Taming the Dragon: How India’s Capillary Technologies is winning over the once impenetrable Chinese market

It’s almost serendipitous that my meeting with Amit Haralalka, General Manager, China, at Capillary Technologies, should be at the Radisson Hotel Shanghai New World. Like me, you may be wondering why the global hospitality chain has appended the ‘New World’ tag to its name in Shanghai. I remember staying at the Radisson Blu in New York a few months ago, and there was no ‘New World’ being hailed there. So, why here?

And I realize what the “new world” could mean when I meet Amit, who in every sense is a man from the new world. Amit, a Chinese-speaking Indian who stays in Shanghai, and I start our conversation over fragrant cups of steaming Jasmine green tea at the hotel’s charming tea room. I am intrigued, curious and, dare I say, a little proud that here is this new world, a young man from India, has successfully established and is spearheading Capillary’s business in China. His office is just a few kilometers from the hotel where we sit down to talk. 

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Amit Haralalka, building Capillary Tech in China

Amit strikes me as having achieved the right balance between being a dreamer and a doer. His love for China far predates his entrepreneurial endeavors. Growing up in Kolkatta, he was fascinated by Tangra, the city’s otherworldly Chinatown, and he started learning Mandarin long before he landed in China to helm Capillary Technologies. Connecting all the dots, his China journey seems like an act of serendipity, or as Amit puts it in Chinese - (缘分 "yuanfen"), a fateful coincidence. 

Capillary Technologies is an Indian-grown company that is now a leading Asian SaaS company with a proven track record in successful CRM solutions in retail industries the world over. Today, over 300 customers across 30+ countries and 25,000 stores are on the platform including Pizza Hut, VF Brands, Walmart, Al-Futtaim, KFC, Starbucks, Madura Garments, Courts and Samsung. They are also present in 11 geographical locations around the world. 

However, what intrigues me is the success they have found in China, which is universally acknowledged as a difficult market to crack for non-Chinese players.

One of the first things to do while entering China is to set up a ‘WFOE’ (Wholly Foreign-Owned Enterprise). “Capillary China is a wholly owned subsidiary of Capillary Singapore. So, the first things we did were getting the WFOE registered, processing my work permit and giving salaries to our first local employee in 2015. Today, we are a team of 45 – 50 people, and a few positions are still open. Only three of us are Indians; everyone else is Chinese. We were very clear we wanted to build a ‘Chinese’ company in China.” 

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Rebecca Jiang, a young and happy Capillary team member in Shanghai

The Silk Road is not always a smooth one

Reflecting on how the journey started, Amit tells me that landing in China and building a business was like entering a tunnel without a torch. I find it an apt analogy. After all, language is an insurmountable hurdle for most foreigners entering China. When Amit landed in Shanghai in August 2015, his team at the time included a couple of key folks – a Singaporean colleague and an Indian colleague. They worked out of a non-descript co-working space. As an aside, Amit says that for anyone considering setting up a business in China, it is important to hire a “bridge.” Typically, this could be a Singaporean or anyone else who is a native English AND a native Chinese speaker. (Point to consider)

"Although I had studied Mandarin in 2013, I never practiced it back in India or the US. It is not an easy language. And given that even the “Tech ecosystem” is different, this had a compounding effect. We were fortunate to have an early believer in us – a global retail giant that wanted to use our products in China. However, they were clear that if we wanted to serve them in China, we had to physically be in China. “The CXO told me we couldn’t survive for long in China unless we were “fully local” with completely localized teams," says Amit.

That was not easy to build overnight, as Amit had just landed in China. It was a bit of a jolt as Amit had already convinced his wife to quit her job because of their impending move. “But the CXO was right. We had no China presence, we had no story, none of us spoke Chinese, and I had suddenly turned up from the West (Amit was managing the US and Europe operations at that time). It’s no wonder they were like, ‘Are you kidding me? This is China, bro!’”

He remembers telling his wife, “Let’s not sell our car in India just yet, and let’s stock our Bose entertainment system at our relative’s place for the time being.”

Building a business brick by brick in China

The first step towards building the business was to understand China’s digital ecosystem. Amit says that he attended every possible “China digital” event in Shanghai that he could think of, and connected with everyone who could even partially speak English. “During those first one or two months, I shamelessly asked for help. I would constantly tell people that no one knew me/us in China, and since I didn’t know anyone either, any help would be useful. At these events, I would take a lot of notes to understand what was going on. To validate my understanding, I would often bounce my learnings to our first “believer” in China, the first customer who wanted to work with us. Their office was less than a kilometer from ours. I would go there almost every day for three-four months trying to validate my understanding, and to make them feel we “know” China.”

While seeking advice before moving to China, Amit often heard that the Chinese were not open to doing business with foreigners. Amit would soon come to realise that this was a misconception. He believes that a common mistake people made was to treat the Chinese, Korean, and Japanese markets as one bloc, while they were drastically different. While Japan and Korea are slightly closed cultures, China is a closed economy, and people think that the people are also culturally closed. “I think it’s important to distinguish the two things: just because the economy is closed does not mean that the people are closed to doing business with foreigners.”

“If people see the value, they are open. I honestly don’t think we would have been here if it weren’t for a couple of folk who were our first believers. They are still a source of support, are great friends, and I still bounce ideas off them. Tomorrow, if we had a meeting with Alibaba, despite having clued in product managers, I would still go to them to hear them out.” 

Localize, Localize, Localize

China talks business on WeChat.

“In China, the touchpoints for brands with customers are not through emails, phone or SMS, but through the home- grown WeChat messenger by Tencent. That was the first thing we needed to figure out. This was probably the most critical part of our “setup phase”. Our first impulse was that we needed to hire more and build a local tech team. However, our Co-founder and CEO, Aneesh Reddy advised that throwing people at a problem was never the best way to solve it. Rather, we needed to figure out how it works ourselves.”

So, we ventured out to find local Chinese “WeChat platforms” we could partner with. Conversations with one of them worked out, and we got Lalit Sharma from the product management team, and Suganya T. S. from our engineering team to come down to Shanghai to understand the market. Together with strong support from Ryan Cai, one of our earliest employees in China, who is still with us, we set about building our first WeChat integration. Once we had a basic product ready, we bounced the idea off our first customers for validation. They approved of it, and decided to deploy our WeChat CRM. This validation from our Chinese customers felt awesome. We were on our way to establishing product-market fit!”

Capillary eventually built their WeChat CRM product for China. The next order of business was localizing their existing product. “That had two components – language and functionality. The Chinese digital users tend to be more self-sufficient and require less service support. Marketing managers here are very hands-on with products, and tend to be adept with technology too.”

Amit says he has learned a lot from Aneesh’s way of doing business. “He would stress the importance of working in lean teams to solve complex problems, and that is what helped us figure out WeChat in China. But what I also learned was his style of managing people. Without really getting prescriptive about the details, he would inspire them to get work done, and that’s what worked for me in China.”

Meanwhile, Amit needed to up his language game, since that was key to connecting more closely with customers. “At that time in 2016 (still our early days in China), my Chinese language was at Level 2 of the official Chinese Mandarin certification by the People’s Republic of China (PRC). I'm currently preparing for Level 4 (Level 6 being the highest and native-level), and can read and write basic Chinese characters as well, in addition to having fluent conversations on most common matters.”

Adapt with change

Amit's objective was to get their first five customers by Year 2. “Once the product was built, and we had our first couple of customers in an annual retaining subscription, we set about achieving that target of growing our footprint, and we did it within a year.”

This was around the time when TMALL, which is owned by Alibaba, started opening up their platform and consumer data to brands. Before this, the Chinese giant operated like Flipkart and Snapdeal, which meant that customers dealt only with them, from purchase to payments. 

The big change that TMALL unleashed a year ago was that they opened up APIs to brands allowing them to communicate directly with customers to build trust. Suddenly, WeChat wasn’t the only engagement channel for retailers. There was also Alibaba’s TMALL.

“We thought that with our mastering of the WeChat CRM, we were ahead of the game. This changed everything, and with our business starting to grow in a constantly changing market, speed to market on the tech front was becoming important. It is then (early 2017) that we decided to invest in a local tech team as the opening up of TMALL opened the avenue for an additional and predictable revenue stream.”

Location is everything

“We chose Shanghai as our first base in China as this is where our first customer was based,” Amit tells me. Some research about the industry also revealed that most retailers are based out of Shanghai, and one had to be where the retailers were. “When I think of all the places in China, Shanghai is one of the easiest places for foreigners to come and drop their bags and start to work,” says Amit.

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Capillary's new address in Shanghai

“A couple of years down, we decided that if we really wanted to build a large multi-million dollar businesses, it could not happen in East China alone. We needed to spread out geographically. So, we decided to pick Guangzhou (South China) as our next market. The South China region is a manufacturing hub, and many are integrating into retail as well, which creates opportunities for us. We are also looking at Xiamen, which is a sports apparel hub, and one of our customers Anta Sports Group is like the Nike of China. They have 6,000 stores, and even sponsor many football clubs.”

“For us Guangzhou/South China office is a startup within a startup,” tells Amit with a smile. He continues, “we are located in a co-working space with four seats, and I spend two days a week there. My wife is not happy. But, I don't have a choice, do I? We’re trying to replicate the Shanghai model here, and there are subtle differences. For starters, even the language is different as the local language is Cantonese and not Mandarin. It’s like North and South India, where the basic principles are the same, though there are some subtle differences one needs to be aware of.”

Bonds that secure

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Lynn Lin, North Asia CIO at Warburg Pincus

During our conversation, Amit told me that if he had to choose two people who helped shape their China story, one of them would be Aneesh, for his belief that China could be a big market for Capillary. And the other would be Lynn Lin, North Asia CIO at Warburg Pincus (one of Capillary’s investors), who is based out of Beijing. I engaged with Lynn over WeChat, and asked her what according to her helped script the success of Capillary in China, and she said:

1. Cultural adaptability: The Capillary team is willing to integrate themselves into the China market. For the past three years, they have established their brand and market acceptance in China. They have become the main competitors for most of China’s CRM service providers.
2. Localization: They enabled local sales, account, and technology teams who understand the local market and their products, and can quickly understand and provide timely help for customer needs.
3. Product integration based on market needs: Capillary was able to quickly localise their product per China market needs. This includes WeChat integration, personalized CRM models; integration with local platforms like TaoBao.com and JD.com; and they provide a true online and offline customer behavior analysis capability.
4. Stick to SaaS principles: Even though many local competitors start to do low-cost and on-premise solutions to satisfy their customer's short- term needs, Capillary sticks to its principles of high-quality products, high prices, and SaaS-only solutions to ensure the customer's long- term success. 

Amit sums up his experience saying that if one really sticks to the basic principles, doing business in China is not any different from anywhere else. One often hears that "guanxi” (关系), which literally means relationship, is extremely important to doing business in China. "You’ll see a lot of articles saying that guanxi is important to do business in China. I feel “guanxi” is important to do business anywhere in the world. I feel these are just buzzwords popularised by the so-called China experts. Chinese people are pragmatic, and if you prove you bring value, they will work with you”, he says.

However, he does concede that as you go deeper into the heartland and smaller cities, the weight of your product and your solution is as important as the relationship you build. “Closing over dinner and drinks is an important cultural aspect of doing business "Hongjiu" (红酒), Chinese red wine and "Baijiu" (白酒), Chinese white wine are common deal sealers. But what they really value is a good deal and what you bring to the table.”

As we sip our fourth cup of jasmine tea, Amit ends by saying, 

There is a lot more to learn, and a lot more to do.

He is going to be completing his Level 4 Chinese language certification by the end of this year. And as he masters the Chinese language he also reflects that there is a lot more to learn in Capillary's China journey as well. 

Once back in India, I speak to the entrepreneur behind CapillaryTech, Aneesh Reddy, who has also been an active mentor to Amit, to tell me how he sees the China story unfolding. He says, 

China is a very large and important market for us. It is, however, a very hard market to crack. Amit and the local Chinese team we have built have done a great job helping us win some great customers - we have more than 15 customers now in China. Our China business by itself could have been a venture-funded Series A/B startup in India if it were independent. I am hoping we can continue on this path and build a large presence in China over the next few years.