SaaS is one of the fastest-growing industries in China, growing by 38% in 2020.
However, the SaaS market in China remains relatively fragmented, which means that even small foreign entrants can compete if they have a competitive, quality product and effective promotion and UA strategy.
The 6 Keys to SaaS Success in China
- Make sure your servers are 100% on-shore.
Because SaaS exists entirely online, this is a practical as well as a legal requirement. In essence, you have more control by hosting your product INSIDE the Great Firewall of China, where it is less likely to be blocked by the government or experience slow connection speeds for Chinese users.
- Familiarize yourself with China’s data regulations.
Speaking to the legal requirement, Chinese law requires customer data (especially PII) to reside inside its borders. Special permission is required for cross-border data transfer. Keep in mind that all data on a server inside China can be accessed by the Chinese government. Before setting up your database architecture, be sure to consult with an expert on China to make sure you are operating within the law.
- Find a Chinese partner.
Although joint ventures are allowed to operate SaaS products, the provider must be a 100% Chinese-owned entity. Also, the ICP licenses required to operate a SaaS platform are simply not allowed to be granted to foreign companies or individuals.
So make no mistake: To enter the Chinese SaaS market, you must partner with a 100% Chinese-owned entity. Simply having an investment in or partial ownership of a Chinese company is not enough.
- Get the proper licenses.
Chinese law allows for limited licensing and capabilities for non-Chinese entities, citizens, and companies alike. At the minimum, you will need an ICP filing for SaaS in China, which is impossible for a foreign entity to receive. Some licenses, such as a Software Copyright Certificate (SCC), are relatively straightforward, while other licensing requirements will be more complex depending on the nature of your SaaS platform and the services it provides.
- Localize your service and financial model for China.
Your current SaaS product probably will not be exportable as-is into the Chinese market. This goes beyond simple translation. For example, you must monetize your payments for common payment services such as WeChat, Alipay, and UnionPay, and modify them to fit Chinese accounting and finance requirements.
Your business model may need to be tweaked for China as well. For example, unlike PayPal, WeChat and Alipay cannot be set up to do subscription-based services that automatically renew. There are also legal regulations about how payments can be collected and services sold that may differ from your home country. The regulatory environment in China is rapidly changing as it matures, particularly when it comes to financial transactions. So once again, it’s important to find a good partner to advise and consult.
- Understand your liability.
Understand that, in China, you maintain liability for everything that happens on your platform. Unlike in many Western countries, a reseller of a product or service is not treated as a neutral entity in China. Under Chinese law, providing a product or service through your platform implies a degree of guarantee/endorsement of and/or control over that product or service, and thus liability.
This is why, for example, the Chinese Android app stores vigorously and individually vet each app that goes up on their platform. Legal advice is essential to limit your liability and ensure you are compliant with the law.
AppInChina can help
Although the process can seem daunting, there is no need for foreign firms to shy away from the lucrative Chinese SaaS market if they have an experienced, professional partner. We have successfully brought numerous overseas SaaS products to China’s shores over the last years, and provide services from localization to monetization, go-to-market strategy, user acquisition (UA), and customer support. Contact us here to learn about how we can help your SaaS product succeed in China.