• ERP in China
• Chinese GAAP
• Customs
• Others

ERP in China

Foreword

Although the first ERP implementations in China occurred in the early 1980s and major vendors like SAP have entered the market as long as 10 years ago, introducing an ERP system in China still represents a major challenge. ERP systems have often been described as a management philosophy rather than a piece of software. If this is the case, it can be expected that introducing ERP systems to the Chinese market pose unique opportunities as well as unique problems. Local Chinese Companies are facing competition with international companies entering the Chinese market. Although these international companies are often burdened by a significant overhead of costs, they are more efficient in their processes. The implementation of an SAP system helps Chinese firms to follow international best practices and keep their competitive edge.

Chinese business organizations

ERP software follows business processes rather than job roles. In China, however, many departments are still dominated by 'danweiism', a tendency to put the interests of the own department above those of the company. It is therefore necessary that consultants and project managers keep the big picture in mind and focus more on issues of cross-functional cooperation.

Chinese business practices

SAP Best Practice systems include many international industry standard processes. However, many Chinese business practices differ significantly from common international processes. Elsewhere, for example, VAT already paid for returned goods can easily be reimbursed from the tax authorities. In China this process of getting this negative (so-called "red") VAT back is far more complex and therefore many customers choose to introduce their own process which balances future deliveries against it. Other examples for additional requirements are two Chart of Accounts for international active companies, the Interface to the Chinese "Golden Tax" system or the taxation on free samples.

Scope

SAP is a very powerful and flexible software. This, however, comes at a price that the users have to keep up with the system. When a SAP system is implemented in western countries the users usually already have some experience with other ERP software. In China they often migrate directly from Excel or other low-level solutions directly to a high-end SAP solution.

The situation should be compared during the scope definition phase, when the functionality of the system is defined, of a project with an all-you-can-eat buffet. Of course you can eat whatever you want, but you might regret the next day. It is therefore usually better to implement in more phases rather than with a big-bang approach, making sure that each single step is successful.

Project team

To ensure the project is successful, a dedicated project team composed of the key users and the implementation partner should be formed. Each member is assigned to a clearly defined role and responsibilities. It is very important that the members of the implementation team are fluent in Mandarin, to fully understand the user requirements. This will also help to build a good rapport with the end users.

ERP projects are frequently associated with business process reengineering which has earned itself a bad reputation as a 'job killer'. This implies that employees may be afraid of losing their jobs as a result of the project and thus try to protect their jobs, e.g. by reducing the degree of automation. This is especially true for Joint-Ventures and local companies. Foreign companies which usually implement the ERP system in an early phase of the China operations on the other hand, often face the problem that many key-users might be busy with building up the newly established company rather than supporting an ERP rollout.

Consulting partner

The need for Chinese speaking support staff which is familiar not only with the ERP system, but also with the local requirements usually results in the involvement of external consultants to support the implementation. Special attention should be put on the profile of these consultants; because the ERP market is growing very fast, there is a lack of experienced consultants. For translation and basic training a consultant with little hands on experience might be sufficient, but if new local requirements must be merged with a group template, more knowledge is necessary. As long as the demand for consultants is bigger than the supply, a well balanced mix of consultants from different levels is also an option as long as the tasks can be distributed accordingly.

Training

Training is one of the key-factors to a successful ERP implementation. Like everywhere else in the world it should be conducted with enough time to prepare the users for the system. One major difference in China is that training should be seen as a continuous process. The Chinese job market is currently characterised by very a high fluctuation rate, therefore the customer must be prepared to train new employees in an efficient way. In order to cater these needs, we provide training material on an e-learning platform, which acts as a training and support portal before and after the project 'go-live'.

Project management

The Project management is critical in every project. Although there are experienced ERP consultants available in China, good project managers are still more difficult to find. They should have strong communication skills, knowledge of application, industry knowledge, and of course project control skills. The question if this person should be internal or external is difficult to answer. An external consultant has often a more independent view on processes and more experience with SAP, but lacks the knowledge of internal relationships within the departments.

Data quality

The data quality in an ERP system has a huge impact on the operation and acceptance. Due to the high integration of the different modules, faulty data in one area influences many others. Since many companies in China use SAP as their first true ERP software, the initial data is difficult to collect and might not always be correct. Collection and preparation of master data should therefore start as soon as possible and needs to be given a very high priority during the whole project.

Support structure

The 'go-live' of a new ERP system does not mean that the journey is over. In fact, the first few months of a new system are the most critical ones. Sufficient support is necessary to handle issues as soon as they arise and to make sure that the business data stays consistent. Incorrect data in the system results immediately in a loss of acceptance of the system which in turn leads to a bad data maintenance discipline. Therefore, a support plan should be developed to provide support during implementation and post-implementation. In order to reduce costs, a first level support is often handled by the key-users. Depending on the size of the system an own support department might be formed. In both cases it is also necessary to have a second and third level support within reach.

Technical issues

When the Chinese operation is included into an existing ERP system special attention needs to be put on the usage of Chinese Characters. Most of the ERP vendors provide now software which is able to support several languages in one system, mainly based on Unicode. However, an upgrade to the latest release level might be necessary prior to the Chinese rollout.

Summary and Outlook

If a few basic rules and local characteristics are observed, a successful ERP implementation in China can be accomplished. A recent local survey showed that most companies (incl. international ones) seem to be happy with the outcome of their implementation project in China, and this contrasts sharply with the situation in Europe and the US. In the future the market is expected to become more mature on both sides. Customers will learn from others and a more stable market will emerge.

Want to learn more? Please contact hartung:consult for more information.