellers (VARs): Industry specialists offering tailored solutions while providing integration, support, and training. They will often build an essential market presence (website, WeChat, etc.) to create leads for their primary business.
    • The good: A few VARs can bring some additional sporadic larger orders. They can be great partners when a potential end-customer wants your product but needs a local VAR to get the deal done, train, or integrate the product. Once you have a large sale through a VAR, the customer is more likely to maintain or increase seats over the years.
    • The bad: Most VARs typically focus on deep relationships with a few big customers, and often, the software you sell is only a tiny component of a much larger project that will go on for years. VARs will not typically invest beyond what is needed to make themselves appear as your primary or exclusive sales channel in China.

*This is the #2 mistake software vendors make – overly relying on VARs. Knowing your software well rarely translates into a willingness to market your software. Unfortunately, VARs rarely promoting your software beyond their own projects. The margin they make on your software is not sufficient to justify their effort.

  • Other Types of Resellers: Beyond the three above, China also possesses several other resellers that can play a role in your growth. We group them here because they are secondary to your strategy. With the core reseller network, closing a strategic partnership with them will be easier.
  • Anti-piracy Resellers: These partners focus on converting unauthorized users to paying customers. They are growing in number and often know who is already using your products. As your market in China develops, they will approach you. They can be valuable but are littered with shady companies, so you must move cautiously when working with them.
  • OEM Resellers: These are typically large equipment providers that may be interested in bundling your software with their equipment. They can be great partners, but unless your product is well known in China, it will be lengthy and challenging to convince them to pay a lot as software is typically viewed as low-priced compared to equipment – although their attitudes are changing (especially when million-dollar equipment deals are becoming increasingly scarce)
  • Industry Vertical Resellers: These companies typically don’t sell software but target the same end customers with other complementary products. They often have large sales teams and deep sector relationships. They're great for targeted expansion but are typically skeptical about selling software, and the sales cycle to close them can be lengthy. When these deals work, they can be significant sources of ongoing, consistent sales orders.

 

Conclusion: Accelerate Your Market Expansion in China with ADG

Navigating the Chinese software market is a complex but rewarding endeavor. With ADG's strategic roadmap, your company can avoid common pitfalls, effectively leverage channel partnerships, and achieve sustainable growth in this dynamic market.

Ready to unlock the full potential of your software in China? Contact ADG today to learn how our tailored strategies and deep market expertise can guide your success in one of the world's most lucrative software markets.

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