Sector Report

Technology – Software as a service

by Alec So & Timothy Lee / Nov 4, 2019


China needs to boost labour productivity urgently
Beijing needs to find ways to reduce labour-intensive output to drive the economy given the country’s ageing population. Despite the narrowing technology gap with the USA over the past two decades, China still has plenty of room to grow, with labour productivity just 25.9% that of America. SaaS applications are shaping up to be one of the sweet spots of the government’s cloud-supportive policies.

Chinese companies prefer local providers
Chinese enterprises prefer leading local horizontal SaaS providers over foreign players, according to our interviews with property managers and a cloud survey, and local firms’ market share has increased over the past five years. Dominant software providers also have a high probability of success due to customer stickiness. Meanwhile, property management firms are likely to gain from SaaS adoption due to historical tech underinvestment and their labour-intensive nature.

China SaaS market to enjoy a 27.8% revenue Cagr over 19-21CL
Our internet team expects the China SaaS market to enjoy a 27.8% revenue Cagr over 19-21CL, backed by sound IT infrastructure and the upcoming 5G rollout. Migration should be a rational choice for enterprises as empirical studies suggest 63-77% IT cost savings over traditional on-premise alternatives. The US SaaS market is 40x bigger than China’s even though its GDP is just 1.5x higher. Hence, we see huge growth potential in the Chinese market.

We prefer dominant SaaS providers
We prefer leading Chinese SaaS providers over foreign players thanks to cost efficiency and customised products and services.