Due to legal regulations, the Chinese market is difficult for foreign SaaS companies to enter. Foreign software companies that use a China-based server to serve the Chinese market do sometimes use a licensee model. However, what is meant here are companies setup a server just for the Chinese market, while serving the rest of the world is much easier.
According to Statista data, the number of software companies providing SAAS services worldwide in 2022 has approached thirty thousand. The USA ranks first with 17,000 companies. The UK and Canada follow with around two thousand companies. China ranks seventh on the list with more than seven hundred SaaS companies. In fact, many companies around the world provide remote cloud services by running software on a local server in China, with technical support teams at their headquarters. Many of these companies use servers located in China, managed by the technical team at their headquarters.
Although China makes it difficult for foreign companies to enter the local market with certain legal restrictions, it can be a critical solution center for the growing SaaS market worldwide. By obtaining PEO/EOR services, foreign companies can hire local engineers to provide technical support without setting up a company in China. In this way, they can work much more responsively and effectively with their own servers and staff.
The worldwide SaaS market is expected to continue to grow. Among the business lines in which software services on the cloud are used most frequently are e-commerce, web hosting, enterprise resource planning (ERP), and customer relationship management (CRM).
Nearly one million new Chinese businesses have started using cloud computing services in the last two years. The primary drivers of SaaS adoption are structural trends and increased business acceptance of cloud services. The second reason is that the Chinese government has regulations encouraging the SaaS model despite initial challenges to getting setup as a foreign-owned company.
In China, local data privacy and security regulations apply to data hosted on local cloud servers for SaaS solutions. If you still choose to operate through a license model without setting up a company to hire staff within China, then working with a local PEO/EOR firm provides solutions for technical support processes is one common option.
The fastest solution for foreign software companies is probably employer of record (EOR). EOR is a system that allows you to hire the technical personnel your company needs in China without a legal entity. You could hire international remote SaaS technicians without worrying about labor laws and payroll across borders. Foreign companies can both use a local server through a licensing model and employ the necessary technical team by getting EOR service in China.
The PEO solution for foreign software companies ensures that all HR tasks (payroll, benefits, employment risks, etc.) required by foreign companies in China are met by a service company based in China. With the PEO service, employment risks, HR, and payroll work are relieved from the liability of the foreign company.
Although there are challenges in many aspects, such as whether you or your partner need a specific Internet Content Provider license, IP, and security, providing software services through a license/partnership model + PEO is also advantageous in terms of opportunities in the growing Chinese market.