Case Studies on Chinese Enterprises

Donglin Xia

• Publisher: Routledge
• Year: 2013
• eBook ISBN: 9781136672491
• Topic: Business
• Subtopic: Business General
• Index: Business

This book is a collection of teaching cases on two Chinese companies, UFIDA and Founder. The cases describe the management practices of typical Chinese companies. UFIDA is a well-known company providing management software while Founder is a long-established high-tech company.

The book aims at providing readers with original, first-hand materials, based on a theoretical framework, and broadening readers' vision regarding China's business niche in terms of culture, strategy, corporate governance, business environment, organizational dynamics, marketing, human resource, finance and the potential business partnerships with Chinese enterprises and the Chinese people. The cases are comprehensive and descriptive.

This book appeals to top executives and leaders of multinational companies with ambitions to expand or already vested business interest in China. It is also of valuable use to companies specializing in international trade. The book provides insight into the great business opportunities in the development of China.

1
UFIDA’s history and strategy

F. Warren McFarlan and DongHong Li

UFIDA was established in 1988. It developed quickly as Chinese enterprises started switching to computerized accounting methods and businesses worldwide started using information technology-based management tools. By 1991, UFIDA had become the largest financial management software provider in China, and has retained that top spot until the present. In 1996, UFIDA expanded into enterprise management software/ERP. In 2001 the company went public, listing on the Shanghai Stock Exchange. By 2002 UFIDA had taken a greater ERP market share in China than SAP, the international ERP provider, and UFIDA grew to become the largest Asia-headquartered enterprise management software provider.

Over two decades, UFIDA has grown from small and humble beginnings, through turmoil and change, to where it is today (see Appendix I). Mr. Wang Wenjing, UFIDA founder, chairman of the board and CEO, feels a sense of gratification and pride whenever he recalls his early years. However, Mr. Wang has greater ambitions. He envisions UFIDA as one of the top three software providers in the world. As he contemplates this goal, he is concerned with how to avoid bottlenecks in the production and distribution of UFIDA products, how to keep UFIDA’s sales momentum.

Management software market development

The software industry began in the 1950s, when IBM led the push to divorce software from hardware. Even though the software sector quickly became a well-entrenched stand-alone industry, it continued to be characterized by customization, rather than uniform mass production and sale, like many standardized industrial products.

In 1970, the software industry turned the corner into mass production, in much the same way as auto production. Microsoft and SAP led the way. It was the development of a software licensing system that made mass production and repetitive sale a reality. With the introduction of software licensing, end-users needed to buy both the software itself, and the right to use it.

In the new millennium, the software industry morphed again from one which delivers products into a service. For example, Google is in fact a software company – it doesn’t actually trade in software licensing, but rather, as the biggest search engine in the world, it provides a software service funded by advertising. In the enterprise management software/ERP arena, SAP (founded in 1972 by five former staffers of IBM) and Oracle (established in 1977 by three friends and former co-workers) are the top two global solution providers.

Financial management software

The Chinese accounting software industry emerged in the late 1970s. In the first twenty years, it quickly emerged from small players developing customized solutions for customers to companies developing standardized software which could be sold repetitively on a commission basis. During this period of continued development, the Ministry of Finance issued, and continues to issue, a series of circulars designed to promote a commercial accounting software industry and to strengthen the administration of computerized accounting, including:

• Opinions on Promoting Accounting Computerization in China;
• Administration Rules for Computerized Accounting Practices;
• Assessment Rules for Commodity Accounting Software; and
• Elementary Function Criteria of Accounting Software.

The Ministry of Finance has also organized industry experts to conduct appraisals of commodity accounting software.

These measures greatly encouraged software users, administrators and solution providers, and provided significant stimulation to accounting computerization.

Management software

AMR Research statistics show that the size of the global management software market increased from $US23.6 billion in 2004 to $US36 billion in 2009 (see Table 1.1), with growth slowing somewhat after 2007. As the market has matured, competition has become increasingly intense. On the local scene, according to CCW Research data, the size of the Chinese management software market increased from RMB14.5 billion in 2004 to RMB33.5 billion in 2009 (see Table 1.2). Future demand is still considerable, although the growth rate in the last two years has decreased somewhat.

Table 1.1 Sales revenue and growth rates in the global management software market from 2004 to 2009 (billion)

Table 1.2 Sales revenue and growth rates in the Chinese management software market from 2004 to 2009 (billion)

User demand

The demand patterns of domestic users for ERP went through three phases.

Demand phase I: 1990–2002

The initial phase started in the 1990s when Chinese users first utilized ERP, and extended through to 2002. This period was characterized by users becoming familiar with the various products and testing the software for suitability.

Demand phase II: 2002–2012

After 2002, the market expanded rapidly, as customers became knowledgeable about ERP and had a clear understanding of which products or configurations would best accommodate their needs.

Demand phase III (forecast): 2012–

CCW Research predicts user demand will be significantly more sophisticated within another two years (2012), and enterprises will incorporate IT into their strategic management processes and functions, with an expectation that ERP will play a role in sustaining operations.

During the last five years there has been a fundamental change in the thinking of Chinese corporate management. Most CEOs realize the value of information systems, and have plans to strategically deploy integrated software packages. The status of CIOs in business administration is becoming more important to deal with this reality.

Products

Management software is delivered in integrated packages. In the future, a management software package will consist of at least eight basic operation platforms – MES, ERP, CRM, SCM, OA, PLM, auxiliary industrial solutions, and BI (see Appendix II).

Most of the top-selling Chinese and foreign software packages cover eight components – all the above except MES. In the last three years they have generally focused on the basic operation platforms, industrial solutions and BI.

Local management software developers have done a better job customizing their products for local management and operations practices.¹

Technology

Technology change has driven management software innovation. Each technology evolution has led to an upgrade of management software and results in a competitiveness shuffle amongst providers. Management software has seen three large waves. The business transformed from focusing merely on hardware attachments to focusing on independent products based on the mainframe. It then evolved from mainframe architecture to client/server architecture, and finally to browser-server architecture (see Appendix III).

Many analysts believe a fourth wave is coming – cloud computing, where companies do not own the software nor install it on their hardware systems, they rather simply rent software on an as needed basis from Internet-based software companies. During this upcoming tide, “the cloud” will have an impact on development, deployment, application, and even the business models of management software. At this point in time, the cloud technology revolution is in its early infancy and the flow-ons are yet to be felt.

The architecture is changing rapidly. Concepts such as SOA,² Web 2.0 and various communication technologies are merging into management software products over the years. In terms of this combination with Web 2.0, management software is gradually being integrated with Internet portals, search engines, instant messaging, online conferencing, email, and other Internet technologies. Management software is now being merged with mobile devices, fixed-line telephones, SMS, MMS, WAP and VoIP – moving from the traditional PC to various devices. Some providers have even linked their management software to RFID³ and automatic control devices.

Services

Mainstream management software providers have developed mature service systems, covering the types of service, methods, capacities and patterns. Foreign providers tend to have better service approaches and overall service system-building than the Chinese, but the Chinese have more diverse service offerings and a far larger service network in China.

Two different service approaches are the key handover method and the knowledge transfer method. Key handover is widely used in consultative companies whose fundamental aim is to install systems for customers. During the handover process, the software provider delivers the key (i.e. transfers the system) and the customer can then use it at will, without ongoing support and without having any particular in-depth knowledge about the system or any troubleshooting capabilities. The knowledge transfer approach is used by software system providers who teach customers how to use the system, with the customer playing a pivotal role in the process. These providers instruct and train customers in product know-how, user skills and maintenance. The Chinese business environment evolves rapidly, and companies must respond and change quickly. The knowledge transfer approach is very useful because it leaves the customer position to make rapid changes.

In the last two years, customer satisfaction with foreign providers has diminished while improving for local providers. Customer satisfaction for Chinese top-end brands went up by 0.3 percent, and by 1.5 percent for the lower-level brands. At the same time, customer satisfaction for SAP, Oracle and other large foreign providers plummeted by 7.4 percent. In 2009, satisfaction with the well-known foreign brands scored 77 percent, while the score of satisfaction for Chinese top-end brands was 76 percent, and 76 percent for the mid- to lower-end. In short, foreign brands have lost some of their brand advantage, with low-end brands now having nearly the same brand strength as mid- and high-end. Domestic providers now attach great importance to the promotion and realization of professional service, with great effort being expended on meeting the customized requirements of local users. Domestic providers have ambitiously narrowed the skills gap between Chinese and foreign service technicians.

Chinese providers

During the 1980s, the Chinese financial management software sector developed around function and technology. For each technical breakthrough or fundamental upgrade, a company would emerge as leader and gain market share. At the end of the 1980s, UFIDA emerged as one of the first accounting software providers, offering basic accounting functions such as ledger keeping, financial reporting and payroll management etc.

In the early 1990s, technical advantage became the most important factor of competitiveness. In 1992, a number of veteran technical and sales personnel departed UFIDA and established the Golden Spider Financial Software Company, which developed and market and the first LAN financial management software in China. Golden Spider snatched a CCTV project from UFIDA, holding a high-profile contract signing ceremony. Golden Spider, running with this new LAN accounting software, expanded rapidly and changed the game rules that function was what mattered most.⁴ Anyi emerged at around the same time as Golden Spider, and, with its focus on the technical security and reliability of accounting software, gained significant market share based on technical innovation.

During the mid-1990s, software evolved from purely posting accounting transactions to generating accounting and financial figures to manage the enterprise. Providers including UFIDA, Wanneng and Anyi launched new products that had many enhancements for managerial purposes. Functional enhancements became the competitive differentiator. Users had greater expectations demanding accounting software that would both perform accounting functions and manage inventory and sales information.

Technology was an impetus to accounting software development from around 1996. As Microsoft Windows technology became more prevalent, the Shenzhen Kingdee financial management software company emerged and used this technology change to become one of the top accounting software providers in China.

For the next few years, Chinese accounting software providers set functional upgrades as a primary goal, with all players announcing plans to develop ERP in 1997. In fact, no substantial actions were taken. Later, the role of the Internet and the inclusion of large database capacities helped Zhejiang Newgrand, a new accounting software company, claim a place in the upper echelon of the industry.⁵ At the same time, collaborative projects between UFIDA and Shenyin & Wanguo Securities and CNOOC introduced Internet- and large database-based NC series, a high-profile product, into the market.

Foreign providers

SAP

SAP (see Table 1.3) was formed to develop standard software used in real-time business processing. Headquartered in Walldorf, Germany, SAP is now the largest business management and collaborative commercial solution provider. It is the third largest independent software provider in the world, and has branches in more than 50 countries. Ninety percent of large state-owned and private enterprises in China have deployed SAP.

SAP has been developing and distributing enterprise software for ov...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Figures and tables
• List of Contributors
• Preface
• 1 UFIDA’s history and strategy
• 2 UFIDA’s leadership, cultural and organizational structures
• 3 UFIDA’s evolution of planning and budgeting system
• 4 UFIDA’s critical roles of capital market and finance
• 5 UFIDA’s international expansion
• 6 Founder Group’s strategy and business model
• 7 Founder Group’s strategic human resources management
• 8 Founder Group’s brand strategy: Rebranding and transformation
• 9 Founder Group’s management control
• Notes
• Index