Trip Report: Reflections on ERP Software in Shanghai

(Copyrighted 2007. Photo by R Wang. All rights reserved)

WILL CHINA BECOME THE NEXT INDIA FOR ENTERPRISE APPS?
Miss the energy and excitement during the dot com boom? Well it's alive and well in Shanghai! While consumer and internet software remains hot and starting to mature, enterprise software in particular emerges as virgin territory in a rapidly growing market. (I and am still in awe of what I heard, saw, and felt.) Rapid fire growth in key industries such as manufacturing, financial services, telecommunications, utilities, government and of course high tech drive the charge towards the adoption of packaged applications. China demonstrates significant potential for the following reasons:

• Strong infrastructure. The Chinese government provides significant software infrastructure. Specifically, power, internet connectivity, and telecom networks exhibit stronger reliability in uptime than India and some parts of North America and EMEA.
  
• Rich talent pool. With considerably more universities and training facilities, the pool for Chinese software talent runs deep and wide. Like India, the expat community remains vibrant with 1000's returning from abroad on a monthly basis.
• Labor advantage. When the US was pushing offshore development just 10 years ago, Indian vendors now turn to China for advantages in labor arbitrage. Rising costs in India make China attractive though rates are rising.
  

HOMEGROWN VENDORS FOCUS ON THE CHINA SMB MARKET
During my time in Shanghai (July 27th to August 3rd), I had opportunities to speak with many customers, partners, and executives at the Big 4 major Chinese ERP vendors: Yongyou (Ufida), Kingdee, Digital China, and Newgrand. What makes this market unique is that the local vendors build their own ERP systems for the SMB market and then many of them resell software for the western vendors such as SAP, Oracle, Infor, Micrsoft, Lawson, QAD, Epicor, and IFS in enterprise install bases.

Homegrown vendors demonstrate a tendency to:

1. Provide mostly SMB tailored offerings
2. Focused first on accounting and "multi-book" accounting capabilities
   
3. Deliver truly localized and customized extensions on their own offering or on a competitors
4. Exhibit a strong determination to build out their capabilities into the "m" part of SMB
5. Demonstrate true co-opetition as they partner, resell, and compete with competitors to deliver solutions
6. Compete with local system integrators that believe they are also software providers as they deploy localized versions of Western applications
   
7. Lack strong marketing capabilities for the Western multi-national
   

VENDOR COMPETITION AMONG GLOBAL ERP VENDORS SEGMENTED BY VERTICALS
This market remains extremely hot for enterprise applications. Market share numbers are quite murky, but the competition among Western vendors runs fierce by industry verticals. For example customers will see the following vendors by industry:

• Public sector: SAP, Oracle, and Microsoft
• Fashion: Lawson, Microsoft
• High tech: Oracle, Microsoft, SAP
• Utilities: Oracle, SAP, IFS
• Manufacturing: Oracle, SAP, Infor, Micrsoft, Lawson, QAD, Epicor, CDC - Ross, and IFS
• Telecommunications: Oracle, SAP
• Gaming: Infor, Epicor
  

BOTTOM LINE FOR USERS
Enterprises face the challenge of selecting software that must meet rapidly changing requirements of a growing marketplace.

• Local prospects and customers must think long term. Rapidly growing Chinese prospects and customers must move beyond the short term selection criteria of low cost, localization, and language support. As these SMB's become the next large enterprise, support for SOA standards, industry functionality, interoperability, and long term application platforms must play a significant part of the vendor selection process. Homegrown vendors may achieve the size and scale to compete with Tier 1 vendors. However, in this rapidly consolidating market, a Tier 1 will more than likely acquire a homegrown vendor in order to gain market share, acquire additional local know-how, and cement a presence in this growing market.
• Multi-nationals will require local system integrators for delivery. Most multi-nations conducting business in China will look to their existing Tier 1 vendors to provide significant localization as well as alternative deployment options such as SaaS and hosting. Buying a solution in this market requires careful consideration of both the vendor and the related partner system integrator capability. For example, stakeholder centric applications that impact employees, partners, customers, and suppliers will require the expertise of local SI's who will be able to provide the needed customizations and extensions.
  

BOTTOM LINE FOR SOFTWARE VENDORS

• Challengers must act quickly. New vendors must quickly add significant business or risk being shut out by established western and homegrown vendors. Vendors such as Oracle, Infor, QAD, and Lawson will be positioned to succeed because of the strong networks and relationships that have been built over time. Challengers must quickly win the hearts and minds of home grown partners and vendors as this market will most likely begin consolidation over the next 12 to 36 months.
  

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2007 by R Wang. All rights reserved