Yunqi Report: Post-epidemic, what are some of the opportunities that would favor growth in China's corporate services sector

BEIJING,March 19,2020 -- Yunqi's investment team has written a report on corporate services which primarily discusses the short- and long-term impact of the epidemic on corporate services. It also addresses changing trends in the future landscape.

This report makes observations on and provides insights into different functional software including office collaboration,sales and marketing,human resources (HR),enterprise purchasing,intelligent finance and taxation,vertical SaaS,and discusses post-epidemic new investment opportunities in corporate servicesfor reference.

Since its founding in 2014,Yunqi Partners have been focused on medium-term investment centered on "technology-enabled industrial upgrading". It has been deeply committed to the corporate services sector,and has built an integrated up- and downstream ecosystem. It has also produced a series of industry-focused research.

The epidemic has accelerated the progress of digital transformation of traditional industries in general,and the corporate services sector is an obvious beneficiary. Although the sector has experienced rapid growth in user volume and attention flow,it is also confronted with rising operating cost and little short-term revenue growth.

In The Black Swan,Nassim Taleb mentioned that,"Under normal growth circumstances,new business models are often subject to factors such as user habits and consumer apathy,as well as inadequate infrastructure. The barriers to customer acquisition and business development are thus relatively high. When a crisis emerges however,ensuing new policies and the extreme environment that cause a change in consumer behavior may break these barriers,fostering breakthrough opportunities."

01

Large firms to create platform ecology; SaaS+ mobile office has become the mainstream

The epidemic has led to a sharp increase in remote office demand,and users have been busy exploring online office modes. DingTalk,WeChat Work and other major internet firms have offered free models in an attempt to seize market share as quickly as possible,consistently hoarding web portals to create platform ecology. SaaS+ mobile office has become the mainstream.

As offline meetings have been impeded,demand for video communication has risen sharply; tele- and video-conferencing have become the mainstream.

In addition to the number of major firms in the cloud video industry,many startups such as XYLink,SOMO and Agora,have shown great promise. We look forward to the debut of more cloud video startups.

Elsewhere,just like it takes 21 days to form a habit,the duration of the epidemic will also result in a shift in user behavior.Not only will enterprises become more receptive to SaaS tools,employees of these enterprises will also form new ways of working based on office collaboration. When the epidemic is over,enterprises will have a better awareness of efficiency,and will begin to consider using a IT system + management policy to increase enterprise efficiency.

Office collaboration platforms will also boost enterprise SaaS growth. Large firms will dominate web portals. Hence,small and medium-sized SaaS firms need to adjust their strategic approaches; commercial development must take into account large platform ecology,and strategies must be quickly formulated and tested.Outstanding enterprises will make plans to iterate internal organizational efficiency in advance,and prepare for a post-epidemic economic rebound or window of opportunity

From the perspective of a company's business nature,new economy companies will continue to form new ways of working based on office collaboration after the epidemic,and will bemore receptive of SaaS tools; these will be the best SaaS customer group. Group-oriented private enterprises will increase their demand for information construction,more of which will come from internal management. This is positive for key software firms. In contrast,changing the mode of operation of governments and State-owned enterprises (SOEs) will be harder. Nonetheless,demand for informatization such as emergency management,resource coordination,and data compilation will rise.

02

Offline customer acquisition impeded; To B enterprises will attempt to embrace MarTech

A wave of growth opportunities has also emerged for MarTech because of the epidemic. Unable to acquire customers offline,enterprises are forced to change their marketing approach. ToC has taken off,and ToB is currently in the warm-up phase.Online customer acquisition has soared for B2C enterprises. Elsewhere,the development of the live streaming + short video industries have increased the amount of time users spend online. The diversified media matrix has lowered the monopoly position of traffic giants. Meanwhile,private domain traffic operation and other new marketing technology is being consistently verified by businesses.

Traditionally,ToB enterprises primarily engage in marketing conferences and offline visits. Lacking the ability to convert online customer acquisition into sales,they have begun to seek online customer acquisition models. In particular,marketing techniques,dominated mainly by Inbound Marketingare very sophisticated in the US. The methodology has good reference significance.

Elsewhere,the change in sales models has also caused management models to change. For instance,many of Yunqi's invested companies,such as sobot.com,kujiale and Xtransfer,have embraced MarTech,and have established marketing management measures suitable for business development through an integrated online-offline model.

03

Three key elements to increasing efficiency and lowering cost: HR management systems + cloud recruitment + flexible staffing

During the current epidemic,there are three major opportunities in the corporate services HR sector: HR management systems,cloud recruitment and flexible staffing.

In the short term,HR systems can help enterprises adequately manage employees,particularly health management.At the same time,new recruitment models such as video interviews have become popular. Elsewhere,the epidemic is also testing the cash flow management ability of enterprises. Flexible staffing can help enterprises cut cost,such as Hema Fresh sharing Xibei's staff.

Over the longer term,continued improvements in enterprise efficiency and internal delicacy management requirements as well as import substitution trends will lead to rapid growth in demand for HR management systems. In terms of cloud recruitment,AI recruitment can increase recruitment efficiency,and is more appropriate for recruitment for entry-level positions. Driven by the flexible staffing trend,recruitment frequency has increased as well.

Elsewhere,the flexible staffing economy will further benefit from enterprise requirements to cut cost and increase efficiency,the standardization of work skills in some industries,efficient demand-supply matching and improvements in labor distribution capabilities,as well as the impact of the trend toward robots replacing humans.

04

Optimization of management of supply chain system,and exploring online platforms for enterprise procurement

The epidemic presents informationalization opportunities for procurement are primarily reflected in supply chain systems; efficient management ability is the key.At the same time,growth in e-commerce will also trigger the e-commercialization of enterprise procurement. Over the longer term,paperless reimbursements will also be a future development trend,with relatively big growth opportunities for coordinated procurement reimbursement and finance.

In terms of offline procurement,staff contact aside,the epidemic presents more room for optimization. Upstream,information delays exist in the supply chain. There is room for suppliers to further improve their ability for product and regional sub-divisional management,as well as for gathering and analyzing massive amounts of receipts. Downstream processes are more tedious with longer review periods. Centralized and coordinated management,as well as tracking of procurement progress should be further enhanced. At the same time,to better control cost,supervisory requirements for enterprise procurement has become all the more apparent.

In contrast,there are outstanding advantages in the e-commercialization of online procurement models. These not only break the constraints of time and space to include various factors in the procurement process such as price,quality and supplier reputation,it also facilitates remote communication operations; electronic versions of purchasing contracts and tender documents could be used,which will help reduce the impact of the epidemic and other emergencies. These can also reduce the risk of supply disruptions and procurement costs while increasing procurement efficiency.

During the epidemic,for instance,Yunqi's invested enterprise,Vipshop connected up- and downstream resources,and provided 30,000 N95 masks,goggles,protective suits and other supplies to help Suzhou's public security department in emergency epidemic prevention,exhibiting the supply chain organizational ability of online procurement.

05

Contactless taxation has become the mainstream,with e-commercialization of tax processing increasingly evident

During the epidemic,prevention and control measures accelerated the trend toward contactless tax processing. All local tax bureaus accelerated the optimization of their online systems to meet greater demand for "contactless" tax processing,which saved time and effort; efficiency improved further.

Meanwhile,in accordance with the VAT e-invoicing and individual income tax reform promoted by the State in 2019,the digitization ability of the tax bureaus is expected to be implemented swiftly. From the internal perspective of an enterprise,the requirement for coordinating finance and taxhas become a necessity. Large enterprises have already begun to put this in place internally. As more small and medium-sized firms become tax entities,the trend toward finance and tax coordination will gather pace.

Smarttax,Yunqi's early stage invested enterprise,is a SaaS service provider in the finance and tax sector. It is committed to providing solutions for the high cost of using intelligent tax control in business operations,and helping enterprises achieve management and control over the entire process of business,finance and tax. They too believe that these trends will further favor tax informatization firms and tax ecosystem service providers.

06

Whither vertical SaaS growth,post-epidemic?

The impact of this epidemic will vary from one vertical industry to the next. An analysis of some is as follows:

Construction industry

After the epidemic stabilizes or ends,the State is expected to boost the pace of construction significantly in the second half of the year to ensure GDP growth. Accordingly,the construction information industry will grow at a faster rate.

Retail,dining and consumption

Over the longer term,rigid demand industries will stabilize but will continue to aggressively accelerate e-commerce development. This will benefit e-commerce related firms in software and data as well as ecological services.

Elsewhere,we believe that domestic consumption will rebound dramatically after the epidemic because of pent-up demand. To cater to the sharp increase in market demand,industries and firms should prepare their capability in advance in areas such as online ordering and delivery service,efficient IT support at the physical store level,and back-end supply chain agility.

Government/SOEs

The epidemic has severely tested the prevention and control ability of China's government at all levels as well as enterprises. After finding and supplementing existing failures and loopholes,further requirements for IT system upgrading and iteration can be expected,which we believe will be mainly concentrated in the areas of emergency management,command and dispatch,security and control,as well as data gathering and analysis.

Health care

The health care industry,which takes on the epidemic head-on,is an all-round beneficiary. We have noticed that the relevant firms did not close for the Spring Festival during the epidemic,and have persevered in combating the virus. We have seen many successful cases in the areas of mobile medical platforms,online hospitals and regional health platforms.Elsewhere,the epidemic has accelerated the health care industry reform and adjustment momentum. Beneficiaries include prescription outflow (positive for pharmaceutical sales management and building of new era channels),tiered medical services (positive for community health management systems,monopathy and chronic disease management systems,among others). IT firms in the industry ecology will also gain further growth opportunities.

Education

In the short term,the epidemic has caused the education industry to switchcompletely from offline to online. Education live streaming SaaS,online school SaaS,online education platforms and home-school interconnected platform toolshave developed rapidly. Over the longer term,online education will leverage this opportunity to grow further,but offline education will still return to rationality. After all,from a scenario perspective,the online platform cannot resolve offline issues.

Manufacturing

China's manufacturing industry is characterized by its massive scale,heavy base and fragmented industry characteristics. The rigid demand driven manufacturing industry has started to pick up gradually,but the overall pace is slow,and the impetus differs fairly significantly from one sector to the next; more attention should be paid to macroeconomic control policies. During the epidemic,the manufacturing sector will experience large-scale replacement,and outdated production capacity will be eliminated. Over the longer term,developing cost-saving related efficiency tools for the manufacturing sector will be challenging,but income-generating tools will be favorable.

Chaos is a ladder,and opportunities are present in every crisis. SARS in 2003,became an exponential growth opportunity for Chinese e-commerce firms. The corporate services industry is at a critical juncture now,and we will continue to monitor how it will evolve in the future. If you have projects and views pertaining to corporate services,do contact us (bp@yunqi.vc). We will respond to you promptly.

About Yunqi Partners

Since its founding in 2014,Yunqi Partners has been focused on early and mid-stage investments in "technology-enabled industrial upgrading" entities. It invests in industries concerned with the internet,intelligent vehicles,robots,big data and cloud computing,corporate services,and Industrial Internet of Things (including B2B trading platforms. It has more than 80 outstanding start-ups in its investment portfolio including PingCAP,Kulejia,Keenon Robotics,IceKredit,ZILLIZ,Steel Searcher,Baibu,VIPMRO.com,sobot.com,360 Finance,AIDriving,and Neolix.

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