"Buy local, sell local," says AMR, when it comes to ERP in China

A recent report from Boston-based AMR Research says the business environment in China most closely resembles the enterprise software market in North America during the mid-1980s.

The emphasis on "getting control of transactions and materials requirements planning" is confirmed by Mike Lodato, chief marketing officer with enterprise vendor QAD. AMR says QAD has at least 450 ERP manufacturing customers in China—more than any other vendor. "Accelerated penetration of ERP in low-cost labor regions is a fact," says Lodato, "but it's a different model than in the U.S. Here we're looking for a level of efficiency that matches the cost structure. Asia is adding users because of increasing business."

The report also seems to say that what's unique about the Chinese enterprise software market, where at least 15 world-class ERP vendors already are vying for business—is that "business in China is driven by personal relationships, and buying goods in China from other Chinese or local companies is the preferred mode of doing business."

To start, if a company purchases software from a foreign vendor—as opposed to its China-based operation—Value-Added Tax will add 17 percent to list price, although arrangements are possible for bulk purchases. The vendor's local office also will likely be responsible for implementation services, ongoing support, and—importantly—assistance in navigating through what can be a maze of local and national certification processes.

The kind of system is dictated by need. The first two questions to ask are: is the Chinese company supplying parts or products, and will the goods be distributed in China itself?

Given the emphasis on local relationships, it's not surprising that AMR finds most manufacturers give their Chinese subsidiaries or joint ventures some guidance on what apps vendors to consider, but leave final selection and purchase with resources already in place.

It is at this point that the decision to go with a basic, stripped-down enterprise portfolio—including degree of integration—is made. Interestingly, says the report, "Order management often is left until last because China-based operations are frequently not responsible for taking orders directly; rather, they receive orders from corporate."

AMR lists 15 enterprise vendors as active in China (see accompanying table). Some have had a direct presence in China since the late 1980s. Most have offices in Hong Kong and Shanghai. Some focus heavily on just a handful of vertical sectors, such as electronics, industrial engineering, or automotive parts.