Erp Localization in a Foreign Subsidiary of the K Company

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ERP Localization in a Foreign Subsidiary of the K Company
Ji-Ye Mao

Wei Wang

Mianzhen Pan

Foreign subsidiaries of multinational companies (MNCs) are often mandated to adopt the same ERP package used by their parent, but the results vary to large degrees. ERP implementation in foreign subsidiaries involves bigger challenges than at home. It is partly because of potential misfits between the software package, which reflects European and U.S. industry practices, and the local cultural, economic, and regulatory context. For this reason, the misfits may be worse in Asia than in western countries. After all, ERP is not only a software package but also a way of doing business.

K Company (a fictitious name) is a large U.S.-based manufacturing business and world leader in its product lines. Since its entry into the Chinese market in 1995, it had set up 10 plants and over 500 sales outlets in China by 2008, and placed its Asia-Pacific regional headquarters in Shanghai. To synchronize its subsidiaries in China and around the world, the parent company needed to develop a uniform information technology platform. It was considered crucial for closely monitoring the operations of the subsidiaries dispersed worldwide in real time. Based on the SAP implementation in North America and its global headquarters, a plant in Australia and another one in New Zealand also successfully adopted the same ERP. The Shanghai plant, referred to as KS hereafter, was specialized in making bathtubs. It had over 600 employees including dozens of office workers and managers. KS was chosen to be the first unit in China to implement SAP (five modules in fact) in February 2006, along with the regional headquarters. The stake was high as the success of this project would affect the company’s manufacturing operations in China, and also with impact on the parent company’s global strategy.

The existing IS applications at KS were fragmented. For example, procurement and production managed their own data separately as transactions occurred. Many reports were generated manually. For example, cost analysis was done with Excel and manual calculation based on materials, labor, and overheads numbers. However, the business processes of KS were similar to those in the parent company, and many of them were standard processes in overseas’

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factories, which could be used as reference. In fact, “60-70% of the standard processes were suitable if applied to the Shanghai Factory.”
No external consulting services were hired. The plan was to leverage the support from the parent company and the experience gained in the Australia and New Zealand subsidiaries. An internal consultant team was assembled, consisting of mainly SAP experts and MIS professionals who had helped with the other two Asia-Pacific projects, but foreign to China. They are simply referred to as consultants thereafter.

Nearly all of the super users were the director or senior manager of a functional area, whereas the key users were business process experts. Together they formed the user group of the project. This paper uses “users” thereafter to refer to both “key users” and “super users” as one category, unless it is necessary to be specific. “End-users,” who merely used the ERP but were not involved in the implementation, were not studied.

1 Early Setback from Conventional Implementation
Initially, training was conducted on ERP concepts by the consultants, based on their implementation experience in other subsidiaries in the region. Then, the consultants showed demos of the standard process in K Company, and sought feedback from the user group about KS operations. The two sides communicated on the requirements, and worked out the business process flows. This was followed by training to the users of each SAP module, ranging from the processes to drills for online operations. Once again, users were asked to specify local requirements for modifying the configuration. Then, users were requested to...
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