A Chinese Spend Management Vendor? Will CDC Software Target the Buy-Side?

Posted At : November 23, 2009 6:52 AM
Related Categories: Jason Busch

It's quite common in the enterprise software world for niche global providers to succeed in reaching the global marketplace. North American companies certainly don't have a lock on developing enterprise class code. Moreover, since California has found itself in such a financial catastrophe of late -- not to mention inserting the specter of significantly rising Federal taxes to the mix -- I suspect we'll see more and more global entrepreneurs set up shop elsewhere. Still, despite the globalization of the enterprise applications market, one giant country in particular has had only a few players worthy of mention -- China. At least until now. But CDC, a Hong Kong-based software player that has so far targeted the sell-side and CRM sides of the market, could change that. Earlier today, CDC reported a highly profitable quarter, even with a significantly lower top line. However, the real potentially intriguing aspect of CDC from a procurement and operations perspective is not how they run their business today, but rather if a recent acquisition might signal a shift to looking at the buy-side of the market as well.

How large is CDC today? They're a drop in the enterprise apps bucket. Regarding their latest quarterly announcement, ABC News reported that their "third-quarter profit rose 47 percent on lower costs and expenses ... Profit rose to $6.2 million, or 22 cents per share, in the three months ended Sept. 30 compared with a profit of $4.2 million, or 15 cents per share, a year prior. Revenue fell 20 percent to $48.6 million from $60.5 million ... Cost of revenue fell 23 percent to $21.4 million while operating expenses fell 43 percent to $20 million."

But what's more interesting to me -- besides that this is clearly an organization that knows how to reign in spending and SG&A -- is the fact that they have a currency they're willing to use. Moreover, Truition, a recent CDC acquisition target, already offers forward auction software for the sell-side in a variety of formats. It would not take much to turn their engine around, build out RFX capability on top of it and launch into the sourcing world. Moreover, I suspect it would also not require a fundamental re-architecting of their CRM platform to go after the supplier information management market. Will they do it? I suspect given the challenges of selling into the sell-side during a global downturn, such a strategy could make significant sense.

But regardless, if it's not CDC, I have no doubt the Spend Management software world will begin to see challenges from Chinese upstarts. After all, vendors like AECSoft have already built viable onshore businesses by leveraging Chinese software development on the back-end. It would not take much to see the next AECSoft not only source code directly from China, but use Hong Kong or the mainland as a permanent base of operation. Just as Zycus is an Indian company serving global organizations today with regional sales and marketing offices, so too will we see mainland and Hong Kong Chinese companies take a similar track.

- Jason Busch

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Jason,

Thanks for the AECsoft mention – yes, we have had a subsidiary in China (Shanghai) for about 3 years now - and using Chinese resources is definitely a part of our global strategy.

Important to note is that so far we only use our China developers for testing, some special product development, and customer support of our LCCS/China Sourcing solution and services. From a practical perspective this means finding the most suitable Chinese suppliers for procurement purposes – the process involves our patented "User-defined Scored Search" technology. Additionally, this helps to build valuable databases of leading Chinese suppliers for our customers and for ourselves.

AECsoft here in the US – we have been in Houston since 1997 (started selling enterprise software in 1999) – is dedicated to developing and supporting our Supplier Management and eSourcing products. The strict segmentation of the businesses is important to point out since several of our clients require us to restrict access to their data to US staff and US locations only.

As our business keeps growing – we’re up 40% over 2008, which was also a good growth year – we will support clients with solutions and services from the locations that work best for their requirements. As I noted above, in the case of ERP data, clients have other performance criteria than just lowest price, so we are not looking to change the business model for the US unless clients change their preferences.

Tom Ren

# Posted By Tom Ren, AECsoft USA | 12/5/09 7:11 AM

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