MEETING ASIA HALFWAY
For Asian CFOs and CIOs in the market for ERP once more, it’s a case of so many choices, so little time.
By Niles Lo

Petcharat Ubolriabroy has worked for ten years in finance and accounting for Thai Special Steel Industry Public, and knows all about the sharp end of business cycles. For most of that time, she was struggling to manage finance in a depression in Thailand. Now, in the last three years, turnover has increased from 1bn baht annually to 3bn baht as the nation’s appetite for special steel, used for cars, is intensifying. On March 30, Commerce Minister Thanong Bidaya declared his intention to make Thailand the ‘Detroit of the East’, doubling the number of automobiles to be made in Thailand in the next five years. Suddenly Petcharat says, she was faced with the situation, “of managing strong growth without the technology to ensure that company still had a grasp on costs.” Petcharat had helped set up the company’s SAP R/3 program eight years before. The version was so old, it was getting tough to find proper maintenance for it.

For Petcharat, the prospect of an upgrade meant more than sprucing up antiquated software. She wanted to introduce new analytic packages to run on the system that would keep sales and operating executives in the picture about what types of steel grade were available for purchasing or already in stock to speed delivery, meet customer production needs and reduce inventory cost. As assistant vice president of finance, and the main buyer of technology in her company, she had heard many promises of enterprise resource planning (ERP) software utility before. But the company is hardly a high-tech bastion and she was making the first major buying decision in eight years. “I had more choices than I knew existed,” she says.

Miracle Gro ERP

Petcharat’s dilemma is shared by colleagues across Asia. As the region undergoes its strongest growth cycle since the mid-1990s, many companies are coming to market again for ERP software – or purchasing ERP for the first time. They are entering into a market that has gone through at least two stages of evolution. Says Ashley Clarke, Asia-Pacific CEO of Systems Union, a provider of financial ERP software: “What’s changed is a matter of emphasis, but it’s major. Since the advent of heavy regulation around the world, software was being featured as a way to give transparency to the finance department.”

“Now that’s evolving,” Clarke says, “and the focus is on freeing up the information that transparency has brought to the surface.” He argues that the focus will be “rendering back information to sales and operating executives, so they can use it to enhance growth.” Clarke says that the special situation in Asia is that the market has stepped once more into purchasing mode, but without much knowledge of the benefits of advances in analytics that could help their growth strategies. Some are upgrading from antiquated systems. Some are buying ERP for the first time.

How has vendor capability changed? Ten years ago, ERP focused on fully automating the order-to-cash cycle. The next challenge was to break up this long process into smaller steps, allowing companies to adjust the process and refine individual components. The goal now is to embed analytics into each of these parts of the cycle. For example, analytics within a materials management system – one of the areas that Petcharat has been seeking to improve – would allow both finance and operations to find out whether the customer ordering the product has paid his bills. In the past, this meant that companies had to jump into other applications, or simply pick up the phone to find out the right information. In companies with complex structures, there were organizational blocks to finding out anything at all. Extracting credit information might not be in the immediate interest of the salesman, whose motive might be to stack up sales as fast as possible to meet a bonus target. System integration – allowing all the appropriate information to reside in one place – and embedding analytics has improved the prospect that these classic difficulties of operating in high-growth markets could be simplified and controlled.

The ability to match this opportunity with need has made “Asia the most exciting region at the moment,” according to Stefan Goehring, head of business development, mySAP ERP Financials, SAP Asia Pacific. He adds: “Companies have a lot of challenges to deal with that [can be] met through better ERP, whether it be monitoring and improving huge investments in outsourcing, new implementation of accounting rules, or seeking to improve processes to compete amid intensified global competition.”

To vendors from the US and Europe hewing to this gospel, the choices made by Asian companies can seem outside the common formula. Sydney-based Gartner research analyst Kristian Steenstrup says that companies in developing markets undergoing high-speed growth often select ERP with motives that can take vendors by surprise. “The cost/benefit equation stands on its head in emerging markets like India and China,” says Steenstrup. Where labor is cheap, savings via staff reduction becomes moot. Savings, instead, come from such intangibles as scalability of information, and ‘latency’ – or the ability to store and retrieve information, which prevents opportunities from being lost. In asset-intensive industries, ERP can improve maintenance of equipment, keeping track of when replacement parts are needed, and saving costs.

Flexibility and compatibility – the quest of CFOs seeking better ERP in the US – may not be the most important criteria. “Most CIOs in the West base their buying decisions on flexibility, but in China inflexibility can be an important factor,” says Steenstrup. He explains that to companies preparing for high growth and a new level of investment, the inflexibility of some of the major vendor programs can force finance and accounting departments to reform company structure via the demands of using the software. “They want Western software because it represents, to them, the best and accepted way of doing business,” he says.

This may be the primary reason behind Hong Kong giant CLP Power’s radical transition of its ERP system. The move, which began in 1998, has proven to be an early example of the kind of ERP upgrade that many Asian companies are seeking today. CLP, which had US$1.7bn in turnover in 2004, went beyond integration in its reengineering of its ERP system via a transfer to SAP R/3 software functioning on a Microsoft Windows platform. It was precisely the benefits of information, discipline, and analytics that CLP’s IT managers sought when they decided on the change. The challenge to CLP was considerable: In 2008 CLP’s exclusive long-term electric power supply contracts with the Chinese government will end, opening the company to greater competition amid deregulation. As far back as the mid-1990s, the company launched an internal analysis that identified the need to boost productivity and better control costs. Then CLP’s CIO, Richard Brisbane-Cohen became convinced that his goal “to change the shape of the way we did things throughout the company,” would be best achieved – and most cost effective – with the move to a Windows platform. In the end, about 40% of the savings that CLP garnered from the change came from being able to redeploy staff for greater productivity in areas such as procurement and customer service.

Needed: ERP Upgrade, Fast

While CLP was an early adapter, it is more often the case that home-grown Asian companies, even very large ones, are only now taking the initial step on the road to integration and better analytics. Instilling discipline in advance of an IPO may have been Cosco Logistic’s motive for its recent investment in a Sybase system to provide a network systems architecture to connect its ERP to its partners’ systems. The logistics arm is an affiliate of the China Ocean Shipping (Cosco) Group, the nation’s largest shipping and logistics group, whose China Cosco Holdings launched an IPO in Hong Kong on June 30, and is projected by HSBC to report US$500m in profits for 2005. The logistics subsidiary has units throughout China, as well as offices in South Korea, Japan, Singapore, Hong Kong, and Greece. Each of these offices had developed individual software systems to connect with clients.

Early this year, the logistics company’s IT manager, Zhang Yu, faced a situation where as business was growing an increased number of partners wanted to exchange information between their ERP systems and Cosco Logistic’s own logistics management information system (LMIS). Zhang invested in a Sybase integration platform called Unwired Orchestrator, which connected the company with customers’ ERP systems, email, and web services protocols. Zhang says that the interface has helped tighten the rein on cost, by shortening ordering cycles, reducing inventory, and removing the uncertainty from the entire process.

US insurance company Aon, with US$5.2bn in sales in 2004, faced a different kind of challenge associated with China growth: Suddenly having to extract information efficiently to adhere to Chinese regulatory standards. Suk Wah Kwok, CIO of Aon Hong Kong, had to very quickly ramp up ERP capability in China to follow Aon’s growth there and still stay within bounds of compliance via the company’s joint venture there. There are about 80 licensed domestic insurance brokers in China, while most international brokers have representative offices there, but cannot do business until 2007. Aon, for example, has a 50% stake in a brokerage joint venture with a domestic partner and a full broking license. Even under this partial arrangement, growth has accelerated fast. Premium income in China’s property and casualty market, for example, has risen 139% since 1998, far outpacing any other market in the world, according to Best’s, the insurance industry journal. A great deal of the increase in coverage comes from foreign firms boosting their presence in China.

With a mandate to support growth as fast as possible in the joint venture, Kwok traveled to Shanghai to select a finance ERP system. “We already had our broking system, and so we had to buy the finance interface for China,” she says. As CIO, she faced a situation where she wanted to move quickly, and to do that, she needed the option of buying the software on a modular pricing level, i.e. being able to separate out what she needed to tackle the problem. “The responses I got from the big vendors really put me off,” she says.

Kwok says she talked to several major international vendors, but found that many were inflexible on price. “I make decisions quickly,” she says, “and when I looked at the three finalists, I made a decision in one day.” She opted for a Kingdee finance package for two reasons. “I come from a development background, and what software the program is written in matters to me,” she says. If modifications were needed later, she wanted to be sure the vendor was conversant in all the major development platforms, including Sun Microsystems J2EE and Microsoft’s .Net. She also wanted a company that could help the joint venture comply with regulations and adapt to regulatory changes. “Two years down the road,” she says, “I’m still satisfied. Their local knowledge was really good for our operation. Kingdee knew more about what we needed than we did.”

Elsewhere in the region, the need to support growth through ERP is no less urgent. Petcharat says: “There’s been a general recovery in the steel business,” and notes that the price has risen from about US$200 per ton to US$500 per ton in three years. In this environment, she was looking for the ability to use ERP to track sales of individual steel grades so that purchasing and inventory would be managed more efficiently. Petcharat decided to stick with the same vendor and upgrade to mySAP software, which allows for smooth integration of sales analytics. Petcharat says the implementation took six months, as projected, and that now “we’re able to calculate our profits with greater accuracy.” With analysts and investors clamoring for information on Thai steel firms, Petcharat now has plenty to tell them.