FB58078

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FB5807-8

• IS IT in China

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Contents

• ERP
• One country, two profiles
• E Commerce in China
• Rules and/or Relationships
• RFID
• Local and Global Trends
• Jonson Yue,
• Director of RFID Business, Avery Dennison

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ERP in China

• China is a huge market for ERP
• 1000 installations at the end of 2001
• 30 with SAP R/3
• 8B installed base of systems by 2002
• Mix of local and foreign vendors
• UF Soft, Kingdee, SAP, Oracle
• WTO impact will be strong

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Common Characteristics I

• Seldom completed on time
• Seldom exceeded the planned budget
• Lots of information resource allocation even
  though this is inconsistent with the usual ERP
  mantra of a core team
• Projects seldom improved cycle times or customer
  satisfaction
• Most benefits are reduced labour costs and
  inventory levels

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Common Characteristics II

• Projects initiated by the CIO/CTO usually fail!
• Projects initiated by top management usually
  succeed!
• CIOs/CTOs seldom have the political clout and
  business knowledge to resolve disputes between
  functional managers

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Private Venture vs SOE?
Primary Project Aims Improving Competitiveness
through process streamlining integration in
PVs. Cutting costs and automating processes in
SOEs.
Role of Top Management Hands-on leadership to
demonstrate commitment in PVs. Tendency to
delegate ERP responsibilities in SOEs.
Role of Steering Committee More frequent meetings
and sharper focus on problem resolution in PVs
Role of Consultants Greater reliance on outside
help and more emphasis on ERP-specific expertise
by PVs.
Scope of Implementation Broader and more
cross-functional ERP application in PVs.
Pace of Implementation Faster implementation with
more simultaneous modules in PVs.
Implementation Problems Less frequent, less
serious problems in PVs, due to differences in
employee reward systems data maintenance. SOEs
characterised by Acc-Fin Pur-Mfg squabbles
Evaluation Outcomes PVs undertake more
systematic evaluation and control, achieving
more substantial quality and SC improvements
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Lenovos SAP R/3 Experience I

• ??????ERP?,??????????????,?ERP????IT????
• Is ERP just an IT project? Is ERP really a
  fashion?
• ?????????????ERP?????????ERP?????????????????????
  ????????????????,??ERP???ERP?????????,??????????ER
  P??,?????????????????,???????????,????????????????
  ???????????ERP?????????

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Lenovos SAP R/3 Experience II

• ??????????,???????ERP???????????,???????????????
  ?????????ERP????,?????,?????????????????????ERP
  ???,???????????77??????
• Yes, the ERP may conflict with our established
  procedures.
• Creative solutions may be needed.
• Generalise, then optimise.

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ERP Conclusions

• ERP is not just a software package!
• ERP represents a particular way of thinking, a
  mind-set.
• ERPs have typically been developed based on US/EU
  industry practices and mind-sets
• There is a fundamental incompatibility between
  SOE business practices/mind-set and ERP systems.

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ERP Questions and Discussion

• Can Chinese SOEs adopt Western business
  practices?
• Or
• Can an ERP be designed so as to be compatible
  with SOE practices?
• And would this be a good idea?
• In general, what do you see as the CSFs and CFFs
  for ERP implementation in China?

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E-Commerce in China

• A HK workshop seeking to apply U.S. experience to
  China was characterised as the blind leading the
  bemused.
• Experienced Chinese business people dismiss
  proponents of Internet as crazy and/or out of
  touch with reality.
• A Fortune 500 CEO asserts that e-commerce in
  China is hopeless.
• Are expectations realistic?

These slides are largely based on work done by
Martinsons since 2001.
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No Shortage of Teachers Learners

• PRC enterprises hope to benefit from e-commerce.
• Chinese managers are eager to learn from dot-coms
  and Internet-enhanced businesses in the West.
• Wise men and women from the West, many touting
  themselves as e-business consultants, have been
  eager to advise Chinese clients.
• But it is difficult to transfer/apply e-commerce
  models prescriptions from market economies to
  China and make them work.

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What are the Issues?

• What are the salient characteristics of the
  business environment in China?
• Are e-commerce models and prescriptions
  transferable from the West to China?
• Which e-commerce revenue models are likely to be
  suitable for China?

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Challenges Facing E-Commerce in China

• Limited and relatively expensive Internet access
• Limited of vendors buyers online
• With few vendors, who would buy?
• With few buyers, who would try to sell?
• Credit cards are quite rare and rarely used
• Online security is perceived to be unreliable
• Transportation logistics networks
• are limited in scope and reliability
• exhibit poor supply chain integration
• Informal processes/data are widespread
• Lack of consistent, comprehensive or enforceable
  set of rules for commerce

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What is the Fundamental Basis for Commerce? Rules
or Relationships?

• China
• Lack of rules
• Transactions between people who know and trust
  each other
• Informal and contextual information
• Implicit agreements rather than formal contracts

• Market Economy
• Full set of rational and impersonal rules
• Transactions between independent parties
• Generous amounts of public information
• Transactions can be adjudicated by 3rd party due
  to formal contract (transparent)

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THEORY OF RELATIONSHIP-BASED COMMERCE
Lack of consistent, comprehensive, and
enforceable Rules
Personal trust
Private and contextual information
Lack of separation between economic political
actors
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RELATIONSHIP-BASED E-COMMERCE
Personal trust
Private and contextual information
Lack of separation between economic
political actors
Limits of business partners
Information is not formalized or
disseminated
Distorts market by adding political criteria
Restricts market scale
Limits transparency of business activity
Encourages special favours (guanxi)
Discourages business services development
Privileged interests oppose or restrict
e-commerce
Few existing business services to leverage
Difficult to achieve profitable scale or scope of
e-commerce
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RELATIONSHIP-BASED COMMERCEONLINE CONSEQUENCES

• Fragmented markets for most goods and services
  limits advantage of online reach
• Online ventures can not leverage existing
  business services
• Scope of an online business determined more by
  what is necessary and possible not by the most
  efficient way of doing things
• Limited potential to coordinate/integrate supply
  chain why go online?
• Powerful opposition to e-commerce??

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E-COMMERCE IN CHINAEMERGING SUCCESS STORIES

• Mecox Lane (B2C)
• From mail order sales to online retailing

• Li Fung (B2B)
• Traditional B2B intermediary goes online

• Asia Aluminum Holdings (B2B)
• Builds a B2B marketspace

• cTrip.com eLong.com (B2C)
• Online travel, bookings, reservations,

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Mecox Lane

• Established in 1996 as mail order pioneer
• Based in Shanghai large affluent market and
  good infrastructure
• Gradually gained consumer trust word of mouth
  advertising to highlight its guanxi
• Alliance with post office for distribution
• Persuaded local banks to provide facilities for
  credit card purchases
• Online in April 2000 after cultivating government
  officials for approval competitors closed down

http//www.m18.com/
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• Set up in 1906 to export porcelain silk from
  China
• Supplies garments, fashion accessories,
  electronics, toys to The Gap, J.C. Penney,
• Manages supply chain product design, quality
  control, shipment warehousing, letters of
  credit
• Capitalises on fragmented manufacturing industry
• Trust-based relationships with 6,000 suppliers
• Most value added by guanxi specific knowledge

http//www.lifung.com/
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Asia Aluminum Holdings

• AAH founded in 2000 by Chinas largest aluminium
  extrusion and fabrication firm
• Created on-line trading platform with many
  bundled services
• Overcame limitations through alliances
• Payment - prodded domestic banks
• to enable EFT and create Internet Debit Card
• to provide collateral loans for commodity trading
• Distribution - logistic warehouse mgmt firms
• Security - digital certification with China
  Telecom
• Starting to capture benefits of a network effect

http//www.i-metal.com/
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cTrip eLong

• 680B China travel market
• cTrip eLong emerging online players
• cTrip - 240M sales revenue in 2004
• 80 of revenue from hotel bookings
• 25 of payments made by CC (rising slowly)
• Online booking, but offline payment
• Call centres needed
• Bike courier delivery of tickets
• Few e-tickets
• May change with 2008 Olympics

http//www.cTrip.com http//www.eLong.com
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Lessons for China?

• Overcoming infrastructure limitations
• Getting Government approval
• Leveraging relationships
• Developing trust
• Provide value-added intermediary services in
  fragmented industries
• Gain (or enhance) competitive advantage by
  building upon existing strengths

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E-Commerce Questions Discussion

• Will the Internet be
• a catalyst for transition to rule-based
  commerce?
• used to improve relationship-based commerce?
• Will Chinese people trust the system?
• Will privileged interests risk losing power?
• Which relationship factors will prove most
  influential?

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E-Commerce Questions Discussion

• Which revenue models do you feel are most
  appropriate for the China EC market?
• Merchant?
• Intermediary?
• Bricks n clicks or pure digital?
• Will EC remain a niche industry in China or move
  to the mainstream?