China looks to ERP for fast-track change

While enterprise resource planning (ERP) applications were last year's "big thing" in the North American and European markets, Asia is still catching up and showing strong interest in deploying the software, according to analysts and executives from ERP vendor SAP AG.

"Talk last year was of ERP being dead, (while) in China and Asia, right now it's the talk of the town," said Klaus Zimmer, president of SAP Greater China. China's imminent entry to the World Trade Organization (WTO) has resulted in increased interest in adoption of ERP systems, Zimmer said. "WTO means that enterprises in China are stiffening their resolve to be in a position to compete against multinationals entering their market," Zimmer noted.

"WTO will undoubtedly bring more sales opportunities to ERP vendors and drive further demand," said Kristian Steenstrup, research director of business applications at Gartner Australia.

WTO means change, not just in terms of facing new entrants, but in updating business practices, Zimmer said. He noted that while Chinese enterprises are anticipating organizational change to be ready for WTO, many are unsure about executing for it. "The government has helped them in this respect, in that it is actively pushing many state-owned enterprises to adopt ERP systems," Zimmer said. The government has also reduced business tax to 3 percent, freeing more capital to spend on IT systems, he said.

ERP has potential to act as a catalyst and speed enterprises toward a more competitive position, Zimmer said. Gartner's Steenstrup agreed that ERP can provide fast-track improvements. "After speaking to several (Chinese) companies, we concluded that there was high interest in foreign ERP packages" to help align business practices with western companies, Steenstrup said. In some respects, an ERP package is seen as a shortcut to business re-engineering, he added.

Sustained growth In the past, uptake of ERP systems has been slow. SAP has been in China for seven years, initially setting up shop to serve international customers, Zimmer said. "It took three years before we had our first local customer," Zimmer said.

Traditional companies in China are unsure how to evaluate the benefits of ERP systems, which are often not readily quantifiable, according to Zimmer. Enterprises are much more easily persuaded when the investment is in hardware, he noted, adding that "the return is immediate and more tangible."

SAP expects Asia-Pacific revenue growth for ERP applications to continue at a rate of 30 percent over the next few years. "We do not expect an explosion of growth. It will be sustained and consistent," Zimmer said. "We noticed that in southern China, much before September 11, there were smaller and fewer contracts emerging," noted Zimmer. However in central China and northern China, growth continues regardless, Zimmer said. He attributed this to the more export-oriented outlook of companies in southern China.

Steenstrup pointed out that most ERP implementations used locally developed products rather than systems from multinational suppliers. "SAP, Oracle and Sun Systems will continue to dominate the scene of larger enterprises, but we see the majority of small to medium-sized companies adopting local applications," Steenstrup said.

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