IBM and Lehman Brothers plan to take a minority stake in Kingdee, one of China's leading business software companies.
The two companies will invest HK$132m for a 7.7% stake in Kingdee, which specialises in enterprise resource planning (ERP) software.
Last October, IBM and Lehman decided to jointly invest in China through an alliance branded the China Investment Fund — see this EngagingChina story for more.
Wisely, their fund is not looking to compete with the growing number of western VC firms scouring China for suitable start-ups to invest in. Instead, it is focussing on mid-stage technology-based businesses such as Kingdee, which “have the potential to become global corporations”.
As part of the deal, IBM will help Kingdee re-engineer its products to be better suited for the global market using a services-oriented architecture. SOAs are all the range in the western IT industry as they make it much easier to link disparate IT systems together.
IBM and Kingdee will also cooperate in areas such as sales channels, starting with China domestic market but with the intention to expand globally.
Perhaps the most interesting part of the deal is that IBM will provide consulting services to customers using Kingdee's ERP products. While the revenues that these consulting gigs generate for Big Blue are likely to to be small, it nevertheless is big vote of confidence in Kingdee's technology.
Kingdee is rated as one of the top software companies in China by consultancy IDC and it is particularly strong in the small and medium-sized enterprise market.
Kingdee likes to think it could grow to be a big rival to established ERP vendors like SAP and Oracle, which have yet to make any much of a move into the Chinese market.
The Chinese company takes comfort from the comments of SAP's co-founder Hasso Plattner who has said SAP's nearest competitor in China was Kingdee and that it could, in the long run, grow to be a more serious threat to the German giant than current rival Oracle.
However, Kingdee is today a very small player in global terms and its revenues last year were just 611m yuan, 16% higher than the previous year. That's a healthy but hardly explosive growth rate, so it will be some time before SAP or Oracle has to worry about Kingdee.
Nevertheless, IBM clearly thinks that the company has great potential to expand globally, so perhaps its not so fanciful to predict that the name Kingdee could one day be as well known — and even feared — in the western IT industry as China's other tech giants Lenovo and Huawei.