China's SaaS: An 'Open Ocean' Up Ahead

In China, public cloud services have been increasingly popular, along with a number of existing customers showing desires to extend and customize the providers' offerings at their own expense. The country's cloud service value chain possesses enormous investment value at different levels. One reason is that the high cost of data migration generates solid user stickiness; the other reason is the relative independence of the sector from macroeconomic fluctuations. As projected by IDC, the cloud computing penetration among enterprises will increase to 15.8% by 2024 in China. By then, the market size will reach CNY 563.3 billion. 

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Currently, China's cloud market is at an early stage of development, with a lower market penetration rate compared with that in the United States. As per R&D World, China's spending on research and development (R&D) is expected to top with USD 621.5 billion in 2021, denoting a 25.5% share of the global R&D spending that year. In contrast, China's spending on cloud computing services only accounts for 6.2% of the global figure. It points to the fact that there is a great potential for the cloud computing market within China along with the continuing technological development.

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11 out of the 20 most prominent tech companies in the US have been intensively engaged in the software-as-a-service (SaaS) business, which accounts for 40% of the value of those 20 companies. On the contrary, only 6 out of the 20 major tech players in China have SaaS business, occupying slightly 3% of the total value of those 20 largest Chinese techs. The industry's key players in China are the local SaaS providers such as Kingdee and foreign players that charge exorbitant prices in exchange for customized services.

Considering China's strict regulation on foreign companies, especially in various technology-related fields, the local companies are more likely to get the upper hand in the competition. Four companies discussed below are those positioned exceptionally well to benefit from the country's cloud upgrade:

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Disclaimer: Please consult your own advisor before making any investment decision. 

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