Oracle’s NetSuite Acquisition- What Are The Implications For The China ERP Market

2021-04-20

Oracle’s acquisition of NetSuite made headlines in tech media around the world; it also made waves in China as well. NetSuite has been growing fast in China, but still does not enjoy the same name recognition as larger more established brands like SAP and Oracle, not to mention local brands like Yonyou. Yet in the week that the news broke, at Trigger Networks we noticed a large spike in online enquiries to our company by Chinese companies and professionals wanting to learn more about NetSuite. We heard more from the usual groups: companies comparing different cloud ERP offerings and casual visitors to the site. What is especially interesting is that we also saw an increase in calls from China-based Oracle consultants and Yonyou ERP implementation specialists, who have started to realize the need to educate themselves about future-focused SaaS-based ERP products like NetSuite.

It is clear that following last week’s rush of headlines on Chinese news sites, NetSuite is now on the radar of a lot more people in the technology industry in China than before.

Inevitably this spike in interest will dissipate as the story drops off the front page of tech news sites in China over the next few weeks, but this notwithstanding, I am prepared to make a bold claim:

The acquisition of NetSuite by Oracle is a major milestone in the development of the cloud computing industry in Mainland China and has the potential to have a major impact on ERP adoption trends in this region.

To give this claim some context, we need to understand the development of the cloud in China, and market attitudes to the cloud over the last several years. In this respect, Trigger Networks’ experiences of interacting with numerous companies considering cloud solutions over the years provide some useful insights.

Market Perceptions Toward The Cloud And Adoption Trends

As with most technology trends over the decades, China has lagged behind other areas in cloud adoption. In an article published in 2015, Bain and Company remarked that cloud adoption in China has traditionally faced several barriers to adoption, including below average speeds across the country, fears (often misplaced) among businesses about the security of cloud applications compared with on-premise software installations, cultural and business norms that favor ownership of software, rather than renting it as a service and so on.

These barriers to adoption are reflected in our interactions with numerous companies that have approached us over the years to understand NetSuite’s cloud ERP offering. In the past, it has been necessary to spend considerable time educating the market about the real benefits of cloud based business applications, including the actually superior level of data security that mature cloud vendors provide, as well as the lower total cost of ownership, business contingency benefits, customizability and scalability, to name just a few advantages.

Changing Attitudes

In recent years however, it has been interesting to observe a change in the types of questions we get asked by potential customers. By the time companies get in touch with us, most have already educated themselves about the numerous benefits and cost advantages of cloud-based applications like SaaS ERP.

Nowadays, it is more common for customers to ask us how NetSuite compares to other offerings that are marketed as cloud solutions. (Note that I say “marketed as cloud solutions” because the applications promoted by companies like Yonyou and Kingdee cannot be considered “pure” Cloud ERP, as they use outdated legacy C/S architecture that is hosted on a cloud server. These offerings are not on-demand SaaS applications like NetSuite or Salesforce.com).

How Netsuite’s Acquisition By Oracle Can Accelerate Adoption Trends

So we have already noticed a change in market attitudes towards cloud-based applications, and an increasing acceptance among Chinese business owners to manage their business data and processes off-premise through internet browsers. The reason that I believe NetSuite’s acquisition can accelerate the acceptance of cloud-based business solutions in China is this: when the acquisition is complete, the world’s most mature cloud enterprise management product will be owned by one of the world’s largest enterprise software companies that which happens to have an extremely developed market presence in Mainland China, having operated in the region since the 1980s.

Oracle enjoys excellent brand recognition among businesses in China both large and small, even though most businesses mid-sized and smaller would not normally consider Oracle’s enterprise-focused software offerings. Oracle’s acquisition of NetSuite therefore sends a very clear and visible message to the Chinese market: on-demand cloud business applications are here to stay, and the SaaS delivery model represents the future of the tech industry in China and around the world.

What is more, NetSuite will now have access to Oracle’s sales channel in the region, as well as the group’s vast technical resources to help it expand its already highly robust data center footprint and other infrastructures in China and throughout the world.

Developing NetSuite’s customer base and infrastructure in China may take several years. But if we want to contemplate the future of SaaS ERP in China, NetSuite CEO Zach Nelson’s comments on how NetSuite might develop in China in the future are instructive. In an interview with the International Business Times last year, Nelson commented:

“We’re selling largely to multinationals doing business in China. It takes a while to get established, as you have to do partnerships. We call our market opportunity in North America the Fortune 5 million. It’s the Fortune 50 million in China. It’s just that much of a larger scale, but it takes an enormous amount of investment.”

Now that NetSuite is part of Oracle, the vision of opening up the “Fortune 50 million” market in China may be realized sooner than we thought…