Introduction

The beginning of a new year – 2003.

CRM has been launched and developing in Mainland China for several years now. There are voices who are saying that 2003 is the year that market will finally mature, a good year for vendors to harvest, and enterprises to reap the fruits of implementing CRM in their organizations. I, however, have a quite different opinion, which may disappoint those who are currently feeling very positive about 2003, especially the CRM vendors.

However, I have to clarify here that I am very positive about CRM's prospects in China in the middle-to-long term. To give you some evidence for this, according to CCID (China Center for Information Industry Development, http://www.ccidnet.com), the CRM software market was worth RMB 60,000,000 (around USD 7.2 million) in 2000, RMB 90,000,000 (around USD 10.9 million) in 2001, and projected to be worth RMB 305,000,000 (around USD 37 million) in 2004. IDC China also gave figures of USD7.5 million in 2001 and USD19.8 million in 2002, According to MetaGroup, the CRM software market in the world was estimated to be worth USD20 billion in 2001.

There may be some discrepancies amongst these data sources, and not an apple-to-apple comparison since they do come from different sources. But, for our current purpose, only a rough comparison is needed. Say that in 2001, Chinese CRM software amounted to even less than 0.05 percent of the total world spending. Taking into account the fast growth of the Chinese economy, this figure is really way too low. I would not be surprised if the Chinese CRM market (say, only software, for easy comparison) should grow at a tremendous rate. Even to occupy a 1 percent share of the world market would signal a 20 fold increase, but I also do not think China should have only a 1 percent share. See, I am very positive, for the middle-to-long term. And my positive thinking is not limited to software, but also covers the overall CRM implementation and its effectiveness. I will have more to say on this in the coming paragraphs

However, I am not so optimistic when predicting the position Chinese CRM will find itself in 2003. As the founder of GreaterChinaCRM, an organization that focuses on CRM in Mainland China, and as the panel guru of CRMGuru.com, I have the chance to exchange opinions and interact with the world CRM elite on the global status and trends of CRM, so my perceptions are not limited to what is happening within China, but also take in how the world will impact on China 's CRM development.

You may not completely agree with me and may feel upset (especially if you are a vendor). But this is what I genuinely believe will happen in 2003. Let's start.

Prediction 1: There Will Still be a Very High Failure Rate

Above all else, what is CRM? In my opinion, CRM is a business strategy to acquire, retain and maximize a customer's profit worth. People, process and technology are the means to achieving these ends.

What is CRM in China? In the West, the CRM implementation failure rate is as high as 70 percent. Will China be better off in 2003? I don't think so. There are some major reasons behind the high failure rate of CRM. The number 1 killer in China is the notion that "CRM = software."

The market has been educated by software vendors to think that CRM software can cure their enterprises' problems and so the vendors have promised to the enterprises more than CRM software could possibly deliver. And, of course, it is much easier to buy some software and expect the problem to be thus solved. Both vendors and enterprises will seemingly be happy. But this will not and indeed does not work. The hype has started to wear thin in the West, and it has been realized that to understand software or technology is only a small part of the whole CRM implementation process. In China, vendors are still the dominant force in educating the market about CRM and how to implement it. To get a quick result for both vendors and enterprises, they are rushing to make the same mistakes again. There are quite a lot of "me too" enterprises, who, when they see any competitors who have implemented CRM and claimed it to be success (whether this is true or not), they then follow to buy one for themselves, ignoring their real needs and the question of whether their internal organization is really ready.

The following killer is associated with the number 1 killer, i.e. the steps in the CRM implementation sequence.

What is the proper sequence for implementing CRM? -- Determining CRM "Strategies" and goals, then providing the "People" with proper training/coaching in the right mentality and set of skills. After that, design the internal and external processes around the "Strategy" and "People." And finally we come to the easiest part (in comparison to the previous three in the sequence) -- the technology. Choose your software/platform/technology based around "Strategy," "People," and "Process."

In practice what is the actual implementation sequence? Just reverse the first two steps in the sequence, i.e., before anything buy the software, choose the platform, then start to design the "Process" around the software. Train the "People" to familiarize them with the interface and using the software, and finally, speculate on the reasons behind the implementation of CRM and determine strategy. Isn't it obvious that this sequential order is wrong?

But it consistently occurs in most real life situations in China.

Prediction 2: CRM Will Become The CEO's Project Rather Than The IT Department's Affair

In 2001 and the first half of 2002, it has been the IT managers who have come to me the most and have asked how to implement CRM in their organization, since they are the ones in-charge of the project. Some of them are from the China office of a multi-national corporation, and they implement CRM just because their headquarters in the West want to extend the implementation of CRM to China. The local IT managers do not know the reasons why but instead just follow orders and treat it as an IT project. It is thus doomed to be a failure from the beginning.

Luckily, this trend is changing. As CRM projects involve a large amount of money (easily hundreds-of-thousands, even millions), the impact is felt throughout the business no matter whether this is to do with people, process, or organizational structure, and the most important point is -- to acquire and retain profitable customers has become the number 1 task nowadays for all enterprises. CEOs now pay more attention to it. It is only when CEOs take the lead, that there is a change towards having a "customer-centered" instead of a "product-centered" or "software-centered" CRM implementation. But still, one of the headaches for CEOs is how to measure the effectiveness and the returns of CRM implementation. There is no benchmark for measurement if nothing was done to evaluate the situation correctly before the implementation, for then how you could tell whether or not the implementation has been a success or a failure?

Prediction 3: ASP Will Become Popular

ASP will be a popular model to serve CRM applications in China in 2003.

Now you will see almost nothing about that in the market. And a lot of people will be against me on this standpoint. They will argue about the poor bandwidth, security concerns, the Chinese culture to own rather then to "rent," etc. China is seemingly not ready, or even will not accept this model at all.

Take a look at the chart below. Based on CNNIC, up to mid Jun 2002, China has 45.8 million Internet users, and if the current growth rate stays the same, it will hit 100 million by the end of 2003. 14.6 million out of 45.8 are using leased lines, broadband and ISDN to access the Internet, almost one third (32 percent) of the total pie, and this portion is still increasing. With both the quantity of total Internet users and broadband and leased line users increasing at such a fast pace, and the increasing availability of cheaper and more stable broadband Internet services, bandwidth should soon not be a big problem at all.

In the current world stagnant economy, prices and flexibility are weighted more heavily than security concerns. Salesforce.com is one of the very few CRM vendors who report significant growth in sales and profits, and what they offer is a CRM solution in the ASP model. Some even think they will steal some customers from Siebel. Now, IBM is also offering the ASP via their recent On Demand Applications, with Onyx as the OEM supplier.

For an IT Manager, it would be less risky for him to test run some simple CRM applications on the ASP model, as there are much less costs incurred, and also, no fixed capital investment, and no need to feed extra IT people in the organization. For management, they could make the decision to adopt CRM with less concern about a drain on corporate resources, the prospect of a shorter implementation time, and an easy good ROI since the costs are so low when compared with a full CRM implementation. Also, it may be a testing the water approach to try an ASP 1st, and so see whether or not CRM is fit to be fully implemented within the organization.

Of course, it can't serve those who demand a CRM suite, or need complicated integration, and a huge database and have strong concerns about security. But lets be frank, they are only a minority when compared with the whole of China. There is no need for sophisticated functions in China. Simple, convenient, economical, are the attributes adequate for occupying the market. ASP is not only for SMEs, but also for enterprises that have a lot of different locations but need to communicate and also have a central database. Salesforce.com will land in China in 2003, and there exists a golden opportunity for any Chinese "saleforce.com" to rise up in 2003.

Finally, we come to the Chinese culture. As a Chinese person, sometimes I will rent a thing but not buy it. How about you?

Prediction 4: There Will Be a Poor Profit (Still) for CRM Software Vendors

Don't get me wrong, I do foresee that the total piece of the pie (revenue) in 2003 will be much bigger (may be several times bigger, or more) than in 2002. I am talking about profits.

Due to the inadequate knowledge enterprises have about real CRM, incomplete customer data, the stagnant economy situation, and a lack of strategy, process, and people, we can't expect in China any big growth in 2003, or even in 2004.

Ufsoft is launching its "Golden Seeds" campaign, Kingdee is enhancing its CRM offerings, Microsoft has launched her CRM solutions, Onyx landed via North 22, SalesLogox is becoming more aggressive in marketing, PeopleSoft now has an official presence in China, MyCRM continues the SFA market in SMEs, TurboCRM, AKuP and Powerise continue to strengthen their vertical markets, and Salesforce.com is entering the Chinese market. The market size will be much bigger than in 2002, but there will be more active players both locally and from overseas, who will compete in the Chinese CRM market. Looking at the revenues of some the largest players, say TurboCRM, SalesLogix, MyCRM, Powerise, SAP, Kingdee, the estimated sales figures for 2002 range from 3-4 million RMB to 10 million RMB, so you could imagine the margins they could get after deducting direct costs and overheads.

Vendors need to build a case, and all focus on limited industries. They finish by lowering their price (well, it may also be due to the response of customers who overwhelmingly rely on price as the determining factor), finally get little or no profit, but hope that the CRM software market will turn around in a year. Well, again it will shake out some players. Those ERP guys will have better financial support, like Kingdee and Ufsoft. But still, they will not get good revenues. Their advantage is they could still hang around until the "harvest," e.g. 2005 and after. In my opinion, for those who can survive and keep burning until 2004, they then could reap a very handsome harvest from 2005 onward.

This may be pretty discouraging to most of the vendors, but I believe it will be a likely outcome in 2003.

Prediction 5: There Will be Better ROI for SMEs than for Enterprises

A lot of people think that enterprises possess much greater resources with which to consume a CRM suite and thus make them have a much better chance to reap the fruits of CRM implementation than have the SMEs.

Recently, I have carried out a series of case studies on CRM implementations in Mainland China. Though we cannot treat it as serious statistical information, it indicates that the ROI of large enterprises is far behind the SME's. And I think that this will become a common phenomenon in 2003. Why?

There is much less investment involved for SMEs, in terms of a financial budget, manpower involvement, and implementation time. With the availability of more SME products, like salesforce.com, MyCRM, Saleslogix, Microsoft CRM, and more to come, more and more SMEs can afford and are interested in investing in CRM. Microsoft especially will change the mindset of the SMEs that CRM is expensive and complicated.

SMEs also have less resistance to change. Based on my experiences in China, whether they are a local or foreign enterprise, if they are a scaled one, they will have a strong resistance to change. As CRM demands a lot of changes in an organization, for SMEs, they can fix their strategy faster and implement with less resistance, though they may do this with smaller resources. There is also more of a chance for the top guy to dedicate his time to CRM implementation. It is also much easier to change people's mind-set and set of skills since it involves less of a hierarchy and number of people, and so changing the business process can also be done in a much simpler way, with less resistance.

One of the necessities of CRM implementation is the integrity of customer data. For a small company, it may take a while to get this right and ready to be put into a database. For a giant enterprise, like the banks, it takes months or years to ready the data for use.

China has some 20 million enterprises, more than 90 percent of them are SMEs. They do not need a full CRM suite to serve them. A simple, affordable and fast ROI solution will serve them well and keep them satisfied.

Faster implementation, less fixed expenses. The take-off of the CRM industry in China may finally be driven by the SMEs. The key point is -- who is going to educate those SMEs and sell proper products to them? The market is there, untapped, fresh and profitable.

Prediction 6: There Will Be a Market Vacuum for Third Party Consulting/SI/Implementation Services

Now there is a big vacuum in third party consulting/SI/implementation in China. Vendors tend to provide a one-stop solution to their clients, i.e. providing pre-implementation consulting, software selling, implementation, even SI jobs. There are no real neutral parties to provide consulting services for the pre-implementation phase on strategies, people, and processes. Even Big 4 (or big 5) carry vendors behind them, so how could they be neutral? And, they are also only interested in the giant deal. Who then will serve the untapped middle market there?

The question is -- China does not always emphasize this, which you can tell from her ERP history, the fact that no pre-implementation consulting monies are spent. Money is spent on the implementation only. Though the market is not big, there should still be a growing demand for it, especially if there were any success cases which could demonstrate the significant ROI associated with those services provided by third parties.

Due to specialization, and more and more foreign vendors entering into the Chinese market, the demand and the money will be there. I still believe in "focus." Only those who focus can survive. Local vendors should concentrate on enhancing and branding their own software, not diverting their focus too much towards selling and implementation. Those foreign vendors will demand partners in SI, consulting, and implementation. As they become more established in the market, customers will feel the advantages of being served by those third party companies, because of the fact that they are both more professional and neutral. However, I can see that a few vendors are moving towards this specialization, like AKuP, which is moving towards distributing the selling and implementation functions to outside partners.

When Legend is also carrying CRM software, could you really expect Han Consulting to perform its role as a neutral entity?

Prediction 7: mCRM Will Arrive on the Scene

China has around 200 million mobile phone users, making it number 1 in the world. It is the same number as the amount of fixed line subscribers now. A mobile phone is much more personal than a computer. Forget the WAP, let's talk about SMS. SMS -- text only. It is personalized, fast, economical, and more instantaneous than any other devices or vehicles. It is projected that 60 billion SMSs will be sent by Chinese mobile phone users, which is one-sixth of the total 360 billion SMSs in the world, and this figure is still increasing. In China, it is a popular kind of communications mode between the younger generation, and it is getting close to the level of the voice phone revenue of mobile phone operators for certain customer segments. Needless to say, it is the most profitable source of value-added income for the operators.

Permission is the key to success. Again, the tools are right there, the problem is that very few people have the right mind-set to use this tool as a CRM tool. But if you use it rightly, it could be a significant tool for CRM. Though being limited by the small quantity of the message, it could still link to comprehensive interaction online, data collection and location-based promotions.

In addition, someone has said that no one is closer to your customer than field sales/service people. The rationale is that when people visit your store or center, you can see the customers yourself. But when you visit your customers, or carry some field service at their working or living place, then the field service/sales personnel's behavior is the key to demonstrating your real CRM commitment. Besides the "soft" side of their service, whether it is customer-centered" or not, when it comes to the "hard" part, wireless devices would definitely give your customers a good impression. Of course, it comes down to a technical issue, like the service provider's availability and pricing levels, the price of the device, etc.

3G is too far away. 2.5G is already here. However, there is a potential killer for this application: SMS spam, and the development of privacy. Permission is the key to success. Again, the tools are right there, the problem being that there are very few people who have the right mind-set to use this tool as a CRM tool. But if you use it rightly, it could be a significant tool for CRM.

Most local vendors still ignore this aspect, while foreign vendors are very much concerned with it already. Oracle, Siebel, SalesLogix, and quite a number of foreign vendors have more developed offerings. mCRM will start to play an important role in CRM in China from 2003!

Prediction 8: That Focus and Specialization Will be the Way out for Local Vendors

I believe that one day there will be a "Chinese Siebel." But definitely not in 2003.

Globalization makes everyone become specialized and very competitive in order to survive and compete with other competitors from all-over-the-world. The Chinese CRM industry is no exception. Many vendors are doing several things at the one time, such as CRM, ERP, call centers, SI, etc, and hope that one or more of these will work out. They call this diversification of risk. In my view, this is one of the most risky business models.

If you are good at SFA, then try to do the best SFA. But most local vendors are greedy, and when they have SFA functions, even before they have any success in the market, they then rush into services, marketing, CTI, etc. Now most local CRM vendors do the whole implementation by themselves. It can be understood, as CRM implementation is pretty new in China, that they may also do sales, SI, and implementation work. It is an entirely different situation to that in the West. What are the advantages of specialization? You can concentrate on software development and enhancement, by giving the job of sales and SI / implementation work to other parties. It could reduce your headcount significantly too. Of course, they need to find good and capable SI and implementation partners, and need to have profit margins large enough to allow this. But this is the long term and healthiest way out for local CRM vendors. And I believe it is the final business model in the Chinese CRM software industry.

TurboCRM may be good for its strong consulting team. But, which business are they in? CRM software or consultation? What then is the customer perception when Legend is offering hardware, CRM software, and application services, and consulting? So what exactly is the position of Legend? A one-stop solution for their customers? A customer's attention towards a business' projected self-image is pretty limited. Too large a message will not be completely taken onboard. When they label you as "X," then, in their mind, you cannot be "Y." Branding and marketing are two key weaknesses of the Chinese enterprises, and local CRM vendors are no exception.

To survive, to grow, and to reap the tremendous fruits of CRM in China, are the goals of every vendor. But before that, they have got to become more focused and specialized. And, they will.

Prediction 9: There Will be Disappointment with Vertical (Industry) Applications

Don't get me wrong, I do believe that some vertical cases will work out quite well. But in general, whether or not we talk about satisfaction, this relates very much to expectations.

Many local vendors focus on industry (vertical) solutions, since those industries (e.g. IT Manufacturing, Banking & Finance, Insurance, Services, Pharmaceuticals, Real Estate) are the guys who can afford it and are willing to pay. Well, there is technically nothing wrong with this strategy. But too many vendors are focusing on a limited number of industries, heating up the competition so severely that prices will drop significantly, and some vendors are willing to get the deal below costs to have a presence in that field.

With exaggerations being made by the vendors and with case references about how successful they are and most of the enterprises in those industries having a "me too" mentality, we have been seeing a lot of deals closed recently in certain industries. The WTO and the severe internal competition pressures are forcing those enterprises to change faster and more drastically.

But still the advice is, do not jump into purchasing CRM software in a rush, before your company is ready. It is very difficult to not become a follower, especially when some competitors in the industry have already implemented CRM and have told everyone that this was very successful. However, you should not be so naive. Some of these stories are not telling you the real truth. And even if they were true, is your organization ready to enjoy the fruits of a successful CRM implementation? But it is much easier to tell than to do. Still, most industry players in those vertical industries will rush to use CRM and be disappointed. I am not telling you not to implement CRM. But why not make your company ready first, i.e. strategy, process, people. It will take much time and effort for you to achieve this. Then you may consider software later on.

However, things are now happening this way and I foresee that they will still continue thus in 2003.

Prediction 10: That CRM Will Spread out to the Masses

Enterprises are being educated more and more about CRM. You know, enterprises are composed of human beings. They are being told that CRM is now very important to acquire, retain and maximize the profitability of customers. The importance of "customers" to every enterprise is a clear message. Not only CEOs will understand, but every employee will also get it. And the staff members of a company are the consumers of a wide range of goods and services in the society.

Chinese eat McDonald's, drink Coca-Cola, wear Levi's jeans, and watch Hollywood movies. All customers now have a broader range of choices in today's economy. Globalization is not only happening at the supply side, but also the demand side as well. Chinese customers demand a service standard similar to that of their Western counterparts.

With the backing of Microsoft and other sources resulting in the launch of more SME applications, and more neutral education on CRM, consumers will know what to ask for and will be pushing the enterprises for more. There are a lot of enterprises that are spending money but not doing the real CRM. However, if you are a smart enterprise, even if you don't spend millions on technology, you will still get significant ROI if you really implement a customer-centered strategy. The reason is simple. The Chinese market is so big that consumer spending power is correspondingly huge. However, it seems there is not much in the way of choice left when they consume. If, suddenly, one enterprise stands out significantly from its own industry, provides good customer care, good CRM, makes customers feel extraordinarily well treated, customer money will be the best vote in demonstrating the ROI. In fact, I don't believe that this is such a difficult thing to achieve for most of the non-state owned enterprises. It takes both guts and wisdom, and a faster pace to implement the real customer-centered strategy.