Summary of Key Points
When Chinese software companies venture overseas, they often face an awkward dilemma: They aim to escape the domestic competition and earn money from high-value overseas clients, but in reality, they mainly serve the overseas branches of Chinese enterprises, continuing the same tactics of bidding low, winning contracts at low prices, and promising additional orders in the future. These projects not only result in higher delivery costs (due to time zones and additional compliance requirements) but also lower profits, or even losses. The core issue is that many companies treat the overseas market as a stepping stone for Chinese clients, without truly entering the local markets or establishing a value system recognized by overseas customers (in terms of product quality, localization capabilities, and brand credibility). As a result, their business models remain stuck in the same cycle of domestic competition.
Detailed Analysis
1. Chinese Clients: A Ladder to the Overseas Market… or a Trap?
Following Chinese enterprises abroad is the easiest first step for Chinese software companies, as they are familiar with the processes and decision-making habits of these clients, who are also willing to give their fellow countrymen a chance. Winning a few overseas projects can help accumulate delivery experience and build a local team, which is beneficial. However, relying solely on Chinese clients for revenue can lead to problems:
- The purchasing power lies with the domestic headquarters, which sets the terms: more features, higher quality of service, lower prices, and even the requirement to lose money initially in exchange for promised additional orders (as seen in the case of that automotive group project, where a loss of 10 million yuan preceded any subsequent orders, and the team was laid off).
- The costs are higher overseas: compliance requirements are stricter, communication across time zones is more complex, and the service scope is broader, yet customers do not pay more for these additional expenses. As a result, profits remain low while costs increase.
Therefore, Chinese clients can serve as a stepping stone, but they should not be the ultimate goal. Otherwise, companies are simply moving the domestic competition to overseas without gaining real pricing power in the local markets.
2. Why Don’t Overseas Clients Buy Your Products?
It’s not that overseas clients are stingy; their logic for purchasing software is different from that of domestic customers. Domestic clients may value more features and lower prices, but overseas clients look for long-term solutions that can address their specific business needs and manage risks. Chinese software companies have three significant shortcomings:
- Lack of Core Competence: Domestic software often relies on customized features and cost-effectiveness, while overseas clients seek globally best practices (e.g., Oracle’s financial software, which provides validated management methods for multinational corporations). Our software still focuses on adding features based on customer requests without developing scalable, advanced solutions.
- Loss of Localization Advantages: While domestic software is adapted to Chinese user habits (such as integrating with WeChat and Lark), these advantages are meaningless overseas. Customers ask whether the data complies with local regulations, whether it can integrate with commonly used tools, and whether support can be provided locally in a timely manner. These issues cannot be resolved by hiring a few overseas sales representatives; a long-term localization strategy is needed.
- Lack of Brand Credibility: Overseas clients choose software partners carefully, considering data security and compliance risks, as well as the durability of services over time. For example, a company with annual revenue in the tens of millions may opt for SAP despite its higher cost and poorer performance because it is considered a reliable choice by a German client.
3. The Key to Breaking This Cycle
To attract overseas clients, companies need to change their approach:
- Focus on Building Practical Experience: Instead of just selling features, they should integrate their global experience into their products. For example, by first establishing a global presence and using AI for transformation, they can provide valuable solutions that have been proven effective.
- True Localization: Localization is more than just translating interfaces or renting offices; it means empowering local teams to take responsibility for support and integration with local tools (e.g., European ERP systems or Southeast Asian payment networks). This not only attracts local customers but also encourages Chinese companies overseas to purchase according to local standards, reducing pressure on pricing.
- Build a Strong Brand: A brand is about making credible commitments. This can be achieved by showcasing successful cases in target markets, ensuring that local teams are responsible for delivery, and clearly defining data security and service terms in contracts. Although this path is slower and more costly, it helps establish pricing power, as customers are willing to pay for peace of mind.
4. The Real Goal of Going Overseas
The real goal of going overseas is not just to sell software but to have overseas clients recognize the value of your products. Internationalization means proving that your software can improve efficiency, comply with local regulations, and provide reliable long-term solutions. Simply replicating domestic pricing strategies overseas will only lead to increased losses and continued competition.
In summary, going overseas is about making foreign customers see the value in your software—not just transporting it to another market. Only by doing so can companies achieve true success.
Final Conclusion
For Chinese software companies looking to expand internationally, they should stop focusing on low-price contracts from Chinese clients. Instead, they need to invest in developing high-quality products, building local capabilities, and establishing a strong brand that attracts and retains overseas customers willing to pay for the real value of their products. This is the right approach to escaping the cycle of domestic competition.