The Blog

  • December 5, 2019
  • Salesforce’s road to China

    It was bound to happen. Salesforce was going to China at some point and it announced that action this week saying that it was partnering with Alibaba. There are so many ways to read this, but I don’t have the filters not to compare the announcement with what Richard Pryor once said about cocaine: “It’s god’s way of telling you that you have too much money.” Only slightly modified, I’d say setting up in China is god’s way of telling you that you’ve been too successful.

    Where to start? There are two scenarios, god’s and a happier one. Let’s flesh them out.

    God’s scenario

    China is potentially the biggest market in the world (depending on what you’re selling) and although their more than 1.4 billion people are rapidly climbing the economic ladder, China is still a mercantile, manufacturing-for-export and agricultural economy. Forget China’s current challenges like a bulging population, energy, water and environmental needs for a moment. They have about four times the population of the US and more than double the US and EU together and China, especially when combined with Hong Kong, Macau, and Taiwan represents a pool of opportunity that most Western businesses have rarely experienced and that Salesforce needs to continue its growth.

    However, China’s well-known business practices of ripping off technology companies through technology transfer demands and joint partnerships makes this deal look less like an opportunity and much more like an organized theft of American tech expertise.

    (Gee, Denis, why don’t you tell us what you really think!)

    I shudder to think of Salesforce setting up a few datacenters around the country and I wonder what will become of the company’s Ohana, the Hawaiian word it uses for family that represents how Salesforce treats its employees and customers, in a totalitarian state where all memory of Tiananmen Square has been suppressed.

    The company’s record of changing minds about repressive activities has had mixed results. For instance, CEO Marc Benioff stood up for LGBT rights in Indiana when Mike Pence was governor moving some Salesforce activities out of state, but the company still maintains a major development office there. Last time I looked, Indiana still wasn’t officially a showcase for diversity and tolerance.

    So, it concerns me technologically, economically, and culturally that Salesforce would be putting its head in the proverbial dragon’s mouth.

    Is there a better plan?

    Times are changing. The trade war spun up in Washington that challenges Chinese practices like dumping steel and unfair partnership agreements and technology transfers has yet to show results. Some analysts suggest that China will simply wait out the current administration in Washington, accepting that it will lose a bit in the short term. But already we see China resetting by seeking alternatives for US soy beans, for instance. And its Belt and Road Initiative (BRI) spanning in 152 countries to develop trade routes touching 65 percent of the world’s population and 40 percent of its GDP (as of 2017) is something to seriously challenge anyone’s expansion plans.

    Trade wars are not simple, and they don’t resolve quickly contrary to the wisdom of the moment. Still it has taken Salesforce 20 years to get to this point and although another entity could recapitulate that march in less time, it would still require determined effort and resources.

    Perhaps the trade war and other issues bubbling up will have an effect on China and make the Salesforce mission to China less of a risk. But I’d prefer to see some deeds performed with other companies before investing my own in such a venture.

    What’s at stake

    The BRI refers to overland transportation (belt) and maritime shipping (road). FYI, in ancient times maritime shipping used what were described as “blue roads,” which were far simpler to make than the land versions. But there is another road not accounted for in BRI and maybe not thought about yet; certainly, it is not thought about enough. It’s the information road and the looming consolidation of IT into a global utility. It’s going on right now before our eyes and if anything can be considered a next Industrial Revolution it will be how we leverage the information utility in the global market.

    By placing itself in a relationship with China Salesforce is positioning itself as a player in the IT Road competition. Others like Oracle and Microsoft with contributions from IBM and others (including Alibaba) will form the backbone of the global IT utility.

    My two bits

    So, from a belt and road perspective, it’s better to be in the tent than outside of it but that doesn’t give China a free hand in IT. Although the country has high expectations for taking a leading position in the tech markets in the decade ahead, these markets bear only a superficial resemblance to China’s mercantile experience.

    Modern markets for information or anything else depend on transparency, rule of law, access to capital, and great transportation. China is making strides in some of these, but it will need to up its game to succeed. Salesforce is in many ways an ideal partner for helping China accomplish this but despite all the upside, what I see most is the down side and I wish Salesforce was staying home.

     

     

     

     

     

     

     

     

    Published: 2 months ago


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