The secret behind the success or failure of the ERP system for your China business

In the fast-changing and highly competitive Chinese market, many

foreign companies fail to achieve their goals simply because they

minimize the importance of understanding and respecting the local

culture.  The success in the implementation of an Enterprise Resource

Planning (ERP) system in your China business will depend on this important factor.

When implemented correctly, an ERP system facilitates better planning by management, improves management control, and increases organizational ability to control day-to-day operations. This enables the company to directly reduce operating costs and lower inventory stock while strengthening relations with suppliers and customers.

China has a very particular business culture and different workplace habits than other Western countries and expecting the same results from an ERP system developed with another cultural perspective in mind is not realistic. When executed in the wrong way, the system can have a negative impact in the operation of your business and its working efficiency. 

The way ERP systems are perceived, treated, and integrated within the business plays a critical role in the success or failure of the implementation. The internal culture of a company is a reflection of society’s culture, and in China this is especially true due to the nationalistic nature of business.

Implementing an ERP system is a major cultural change for any organization. When national or cultural borders are crossed, implementation in a global environment takes on a new dimension.

Numerous foreign companies assume that their business models and management philosophy will transfer smoothly into their China operation, with minimal adaptation issues. But this can cause significant problems within the business structure.

 

When your ERP system fails, it may not always be clear that the system is not to blame, and it is just a sign for other underlying issues.  

Information technology is a powerful tool for organizations that seek to gain a competitive edge in a global business environment. ERP systems are examples of the most strategic tools a business can employ to integrate its operations. It facilitates the sharing of large amounts of information effectively and efficiently, as well as creating a central database for sales and marketing, production and materials management, accounting and finance, and human resources.

There are five main reasons companies implement ERP systems:

1. integrate financial information,

2. integrate customer order information,

3. standardize and speed up manufacturing processes,

4. reduce inventory, and

5. regulate human resource information, according to CIO Magazine.

In China, markets move and change quickly, and your company’s adaptation will be crucial for its survival. Unlike in Western countries, that have long-time established rules and relatively predictable supply chain behaviors, to maintain competitiveness in today’s Chinese marketplace businesses must be serving clients with incredible speed, extreme flexibility, in-depth local knowledge, and extensive connections. 

It is vital to understand that there is no perfect ERP system that will solve all your business problems. Before implementing an ERP system, companies should evaluate their organizational strategy, structure, culture, and operations. In order to make an ERP system compatible with your organization and implement it successfully, you may have to change some aspect of the way you do business. 

This change may be even more important in China, where the cultural component is key in the ERP implementation.

In China, people think, feel, and act very differently when confronted with basic business problems, or in the case of ERP systems, business solutions.

One significant element of Chinese culture is the personal relationship between two people referred to as guanxi. This dictates what you can expect from someone and what they can expect from you. This connection has wide cultural implications in society and business when it comes to developing trusting relationships with business partners. 

A company’s employees are also an essential component in the successful implementation of an ERP system. In many cases, Chinese employees lack the proper skills, interest and professional training to use the system because they do not understand the impact ERP tools have on their work performance and do not see the benefit it brings to the business.

An ERP system that is too complex for your employees to utilize from the beginning does not last long. A good option is to designate a person, preferably at the management level, responsible for optimizing and improving the system, and making sure that it is functioning coherently even if the company is going through changes. 

In China, your local staff will be fundamental in the successful implementation of the ERP system. In general, it is not the system that fails, but the people who do not know how to use it properly. A manager should always motivate and support his team and regularly evaluate the correct use of the ERP system. 

One of the reasons that prevents the successful execution of Western designed ERP systems in China is the lack of localization. A system’s software should be customized for a particular country, and it should include the translation of menus and messages into the native spoken language as well as changes in the user interface to accommodate different alphabets.

Localization in China is much more than that. Localization results in customization or adaptation of the ERP system to the local Chinese enterprise culture, which can result in a loss of some or the entire strategic value proposition offered by ERP system.

 

Given the complexity and high cost of ERP implementation, many Chinese businesses require extensive localization.

ERP vendors often pitch a system that seems comprehensive but might be impractical for your business’ needs. Your staff might not be ready for such transformations of their duties and do not necessarily have the required skills and motivation to put all the features into effect.

When choosing a vendor, it is important to clearly state the requirements and internal control procedures that the system should address. Keeping things simple will prove to be extremely valuable in China and may save you money and headaches down the road.

Similarly, ERP consultants are software configuration experts who are there to help you with the system, not to offer any advice on how to run your business. Their job is temporary and limited to the installation of this useful tool, which will ultimately help you enhance the performance of your company’s financial management and internal control.

In China, the success and failure of ERP systems are intimately connected to cultural differences. The best ERP system is not necessarily the one that has all the features, but the one that your team finds useful, easy to learn, enables them to save time and work more efficiently.

All internal and external factors should be considered when an ERP system is not working as expected. Adopting a more holistic approach before deciding to make changes could be extremely beneficial, as well as focusing on the most urgent issues for the company.

A good place to start is to define the objectives you want to accomplish with the system and develop a step-by-step approach when putting them into actions. Also, ensure proper implementation and training at each step before further developing your ERP system, and align your expectations for the ERP system with concrete issues you would like to solve in your company.

For many small businesses, a possible solution is Software as a Service (Saas), which costs a fraction of the price of incumbent ERP systems. There are plenty of SaaS applications supporting different business functions. For small businesses, they are more affordable, accessible, and user-friendly.

At the same time, thanks to cloud-base business software, small companies can utilize experienced and knowledgeable financial experts at a much lower cost. Empowered by SaaS applications, a virtual CFO can complete routine accounting tasks, as well as analyze financial data to help you gain more insights on how your business functions and identify potential obstacles for future growth.

These professionals have unique set of skills in diverse areas including accounting, financial strategy and management, business software system selection and implementation. As their interests are usually in line with your company’s long-term objectives, a virtual CFO will spend more time understanding your businesses and seek the most practical solutions for your issues.

When selecting your ERP system, consult their advice before deciding. The most cost-effective and efficient approach is to acquire a SaaS application that includes the services of a virtual CFO. This will support the growth of your business in China at a reasonable cost.

Should you have questions about implementing a China accounting software system, complete the below inquiry form with your questions and comments. 

DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.

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