Globalization is having a far-reaching impact on the business world. In a business environment marked by globalization, the world seems to shrink, and other businesses halfway around the world can exert as great an impact on a business as one right down the street. SMEs (Small and Medium-sized Enterprises) are going through a transition phase and are generally restructuring their strategies and capabilities to remain competitive and grow in the emerging world trade environment. Companies have to follow this trend and operate on a global base, e.g. with subsidiaries and factories in China. We have been observing the trend of German-speaking and other European SMEs moving to China for quite a while. One of the main challenges for companies moving abroad is the need to establish an efficient ERP system. The IT department has to provide solutions for the guiding principle “system follows strategy”.
The reasons why enterprises expand to China are mainly:
- Resource seeking
- Market seeking
- Efficiency seeking
For SMEs, two prime areas of the global economy are ripe for picking: selling to new markets and setting up operations abroad. Once the exclusive domain of large manufacturing enterprises, these opportunities are also available to SME manufacturers.
Take for example selling to new markets in developing nations in Asia and the former Soviet-bloc states. While conventional wisdom says that these regions are most likely to be the origin rather than the destination of manufactured products, increasing consumer demand in these markets cannot be met by domestic manufacturers. Foreign supply relationships are the most common forms of internationalization, while exporting is the next, and some establish foreign subsidiaries and branches.
We observe four main obstacles that German speaking companies are facing with their IT / ERP strategy:
- Projects take too long to cope with the fast-changing market conditions in China
Companies in China are growing much faster than in Europe – and management is not used to handling such fast growth
- IT (especially license costs and maintenance) are more expensive than the Chinese employees operating IT
- Cultural differences between a Chinese and a European workforce complicate HR management. Chinese employees are usually well educated but lack experience of Western business behavior.
If German, Austrian, or Swiss companies want to globalize their business, the strategy “we do it like home” has to be questioned. In Germany, Austria, or Switzerland there seems to be a lack of understanding and knowledge concerning these topics. Large vendors with a long history of international business and production plants outside of Europe typically have that sort of knowledge – yet for common SMEs this information is not very helpful because they usually lack the organizational back-office capacities of large enterprises. Typical Swiss characteristics like perfection and quality might not be the ideal driver for a rapid globalization and a proper alignment of the IT systems.
We found that several dominating factors influence the success of an ERP project in China. These are language, report and table format, Business Process Reengineering (BPR), economic reform impact, and human resource problems. The failures of foreign ERP implementations should encourage a more localized strategy.
A tactic for Western companies should be to use a local ERP service company or a consulting company that is more familiar with the Chinese culture (to guide firms who implement their systems). By switching to domestic service providers or international service companies familiar with the Chinese culture, user companies can mitigate the pressures exerted by Chinese culture, which values personal relationships.
A proper software evaluation process is critical for ensuring that the appropriate software is chosen to meet the business's needs. As part of the evaluation process, it is important to ensure that the software meets Chinese regulatory requirements and local language requirements, and that it is well-supported in China.
You can find more information at www.erpgoeseast.info