Many enterprises are creating branch offices in China. Where business operations go, ERP must follow. Unfortunately, the Chinese ERP reality is different from what North American and European IT decision makers have come to expect. They must understand the unique characteristics of ERP in China to avoid costly and failed implementations.

There are nine general characteristics that differentiate Chinese implementations from their Western cousins. Six of these are driven by the market realities of China and three stem from cultural differences.

Market-Driven Characteristics

1.Lack of local experience. ERP is a relatively new concept in China. While Chinese IT services have grown considerably in the last five years, the country still lacks the robust network of consultants, vendors, and resellers to which Western IT decision makers have become accustomed. Successful ERP implementations in China require careful consideration of local consulting options:

• Domestic consultants have amassed experience through their support of top-tier ERP applications. HAND Enterprise Solutions, for example, partners with both Oracle and SAP, and also offers its own ERP application called MAS (not to be confused with Sage Software's MAS family of ERP products).
• The major North American and European IT consultants offer support for Chinese implementations, often through captive operations. Some mid-tier consultants have had particular success in the Chinese market, notably Atos Origin and gedas (the former IT services arm of Volkswagen which was acquired by T-Systems).
• Microsoft Dynamics is slowly gaining traction in the Chinese market. In North American and European markets, Dynamics is supported by a large pool of resellers and ISVs. The consulting side of this initiative is supported by Satyam Computer Services.

2.The market is evolving rapidly. The makeup of IT consultants is changing, as evidenced by the acquisition of gedas by T-Systems. This trend is particularly acute in China. The Han Consulting Group, for example, was one of the leading SAP implementers in China. A division of Legend Computers, the consulting group was sold when Legend morphed into Lenovo, acquired IBM's ThinkPad unit, and refocused on the PC market. The purchaser was AsiaInfo Holdings, a major provider of telecom and IT products and services for the Chinese market. The AsiaInfo Lenovo division accounted for almost 15% of AsiaInfo's total revenue in 2005. However, in late 2005 AsiaInfo sold the Han Management Consulting Group to its managers. As a result of these recent moves, the original intellectual capital of Han Consulting has been seriously eroded, leaving clients in the lurch.

3.Supply chain partners may lack process. One of the limitations of ERP projects in China has little to do with an enterprise's operations and everything to do with their trading partners. Compared to North America or Europe, Chinese business processes are far less standardized. Typical elements such as purchase orders or discount schedules may not be used in particular relationships. These differences undermine assumptions that are hard-coded into typical ERP tools.

4.ERP is expensive in China. Most business units and enterprises in China are smaller than the typical North American or European enterprise in terms of revenue. While list prices for ERP packages may be discounted by 20%, the reduction fails to make up for this gap. In relation to revenue, the price of an ERP implementation in China may be up to twice the price of a North American implementation.

5.Unpredicted infrastructure growth. The ERP package may be the first major IT investment that the operating unit has made. With the formal procedures introduced by ERP come greater attention to formal retention policies for both documents and transactional information. ERP is often merely the beachhead for additional investments in storage, messaging, document management, and network infrastructure.

6. Localization is crucial. Any ERP package implemented in China must support the local language. Western purchasers must understand that there are two different Chinese character sets and that specific products may support only one.

• Simplified Chinese characters were standardized by the People's Republic of China in the 1950s. Workers in mainland China and Singapore are most familiar with the Simplified character set.
• Traditional Chinese characters have been used for almost 1500 years but have been largely replaced in mainland China by simplified characters. Traditional characters are still used in areas such as Macau and Hong Kong. They are particularly prevalent in Taiwan where the use of simplified characters may be viewed as a political action.

Culture-Driven Characteristics

7.Wide spread concerns about job security and advancement. Given a history of state-run enterprises and large bureaucracies, Chinese employees are very concerned about job security and opportunities for advancement. A new ERP project may be viewed as a means of reducing headcount, and so will be rejected by end users. Similarly, staff working on the implementation will be far more motivated if the ERP implementation is viewed as an important and transformative project for the organization.

8.Despot customization. Many enterprises struggle with distributed decision making. This situation is particularly acute in China. Senior managers may override decisions made by the steering committee and force the implementation onto an avenue of unplanned (and very expensive) customization.

9.Prolonged usage of parallel systems. There is a tendency to maintain parallel transaction systems for a far longer period of time than European or North American managers are used to. Prolonged use of parallel systems drives additional costs due to rekeying and data integrity issues. It also increases problems with end-user buy in.

Recommendations for Implementing ERP in China

1.Vet consultants. Outside help is crucial. The major IT consulting firms can support ERP implementation as can domestic firms. Carefully consider the stability and capability of these consultants. Demand (and consult) references.

2.Establish a technology steering committee. Decisions concerning functionality must be made through a steering committee that includes both executive and operational representation. An effective steering committee reduces despot customization and improves end-user acceptance.

3.Communicate with the end user. The ultimate success of any ERP project depends on the end user. If they don't use the system, the implementation is a failure. Communication is particularly important in the Chinese market to address ongoing concerns of job security and to limit the prolonged use of parallel systems.

4.Make the jump and anticipate growth. Get away from legacy systems as quickly as possible. As usage of the new system increases, pay particular attention to issues related to information infrastructure such as messaging, network capacity, and storage. The upgrades are inevitable. Prepare and avoid the surprise.

Bottom Line

ERP in China is a different animal than its European or North American cousins. Carefully vet consultants, communicate with end users, and establish a steering committee to avoid surprises.