China’s HR SaaS market grows by 40% with fierce competition

With the advent of digitalization, a large number of Chinese enterprises start the digital management of human resources, which means that more and more enterprises have the ability to buy digital services or products. The Chinese HR SaaS market is already on the eve of the outbreak.

Over 7.07 billion yuan market size, up to 40% growth, more than 200 financing events…

China’s HR SaaS companies are springing up like mushrooms after a spring rain, but driven by the capital market, the HR SaaS industry in China has spawned many problems. The competition between HR SaaS companies is fierce, and the products tend to be homogenized. The positioning of large and medium-sized enterprises and small and medium-sized enterprises is not clear, resulting in the confusion of HR SaaS product pricing.

So ahead of the coming battle, which are the advantages of single module HR SaaS companies versus all-in-one companies? Which delivery model, product or service, will make more money? How will the future trends evolve?

Growth rates exceeded 40%

China’s HR SaaS market is in a period of rapid growth.

According to a report from TF Securities, the HR SaaS market size in China reached 1.32 billion yuan in 2018. It is expected that the HR SaaS market size in China will continue to expand. If the growth rate in 2018 is maintained, the market size will reach 2.63 billion yuan in 2020.

In addition, data from iResearch shows that in 2019, the size of China’s HR SaaS market was 1.93 billion yuan, up 45.7% from the previous year. With the increasing cloud awareness of Chinese enterprises and the iterative optimization of human resource management software products, HR SaaS showed a significant upward trend in 2018 and 2019, with a growth rate of 43.7% and 45.7% respectively. China’s HR SaaS market is expected to reach 7.07 billion yuan in 2023.

What the whole HR SaaS market in China cannot ignore is that the investment chariots are also rolling in.

As early as 2015, China’s enterprise-level SaaS sector ushered in capital tuyeres, and the HR SaaS market also received high attention. According to incomplete statistics, since 2014, there have been more than 200 financing events in the human resources digital field in China, but the number of financing events has declined after reaching a peak in 2016.

Shi Mao, founder and partner of Conswall Capital, said that “the digital penetration rate of human resources in China is still good, but it may be lower than that in Europe and the United States, but it has been growing rapidly in recent years and is expected to enter a relatively mature stage in 2025.”

The essence of HR SaaS is the management of enterprise human resources, and human resources are actually the management of an employee’s life cycle. However, recruitment management in the field of HR SaaS penetration is the first, core human resources, salary, training and other modules are gradually accepted by more and more enterprises.

“The players that have come out in the last few years are all starting with recruitment, that is, using the Internet to help companies recommend the right talent, of course the form may not be SaaS model, but more of the Internet model. It can be said that at this stage, the rigidity embodied by the Internet is better than pure SaaS. When employees enter the enterprise, they will enter the HCM part. Traditional software players are also basically converged here, everyone’s product features are actually the same, some players will extend the product attributes. For example, Workday, in addition to human resources, also deals with finance, CRM modules.” Shi Mao said.

Currently, HR SaaS companies are divided into three categories. One is SaaS enterprises facing large enterprises in the form of comprehensive HCM; Second, the lightweight HR SaaS is the starting point, and the functions will also cover personnel management, attendance, OA and other functions. The third is the newly emerged track in recent years, with salary calculation, flexible employment, aggregate recruitment, intelligent scheduling as the start.

After several years of reputation accumulation, China’s HR SaaS major segments have emerged from the top HR SaaS companies, the competition pattern is becoming clearer, leading single module HR SaaS companies began to provide products and services covering the whole industrial chain to enhance competitiveness, and further consolidate their dominant position.

“In the next 3-5 years, the HR SaaS space will continue to consolidate, eventually forming 3-5 top companies, focusing on different segments of the track,” said Shi Mao.

Single module or all-in-one?

From the perspective of competition pattern, they are mainly divided into single module HR SaaS companies and all-in-one HR SaaS companies.

“At the end, all-in-one HR SaaS is the trend and more competitive.” Shi Mao said.

CEO of XinRenXinShi Chang Xinglong said, “In the field of HR SaaS, I think the composite module or all-in-one vendor has obvious competitive advantages in terms of comprehensive strength, cost performance and the underlying data connection, and has more potential for future development. ”

For example, if a company only goes live with the recruitment module, the data or scenarios that can be analyzed are relatively limited, for example, they can analyze data on the efficiency of the entire recruitment channel, how good the interviewers are, the strengths and weaknesses of the recruiters, but there is no way to continuously track and analyze the cohort of people who have joined, let alone re-profile these people.

“And by going live with an integrated system, companies can get data on all aspects of performance or business performance.” Chang Xinglong introduced, for example, XinRenXinShi integrates the knowledge accumulation of data, algorithms, systems, platforms and industry solutions, and the data exchange of the practical sections of human resources forms an intelligent integrated HR SaaS service platform to help enterprises’ informatization construction and drive the improvement of human efficiency.

KNX founder and CEO Jian Shen said that the question of whether HR SaaS is single-moduled or integrated can be viewed from two aspects.

One is the foreign market, mainly the US market, where the development trend is to specialize in one field of study. The second is the Chinese market, which in the foreseeable future, probably between five and eight years, is the trend towards all-in-one HR SaaS.

“Single module vendors, considering their future sustainable development, will definitely cross the border with a little strength and will not limit their business or products to one module, which has been proven repeatedly by the Chinese market.” Shen Jian points out that at least two or three HR SaaS vendors with a certain degree of market awareness have developed from the original single module to the direction of integration. There are also vendors that advertise externally as a vertical single module because their current products are not ready to be launched to the market, but that does not stop them from constantly experimenting and incubating new module products internally.

However, Bello’s founder & CEO Li Songyi holds a different view, with the view that “integration is definitely the best experience and the best solution to customer needs, but with the technical R&D and service capabilities of startups, it is difficult for any company to do a really good job of integration in the short term.”

Bello’s experts are also experts in the field of recruitment, and all of them are focused on making the recruitment field thorough – this is a long-term refinement path.

In the US, where SaaS is more mature, only platform-level all-in-one products like Slack and Workday are able to integrate many of the strongest and best modules and services in a single field with an open mind. This is the direction of the development of integration. In China, big platforms such as Dingtalk, WeChat Business and FeiShu are moving in this direction at a rapid pace.

“Our investor, Liming Huang, a partner at Hillhouse Capital, once shared an important point with me: each company should deepen its own value points, and through open cooperation, eventually provide a set of “turnkey” services to customers. This is a clear statement of the trend!” Li Songyi shared.

Chang Xinglong and Shen Jian, on the other hand, believe that this is a more difficult situation to achieve.

The former believes that it is very common to connect systems across domains, such as Slack and bambooHR docked to many peripheral systems, but with modules in the same domain distributed in different companies, it is difficult to achieve data decision making customer value through the connection, and the HR SaaS-enabled decision module requires a lot of deep data. Therefore, HR SaaS needs to be integrated.

It is feasible for the whole system of HR SaaS to interconnect to systems in other fields under certain conditions, but it is necessary that the objectives of the respective fields are clear, the required data items and access rights are clear, and the interfaces are better defined. For example, the “hyperlink” version was released in 2019, and is now connected to the financial system of the shareholder Kingdee, and to IM systems such as Dingtalk, WeChat Business and FeiShu, breaking the boundaries of HR.

However, as there are many data interchangeable between HR modules, further subdivision of modules to different vendors will make data connectivity problematic and fail to fulfill the mission of the system, and may even introduce data risks.

For example, if core data such as payroll can be read by any other vendor, this is a big risk and one that the provider has no way of controlling effectively. In the case of analyzing human performance, for example, there are data related to finance, employee costs, performance and so on. This type of data involves permissions and requires integrated design and presentation. There are rules and barriers to the division of data permissions between different departments within the same client company, not to mention the distribution to different vendors to deal with the situation.

“So far, whether in China or abroad, as far as I know, there is really no company in the market that can combine single module systems from different HR SaaS companies into a complete HR SaaS system to sell to customers. It works in theory, but in practice, there are all sorts of problems with permissions and unified layouts and so on.” Chang Xinglong believes that unless there are additional conditions to support it, such as the need for one party to be very strong or capital-based integration power to achieve it.

Shen Jian points out that the digitization of HR in China is still in its “youth”, and the maturity of the entire Chinese market, including the demand side of digital HR management, is still to be improved. There is no risk of leaving the enterprise procurement in the unknown.

At the same time for the current Chinese client base, no one is willing to undertake a multi-system, multi-module integration project on their own. In Shen Jian’s view, “HR digital transformation is about using digital technology, professional management, and value services to improve organizational and talent effectiveness. Compared to delivering, going live, operating and integrating projects themselves, A-side companies prefer integrated services and platform-based product portfolio forms that facilitate efficiency, effectiveness and risk management.”

On the question of single-module or all-in-one, Moka said that “each has its own strengths, but overall the advantages of all-in-one are clear.”

Companies using SaaS software from multiple vendors are prone to information silos. Information is scattered across systems and inconsistent in real time, leading to lagging and inaccurate data, resulting in poor decision making, management difficulties and increased costs. Therefore, it is important to integrate the internal and external resources of the enterprise, open up the data link between systems and achieve truly integrated management in order to effectively improve the ability of enterprise management.

Don’t treat PaaS as a “magic pill”

In fact, the delivery model of HR SaaS is mainly divided into product and service forms.

According to Shen Jian, the delivery model is linked to the specific modules that customers purchase. The underlying logic is that modules with process-driven features, such as the first-floor products in KNX’s product system, which are the core personnel management and recruitment management systems, have process-oriented features that make them similar to OA systems, so this aspect is dominated by product delivery and supplemented by service delivery, and this service is mainly a demand for industry differentiation.

“And there is another service-driven module in the digitization of HR. It is what we often call the third-floor talent development cloud and the fourth-floor organizational development cloud, the former is mainly to improve people effectiveness, the latter is to improve organizational effectiveness, these two areas because of their complex nature will be more integration of service form of delivery, based on the cloud model of data analysis services.” Shen Jian said that there are relatively few HR SaaS products offering these two areas in China, and their competitors are mainly foreign vendors.

Shi Mao pointed out that if customers target large enterprises, both products and services are indispensable, which is also the current national situation. If it is for SMEs, the degree of standardization will naturally be high and product delivery will be the main focus. Both forms will co-exist in the future.

“I quite agree with Wu Hao’s view mentioned in the “SaaS Startup Roadmap”: the first layer of SaaS is a tool attribute, while the second layer is business SaaS, which simply means that it can bring business value to customers beyond efficiency tools. Our product is also transforming from a pure tool SaaS to a business SaaS that ‘enables customers to find people quickly’.” Li Songyi talks about it.

So how will HR SaaS evolve? And what are the new opportunities in China?

According to Li, there will be more and more “deep-discovery products” in China, which can effectively meet the specific needs of customers in specific areas and attach great importance to user experience.

According to Shen Jian, firstly, the demand side is thinking more about the digital transformation strategy from the company as a whole, including all business or functional departments, rather than thinking about the digitization of a particular part separately, and this trend is now more obvious.

Secondly, more and more emphasis is being placed on the experience and participation of employees in the digitalization process, which is a shift in the top-down model.

Thirdly, the demand side and the supply side form a good circular boost. The demand side can push back its enterprise management optimization with the digitalization process, and at the same time, because of the maturity of the demand side, the supply side will also develop faster and faster, so that the gap between the Chinese HR SaaS market and the US market will be narrowed, and China is currently 10 to 15 years behind the US.

Finally, on the technology side, don’t treat PaaS as a “magic pill”. As the underlying structure of SaaS, PaaS is more of a building block for complex scenarios, providing a convenient solution for customers’ complex scenarios and shortening the delivery cycle. But Shen Jian believes that it is actually a bit idealistic to be used entirely by customers themselves.

“By establishing a multi-channel, business-wide integrated data system and building a multi-layer distributed, multi-cloud backup system with real-time AI data center, we can realize scenario carving and independent learning for business, organizations and personnel, and ultimately achieve intelligent data sharing, quick model analysis and accurate decision-making basis, allowing individuals to stimulate vitality and enhance value, enterprises to scientifically manage and enhance efficiency, and it is the trend for organizations to accumulate experience and improve efficiency, and it is also the direction that XinRenXinShi has been striving for.” Chang Xinglong said.

Shi Mao said, from the core essence, HR SaaS belongs to the category of management software, China has been a big manufacturing country, business owners are willing to pay for hardware forms that can be seen and touched, or products that are integrated with software and hardware; the management of this piece has been a rough operation, so as for the urgency of the demand for management software, China has been lagging behind countries such as Europe, America and Japan, which is a major challenge at present.

Secondly, the recognition of SaaS by Chinese enterprises still needs time, especially the acceptance of pure SaaS by large enterprises still needs time. In addition, the productisation capability of Chinese SaaS companies is still lacking compared to that of American companies, and this still needs to be improved by more senior talents.

As for the future development trend of HR SaaS, Moka believes that there are two main aspects, one is that HR SaaS will gradually develop towards integration and intelligence in the future. Secondly, the repetitive and transactional work will be replaced by intelligent tools and the HR work pattern will change.

With the development of intelligent technology and its gradual penetration into the HR field, the work content of HR will change. The transactional work will be gradually replaced by machines, and the work of HR will return to the human body and the connection between human beings. This also means that HR’s competencies will be built more towards empathy, communication, creative problem solving and business understanding, in order to provide a warm and better experience for the people they serve based on technology.

“With global economic growth slowing, the trend is for businesses to focus on reducing costs and increasing efficiencies. The sudden COVID-19 pandemic has had a catalytic effect locally, and companies with reduced revenues will focus more on labour costs, with refined payroll management becoming an immediate need. At the same time, platforms that can deeply focus on the integrated management of payroll, social security and personal tax are more the direction of HR SaaS evolution in the niche area and the immediate service needs of customers. ” Wang Tianyang, Chairman and CEO of eRoad, has said publicly.

For industry changes, Wang Xingshan, executive president of Inspur Group, once pointed out that in the post-COVID era, the digital transformation of enterprise HR will be more pragmatic and active. Taking growing enterprises as an example, facing the trend of HR servitization and digital transformation, as well as the increasingly expanding business scale internally, the existing HR management model can no longer meet the needs and urgently needs a professional HR digital platform and a more flexible and comprehensive integrated solution to realize their own digital transformation.

“In the next five years, the Chinese HR SaaS market will see a large number of mergers and acquisitions, with the market concentrating on the top companies, triggering a change in the industry landscape.” Shen Jian said.

It will be interesting to see who will win in the future for the Chinese HR SaaS companies.

Source: The First New Voice

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