The global enterprise software giant SAP is about to make important adjustments to its market structure in the Asia-Pacific region. On October 8, SAP issued an internal email stating that starting from January 1, 2025, it plans to merge the Asia Pacific Japan (APJ) and Greater China (GC) regions to form a new "Asia Pacific" (APAC) region.

The new APAC region will consist of six markets (MUs): Australia and New Zealand, Greater China, India, Japan, South Korea, and Southeast Asia.

The above adjustment can be simply understood as SAP's Greater China region being "downgraded" to a part of the Asia-Pacific region, resulting in an increase in management levels and a weakening of the local team's voice in the Chinese market.

At the same time, SAP announced that Huang Chenhong, President of Greater China, has decided to leave SAP to seek new development opportunities. Huang Chenhong will no longer participate in the company's daily management work.

It's no news that foreign software companies are scaling back their operations in China. In September, IBM suddenly announced the withdrawal of its research and development department from China, resulting in layoffs of over 1,000 employees. Earlier in 2019, Oracle significantly downsized its R&D center in China, and its market share in China has continued to decline.

The collective contraction of foreign companies is a tangible boon for domestic software vendors, as the market space previously dominated by foreign giants will be released. The question is, how can domestic software vendors seize this opportunity?

Who captured the market share lost by SAP and others?

The past few years have been a crucial period for international companies to contract or even withdraw from the Chinese market, and also a period of accelerated development for China's information technology application and innovation industry (commonly referred to as the "information technology and innovation industry" or "IT innovation industry").

The goal of the IT innovation industry is for China to gradually establish its own IT underlying architecture and standards. 2020 marked the starting point for the comprehensive promotion of the IT innovation industry, and the market size has steadily increased over the past four years.

With the support of the IT innovation trend, the scale of domestic enterprise software continues to expand. Enterprise software primarily focuses on complex business management issues, with large enterprises being an important customer group. In particular, international enterprise software vendors with high prices often only attract demand and purchasing power from large enterprises.

Therefore, in the field of enterprise software, it is said that "he who captures large customers captures the world."

In addition to large contract amounts, large enterprises are also characterized by high replacement costs. Large customers' businesses are often highly sustainable and stable, with high costs associated with migrating paid systems. They conduct rigorous evaluations and comparisons when selecting suppliers, often establishing long-term cooperation relationships that can lead to repeat purchases over the long term, making them less susceptible to market fluctuations than small and medium-sized customers.

From Oracle and SAP suspending all operations in Russia during the Russia-Ukraine war, to the recent explosion of a large number of communication devices in Lebanon, to the current "downgrade" of SAP's Greater China region, these events serve as a "wake-up call" for enterprises, especially large ones. The consequences of software outages that support daily management and business operations can be disastrous.

Under this trend, domestic enterprise software must rise to the occasion. So, who can capture the "pie" of the large enterprise market?

From the perspective of the market landscape of Chinese enterprise software, Yongzhong (Yonyou) still firmly occupies the top position. A senior practitioner in the IT innovation industry told Baima that Yongzhong has benefited the most from the contraction of international companies in the past few years. Among domestic enterprise software vendors, Yongzhong has the largest number of large enterprise customers.

Third-party data supports the above view. According to IDC data, Yongzhong ranks first in market share for aPaaS in China, first in market share for enterprise application SaaS in China, and has consistently ranked first in market share for SaaS in China's very large and large enterprise applications for many years.

In terms of revenue contribution, Yongzhong's large enterprise customers and government business contributed approximately 72% of its revenue. Since the beginning of this year, Yongzhong has continuously signed large contracts. According to official information from Yongzhong, the company signed more than 30 large enterprise customer projects in the third quarter alone. The most recent "shocking" deal in the industry was the partnership with COOEC, a subsidiary of China National Offshore Oil Corporation (CNOOC). On September 29, COOEC announced the successful bidding of a major project worth 163 million yuan to Yongzhong for the construction and maintenance of its information system.

Of course, other software vendors are also striving for the large enterprise market. For example, Kingdee, which primarily serves medium and small enterprises, is now increasing its investment in the large enterprise market. However, according to financial report data for the first half of 2024, Kingdee Cloud and Kingdee Star Ocean recorded cloud service revenue of 546 million yuan combined. In contrast, Yongzhong's cloud service business generated revenue of 1.765 billion yuan during the same period, reflecting a significant gap.

Replacing large enterprise digital and intelligent systems is challenging, but with positive feedback from cooperation, many former Yongzhong enterprise customers continue to choose Yongzhong, further enhancing Yongzhong's experience in serving large enterprises and strengthening its dominant position. The effect of the strong getting stronger will intensify.

The challenging path of localization substitution

Replacing international giants is no easy task. Customers do not lower their standards during the process of replacing domestic software and may even raise higher requirements.

Localization substitution is both a national strategy and a need for enterprises themselves. It is not simply a matter of replacing foreign products with domestic ones; it is a process of "value substitution." This involves replacing legacy foreign systems and those still using ERP systems from the information age with systems for the digital and intelligent age, enabling digital and intelligent transformation and upgrading. Both localization and digitization are essential.

However, for large enterprises, replacement involves many issues that can have far-reaching implications. Many enterprises, especially large state-owned and centrally administered enterprises, have built complex systems and developed many achievements based on their original products, making it difficult to switch directly to new systems or pause existing operations.

To address this situation, Yongzhong offers three paths: the first is incremental replacement, such as adding a business travel expense control system where one did not exist before; the second is core replacement, starting with replacing the core financial ERP and then gradually replacing peripheral systems through interfaces to achieve a smooth transition; and the third is complete replacement if the enterprise is determined to do so.

In fact, Yongzhong's recent actions have been in preparation for fully supporting the digitization and intelligence of large enterprises. From developing Yongzhong BIP, a "heavyweight" software, to implementing organizational restructuring and increasing the proportion of cloud services for large enterprises, Yongzhong's strategic transformation is not only aimed at establishing a position in the domestic enterprise software field but also carries even greater significance in serving the information construction of large and very large enterprises.

Amid global challenges and international conflicts, the importance of data security and controllability is increasingly prominent. With the intentional or unintentional "retreat" of foreign companies, China's software industry has once again reached a new turning point. Relying on the vast domestic market and the wave of Chinese enterprises going global, China is poised to develop world-class enterprise software brands. Currently, Yongzhong appears to be the most capable vendor to shoulder this responsibility.

With the further contraction of international companies like SAP in China and the rapid development of the IT innovation industry, Yongzhong is expected to capture even more market share and compete head-on with international giants in the global market.

Note: The content and opinions in this article are for reference only and do not constitute investment advice. Investment involves risks, and decisions should be made cautiously.