Do ERPs work in China ?

I am thinking about ERPs today because I had dinner the other night here in Tokyo with a small business owner from the US who was passing through to visit his suppliers in Japan and worldwide ( although he as yet does nothing in China). His company has just implemented a state-of–the art ERP from Microsoft as a way to gather real-time data on sales and stock levels. These systems are especially useful in the fashion and apparel business – which happens to be his business – where companies have thousands of active SKUs at any given time and where the product life cycle is very short. But do ERPs work in China ? It all depends.

I once worked for the Chinese partner of an American company. In an increasingly competitive marketplace, the American Company wanted to cut its lead times and they went forward with an ERP system in the China office accordingly. The idea was to pre-order product based on forecasts and thereby to have ready stock when POs were placed ( otherwise it was a 30 days wait for parts to be made prior to assembly into finished goods ) However, management of the US company failed to realize some very important things which doomed the project from the beginning. These were as follows:

1.) Chinese companies are very conservative when it comes to expenditures. It turns out that the purchasing office of the Chinese company was not placing orders with the suppliers as directed by the American office because they did not want to order product for which they as of yet had no orders. Chinese purchasing did not communicate this to American management and the result was that the Product Managers in the US office thought there was much more on order than there was in reality. They were promising important customers delivery dates which they could not meet.

2.) Chinese company culture reflects Confucian values and there is deeply rooted resistance to change unless that change is clearly warranted. ERPs however, involve significant overhauls of existing systems, and they require extensive training of all parties, product managers, purchasing & accounting, designers et al. In other words, there is a lot of change and most small to medium-sized Chinese companies usually reagard change of this magnitude as nothing but 麻烦 ( pronounced “mafan”, one of the words you hear frequently in China. It means “hassle” )

3.) There is great Power Distance between individuals in a typical Chinese company meaning that communication between superiors and subordinates does not always occur with the frequency we would expect in the West. To run an ERP system efficiently, however, it is imperative that communication is free-flowing and unbiased.

Of course, there are companies that do implement ERPs successfully in China. But they are usually the large multi-national companies that have the infrastructure and personnel that are equal to the task.

And what a task it is.

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