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.