CRM in China: Hindrances and Anticipations
With its rapid economic development in recent years, 1.3 billion people that make it the No. 1 market in the world, and entry into the World Trade Organization in December 2001, China's demand for CRM should be tremendous. However, there are many hindrances that must be overcome before CRM benefits can be fully realized in China.
Hindrances
Lacking the 'Customer' Mentality
In China, the idea of a "customer" is not yet a solid concept. The situation is worse in northern China, as cities in southern China, such as Shenzhen and Guangzhou, are influenced by Hong Kong, where people demand better service. A customer can notice differences in service standards between a restaurant in Shenzhen and a restaurant in Beijing. Furthermore, in China, customers are not segmented and treated accordingly. Customers are still one big segment rather than different individuals with their own characteristics.
Focus on Internal Efficiency
Since 1979, several cities have opened as special economic zones but, in general, the commercialization history of China is still young. There are many formerly state-owned enterprises that are undergoing different extents of privatization to face the open market more directly. They focus on how to trim size, cut costs, reduce redundancy, and improve efficiency, but not on how to improve customer relationships. Nowadays, Chinese enterprises are hungry for ERP and ERP-related solutions, as many still have manual workflow and production processes.
New-Customer 'Land Grab'
It's impossible to name any other country than China that could obtain new customers as easily, especially during a worldwide recession. For example, China's number of mobile phone users is now No. 1 in the world, surpassing Japan and the United States. However, when a company is busy acquiring new subscribers, it doesn't spend much effort determining how to retain existing customers, especially when the services are offered by a monopoly and customers have to wait for service. For China's mobile phone market, the focus is on how to get more customers and increase the spending per user, rather than on how to reduce the churn rate. Call centers are set up to take care of the huge quantity of customers, not to serve CRM purposes.
A Billion-Population Market?
A population of 1.3 billion seems like an excellent opportunity for any business. But is that the true population of China? In most cases, no. In fact, the segment of customers in China who possess the same level of consumption power as the Western middle class is at most 80 million to 100 million. So be wary of business directors who project a proposal for a "1.3 billion market." The majority of the Chinese are still in the agricultural sector; they are not the segment that could afford to purchase goods other than necessities. The huge differences in China's income levels make CRM difficult to implement in a mass market.
Credit System Is Not Perfect
When you shop in areas other than five-star hotels or top-graded department stores (tourists areas), you will find it difficult to pay by credit card. If you're not holding the local bank-issued card, you can't use a card, and in most cases, credit cards are not accepted at all. Though there is a growing population that possess credit cards, the degree of acceptability and penetration rate are still low. In China, the geographical area is big, the population is huge, and people easily shift from city to city and province to province. A person may be raised in the western part of the country, study in the north, and work in the south. Since the database system of customers is not yet well-established, the sudden disappearance of a customer is the major fear of those who offer any credit line. Trust, the foundation of CRM, has yet to be established.
Western Pricing Methods Don't Fit
The normal charging method for a CRM solution is per license, per seat. Why doesnt that work in China? Its a stunning figure for most banks if they have more than 10 million customers, but thats normal for a bank in China. Project the number of customer service representatives for a Chinese bank with 10 million customers. Even if vendors charge one-tenth of the original price, its still a sky-high figure for most banks. There are not many enterprises like Legend who could stand the price of Siebel in China. Per license is not so expensive; its the quantity of users that makes the cost unacceptable. There is a strong tendency for Chinese enterprises to deploy local CRM solutions or develop their own solutions. If foreign vendors stick to the traditional charging method, one day, when the Chinese develop their own solutions with appropriate technology and good business sense, the CRM software market will go local. However, in the top tier there is still space for foreign-developed solutions.
Anticipations
CRM's prospects in China in the middle to long term are very positive. According to the China Center for Information Industry Development, the CRM software market was worth around $7.2 million in 2000, $10.9 million in 2001, and will reach $37 million in 2004. IDC China also gave figures of $7.5 million in 2001 and $19.8 million in 2002. According to META Group, the CRM software market in the world was estimated to be worth $20 billion in 2001.
Let's say that in 2001, Chinese CRM software amounted to 0.05 percent of the total world spending. Taking into account the fast growth of the Chinese economy, it would not be surprising if the Chinese CRM market grew at a tremendous rate as well. A 1 percent share of the world market would signal a 20-fold increase. This positive outlook is not limited to software, but also includes the overall CRM implementation and its effectiveness.
There Will Still Be a Very High Failure Rate
What is CRM? In my opinion, CRM is a business strategy - it's the execution to acquire and retain the "right" customers and to optimize the benefits of enterprise, employees, and customers. People, process, and technology are the means to achieving these ends.
In the West, the CRM implementation failure rate is as high as 70 percent. Will China be better off in 2003 or 2004? I don't think so. There are some major reasons behind the high failure rate of CRM. The No. 1 killer in China is the notion that "CRM equals software."
In China, vendors are still the dominant force in educating the market about CRM and how to implement it. To get quick results, companies are rushing to make the same mistakes again and ignoring their real needs and the question of whether their internal organization is really ready.
CRM Will Become the CEO's Project Rather Than the IT Department's Affair
In 2001 and 2002, it has been the IT managers who have sought the most help for implementing CRM in their organization, since they are in charge of the project. Some of them are from the Chinese office of a multinational corporation and they are implementing CRM just because their headquarters in the West wants to extend the implementation of CRM to China. The local IT managers do not know the reasons why; they just follow orders and treat it as an IT project. Thus, it is doomed to fail from the beginning.
This trend is changing. CRM projects are receiving more attention because they involve a large amount of money and their impact is felt throughout the business, no matter whether it affects people, process, or organizational structure. How to acquire and retain profitable customers is becoming the top priority for all enterprises. Because it is difficult to benchmark the success of an implementation, one of the headaches for CEOs is how to measure the effectiveness and the return on the CRM implementation investment. One set of measurement metrics, called "CRMBodyCheck," is shown in Figure 1.
ASP Will Become Popular
Based on CNNIC, up to mid-June of 2002, China had 45.8 million Internet users, and if the growth rate stays the same, it will hit 100 million by the end of 2003. Of those 45.8 million users, 14.6 million (almost one-third) are using leased lines, broadband, and ISDN to access the Internet. This portion is still increasing, and bandwidth should soon not be a big problem at all. In the current stagnant world economy, prices and flexibility are weighted more heavily than security concerns. Salesforce.com offers a CRM solution in the ASP model, and it is one of the very few CRM vendors that reported significant growth in sales and profits. Of course, that solution does not serve those who demand a CRM suite or those who need complicated integration and a huge database and have strong concerns about security. Companies that require this are in the minority compared to the whole of China. There is little need for sophisticated functions in China; they really need a simple, convenient, and economical solution. ASPs are not only for SMEs, but also for enterprises that have several locations and need to communicate and have a central database. Therefore, there is a golden opportunity for a company that offers a similar solution to Saleforce.com to enter the Chinese market.
Poor Profit (Still) for CRM Software Vendors
The market size will be much bigger, but there will be more active players both locally and from overseas that will compete in the Chinese CRM market. Looking at the revenues of some the largest players, the sales figures for 2002 range from 3 million yuan to 10 million yuan, so you could imagine the margins they could get after deducting direct costs and overheads.
Vendors need to build a case and focus on limited industries. They can start by lowering their price (since customers overwhelmingly rely on price as the determining factor) and hope that the CRM software market will turn around in a year. It will shake out some of the players. ERP solutions, such as Kingdee and Ufsoft, will have better financial support. Still, they will not get good revenues and should wait until the "harvest" (2005 and after). Companies that can survive and keep burning until 2004 can reap a very handsome harvest from 2005 onward.
Market Vacuum for Third-Party Consulting and Implementation Services
Now there is a big vacuum in third-party consulting and implementation in China. Vendors tend to provide a one-stop solution to their clients, i.e., providing pre-implementation consulting, software selling, implementation, and even system integrator jobs. There are no neutral parties to provide consulting services for the pre-implementation phase on strategies, people, and processes. Even the Big Five carry vendors behind them, so how could they be neutral? And they are only interested in the giant deal. Who then will serve the untapped middle market there?
You can tell by China's ERP history that no pre-implementation consulting monies are spent; money is spent on the implementation only. Though the market is not big, there should be a growing demand for it, especially with case studies that demonstrate the significant ROI associated with services provided by third parties.
Mobile CRM Will Arrive on the Scene
China has about 200 million mobile phone users - the biggest market in the world. It is the same number as the amount of fixed-line subscribers. A mobile phone is much more personal than a computer. Forget WAP, let's talk about SMS. SMS is text-only. It is personalized, fast, economical, and more instantaneous than any other devices or vehicles. It is projected that 60 billion SMSs will be sent by Chinese mobile phone users, which is one-sixth of the total 360 billion SMSs in the world, and this figure is still increasing. In China, it is a popular kind of communications mode among the younger generation, and it is close to the level of the voice-phone revenue of mobile-phone operators for certain customer segments. Needless to say, it is the most profitable source of value-added income for the operators.
CRM Will Spread Out to the Masses
Chinese eat at McDonald's, drink Coca-Cola, wear Levi's jeans, and watch Hollywood movies. All customers have a broader range of choices in today's economy. Globalization is not only happening to the supply side, but to the demand side as well. Chinese customers demand a service standard similar to that of their Western counterparts.
Backing by Microsoft and other sources resulted in the launch of more SME applications and more neutral education on CRM. Consumers know what to ask for and are willing push enterprises for more. There are a lot of enterprises that are spending money but not practicing "real" CRM. However, if you are a smart enterprise, even if you don't spend millions on technology, you will still get significant ROI if you implement a customer-centered strategy. The reason is simple. The Chinese market is so big that consumer spending power is correspondingly huge. However, there is not much in the way of choice. If, suddenly, one enterprise stands out significantly, provides good customer care, makes customers feel well-treated, and practices good CRM in general, customer money will be the best vote in demonstrating the ROI. This is not such a difficult thing to achieve for most non-state-owned enterprises. But to implement the real customer-centered strategy, it does takes guts, wisdom, and a fast pace.
