Move Into China By Emptoris A Bold Act Based On Solid Research, or A Reckless Gamble Based on Global Market Share Aspirations?

Chinese enterprise resource planning (ERP) vendors have been able to defend the challenge from global ERP leaders such as SAP and Oracle.  This article seeks possible reasons for major international ERP vendors not being able to dominate the Chinese ERP market.  Taking an ensemble view of technology, we conceptualize ERP systems as being embedded in complex social contexts, which heavily influence ERP implementation and use.  Based on this conceptualization, we contend that a historical perspective and a social-cultural perspective can offer a rich understanding on ERP implementations in China.   From the historical perspective, this paper describes China’s ERP evolution and compares it with the ERP evolution in Western countries.  From the social-cultural perspective, five cases in which foreign ERP vendors have failed in their Chinese implementations are presented and analyzed. Eight factors are identified which have contributed to ERP failure.  Implications of the findings for future ERP implementations in China are discussed.

From ERP implementation failures in China: Case studies with implications for ERP vendors by Yajiong Xue, Huigang Liang, William R. Boulton, Charles A. Snyder (2004)

When I was contacted by Emptoris indicating that they were about to issue a press release regarding the opening of Emptoris China, which also happened to coincide with the signing of one of the largest Chinese companies, China National Offshore Oil Corporation as a client, I must admit that I was somewhat surprised.

After all, we are not talking about a strategic expansion of their solution and service offering in response to expressed client requirements.  We are talking about a significant move that while seemingly in step with the increasing globalization of the market, is in reality a potential nightmare at a practical execution level.

Let’s face it, 85 percent of all eProcurement initiatives fail to achieve the expected results here in North America.  This of course made me wonder what the odds of success would be when social and cultural factors are introduced into the equation.

Logically, my research began with determining the historic performance of organizations looking to establish a presence in a foreign country, and more specifically China.  Through this exercise, I hoped to gain a true understanding of the motivation behind the Emptoris move as well as determine if it was based on a definitive track of sound insight or, the irresistible lure of having to be in an admittedly large, untapped market.  The latter point of course is tied to Pat Quirk’s comment that “as a truly global solution provider, we saw the need for operations and support in the world’s third largest market.”

Now I am not suggesting at this early stage of my research that it is either one or the other in terms of reasons (perhaps it is a combination of both).  Certainly landing what is being referred to as one of the largest Chinese companies as a client warrants a degree of local presence.  All this being said, there are warning signs that expansions of this nature, while being heralded in press releases often conclude with a less enthusiastic, somewhat silent departure.

Based on a 2007 announcement by China-based UFIDA, this gate of course swings both ways.  UFIDA, which has been the number one management solution provider in the country over the past five years with revenues that according to places it on an even footing with the Top 200 software vendors in the world, had expressed its own aspirations to expand its offerings this side of the Pacific.

According to an October 31st, 2007 article by Chris Murphy titled “Could Your Next ERP System Come From China?” UFIDA has contracted Lionbridge Technologies, Inc. to “translate its software to English,” as well as add “functionality to deal with U.S. taxes, regulations, and business practices.”

What is interesting about the UFIDA move is that the company’s VP of international business, Qiang Wu said at the time that it would be “two years before it tries to crack the North American market.”  This would seem to indicate a high degree of forethought that is more in line with a long-term strategy, than an immediate response to landing a new contract.

Another important factor in the UFIDA move which appears to be absent from the Emptoris plan is the intervention and support of the Chinese Government.

In August 2007 I wrote the article “Public Sector Procurement Practice and the Principles of External Economies, Clustering and the Global Value Chain,” which touched on the impact of government policy relative to development within a specific sector.

Referencing the book “Clusters Facing Competition: The Importance of External Linkages” by Giuliani, Rabellotti and van Dijk (2005), in which reference is made to the lead role that governments should take in the successful support of indigenous sectors, China’s efforts in relation to its software industry is notable.

According to van Dijk, software companies in China “express what they expect from the government and local government, eager to promote the sector, is very willing to act upon their suggestions.”

Based upon my research, the high level of collaborative interaction between the Chinese Government and its software industry was clearly demonstrated by local authorities “push(ing) relations with universities and local research and development institutes” to augment the overall service value delivered by Chinese software firms.

Once again, I see no such support being made available to Emptoris through the US Government.

To what degree the above referenced factors will influence success or failure for either company remains to be seen.   It will however be a story that I will be following closely over the next few months through both the Procurement Insights Blog and the PI Window on Business Show.  Stay tuned.

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