In the midst of a tech cold war, Silicon Valley cloud giant Salesforce is officially entering the Chinese market.
On Wednesday, Salesforce and the Chinese e-commerce giant Alibaba announced a partnership that will allow Alibaba to sell Salesforce’s software to customers in China, Hong Kong, Macau, and Taiwan. Salesforce will run its software from Alibaba’s cloud, satisfying China’s strict rules around having data stored in the country.
Analysts say this brings strong opportunities for both companies.
While Alibaba is the biggest cloud provider in China, it doesn’t offer customer relationship management software. A team-up with Salesforce gives it that capability for the first time. As for Salesforce, it gives it a much stronger toehold in Asia — just 10% of its revenue came from the Asia Pacific market last quarter.
“Historically, Salesforce hadn’t had many options,” Liz Herbert, vice president and principal analyst at Forrester Research, told Business Insider. “Of course, China is a part of the world that represents a lot of spend. It’s a very attractive part of the world for many corporations and across many industries.”
Tech cold war with China
It can be difficult for companies to do business in China, where law requires that data be kept within the country’s own borders.
Therefore, it’s common practice for any company wishing to enter the Chinese market to find a local partner: Microsoft partners with Chinese provider 21Vianet Blue Cloud to provide Office 365 and other cloud products in the country, for example.
Indeed, analyst firm Gartner estimates that by 2021, 80% of businesses that sell products and services in China will need to work with local security firms to make sure that they’re in compliance with these regulations.
Olive Huang, vice president and analyst at Gartner, says Salesforce’s partnership with Alibaba is just another example of this kind of partnership.
“When this legislation, it gave Salesforce no choice,” Huang told Business Insider. “If they want to continue to serve their multinational clients, they have to buy a solution to have data local residency in China.”
This also helps multinational companies that use Salesforce across their workforce, and want to expand that use into China, Huang says.
Salesforce is also unlikely to be affected by any tariffs that the Trump administration places on trade with China. While Apple is at risk of being slapped with such tariffs because it sells hardware that’s manufactured by factories in China, Salesforce is selling software and nothing but.
Read more:Despite the tech Cold War with China, Wall Street says Salesforce is in a strong position and will see little impact
“They’re not making a phone. They’re not making a physical product,” Herbert said.
Daniel Elman, an analyst at Nucleus Research, says that one risk is some customers may be concerned about Salesforce’s involvement in China, given that the country’s government has been accused of human rights abuses and criticized for its censorship of the internet.
“With the trade war and everything, it’s kind of a sticky subject,” Elman said. “It may not go so great, especially with concerns about privacy and data management, especially given that Salesforce and their company line about how they care so much for trust and transparency.”
‘A global winner’
Still, Elman believes the benefits outweigh the risks, as it’s a massive opportunity for Salesforce to grow its business in China. And with Alibaba as the leading cloud company in China, this aligns with Salesforce’s strategy to expand globally.
“Its market in Asia is not big at all,” Elman told Business Insider. “This is an opportunity for them to grow it.”
Penny Gillespie, VP and analyst at Gartner, even says there’s a “big risk” in not doing business in China.
“Whoever has success in China is likely to be a global winner as well,” Gillespie told Business Insider. “It clearly aligns with Salesforce’s cloud strategy.”
Overall, analysts say that Salesforce’s partnership with Alibaba is also a sign of consolidation, as major tech companies bunker down with each other to form mutually beneficial alliances.
“This is a sign we’re starting to see a clustering of larger tech companies,” Herbert said. “You are starting to see the formulation of these tighter alliances. This is an example on the Salesforce side of that.”
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