I’ve just returned from SAP’s 2013 SAPPhire China user conference; with more than 17,000 attendees, it’s still the largest SAP event on the planet. The vendor has recently launched new offerings, like HANA enterprise cloud and extended ERP solutions for new industries; it has also extended its China strategy by announcing SAP Anywhere, a bundle of cloud-enabled mobile CRM services, which it has just begun piloting here.
At the event, clients presented their feedback on SAP services, particularly rapid deployment solution (RDS) services. Ever since their launch two years ago, SAP has extended RDS services to more than 150 software applications. The RDS concept aims to provide everything out of one box; clients buy a bundle of application and implementation services. RDS services have brought tangible benefits to clients that want to quickly start their SAP journey or begin with pilot implementations before going for a full-scale rollout.
However, RDS does not apply to all SAP application implementations; it primarily depends on the client usage scenario. Forrester believes that RDS will not be an attractive choice in a few instances:
Large enterprises using SAP core ERP systems as a mission-critical application. Large enterprises normally make huge investments in these projects. Their primary focus is not on saving time or money; instead, their top priority is ensuring that the project is a complete success and that all functionality is rock-solid: well-developed and thoroughly tested. RDS services, which can cover up to 80% of ERP system functionality, may not be the best choice in this scenario. We’ve seen this happen in China and Southeast Asia time and time again over the past two years.
Chinese manufacturers are repositioning. They’re willing to invest more in improving their core competencies, like R&D and design capabilities, by using outsourcing providers that have successfully served foreign peer companies in the same industry. They must dedicate all their resources — including internal IT systems and solutions like ERP — to meeting this goal.
We recently published a case study on Tagal, a joint venture of ThyssenKrupp Steel Europe and Angang Steel in China. The company was finding it difficult to face up to new business challenges; not only was its infrastructure aging, but its original outsourcing services agreement was constraining business development.
To solve these problems, Tagal changed its sourcing strategy and successfully migrated its ERP system to an Itanium x86 platform to accelerate business processes. The resulting ERP efficiencies enabled employees to process orders and reports twice as fast as before. This has improved Tagal’s relationships with its customers, which are some of the world’s largest automakers. Tagal also reduced its total cost of ownership by 20% in the first nine months alone, primarily due to the simplified sourcing strategy.
How did Tagal achieve these tangible outcomes? It redesigned its service contract and employed three key principles when re-evaluating vendors:
Modifying sourcing governance. Tagal drew on lessons that it learned from 10 years of outsourcing. Its new service provider contract contains more penalty terms; for instance, the provider now must refund the outsourcing fee in any month in which it does not fix two system errors within an agreed time period.
The classic work of Chinese historical fiction “Romance Of Three Kingdoms” describes the history of China after the Han dynasty. This work focuses on three power blocks that fought against each other in an attempt to be the dominant kingdom. After my discussions with many users and vendors at the OpenStack Summit 2013, I see an analogy between these three kingdoms and the evolution of the IaaS market in China as I described it in my report “PaaS Market Dynamics In China, 2012 To 2017” early this year.
Three categories of players are emerging in public cloud market in China, and similar to the Three Kingdoms, these players will fight against each other and collaborate at the same time, accelerating both the adoption and the maturing of cloud solutions in Chinese market.
State of Shu: Amazon Web Services. The king of Shu was the descendant of Han dynasty before the era of the Three Kingdoms; because of his “royal blood,” he had many supporters and followers to fight against the other two kingdoms.
Amazon.com is in a similar situation: It has very good reputation among architects and developers in China. However, Amazon’s promotion activities are lagging. Amazon is trying to expand its cloud territory into Chinese market by building a data center in Beijing and recruiting local personnel. However, its relationship with the government is not as good as Microsoft’s, and Amazon’s ambition to launch AWS in China has been slowed down due to local regulations.
State of Wu: Microsoft Windows Azure and its alliances. The state of Wu is competitive because it has the natural advantage of the Yangtze River, helping it defend against invasion and expand its territory.
On June 6, iSoftStone announced plans to make the company a wholly owned subsidiary of China Asset Management Co., Ltdand delist from the U.S. stock market. This is the fifth IT services (ITS) provider headquartered in China to announce plans to go private in the past 9 months. The others were Yucheng Technology, AsiaInfo-Linkage, Camelot and Pactera.
Why are these firms going private? Despite ambitious global growth plans, Chinese ITS providers have largely failed to articulate a compelling value proposition to U.S. and European clients. By focusing mainly on low-end application development services they have instead primarily competed with much bigger and much more experienced Indian providers – but without the ability to offer lower costs. In fact, the average profitability of Chinese ITS providerswent down from 10-15% to less than 5% over the past 2 years, when most large Indian firms are in the 15-25% range. Going private will give these5companies a chance to transform their current model relieved from the quarterly pressure to meet Wall Street analyst expectations.
Existing and potential customers of these ITS providers may have concerns seeing these providers going private, particularly regarding overall company transparency, including financial strength and corporate governance. I believe clients will have to balance their concerns against the potential benefits that going private may deliver, which include:
Ten years ago, open source software (OSS) was more like a toy for independent software vendors (ISVs) in China: Only the geeks in R&D played around with it. However, the software industry has been developing quickly in China throughout the past decade, and technology trends such as service-oriented architecture (SOA), business process management (BPM), cloud computing, the mobile Internet, and big data are driving much broader adoption of OSS.
OSS has become a widely used element of firms’ enterprise architecture. For front-end application architecture on the client side, various open source frameworks, such as jQuery and ExtJS, have been incorporated into many ISVs’ front-end frameworks. On the server side, OSS like Node.js is becoming popular for ISVs in China for high Web throughput capabilities. From an infrastructure and information architecture perspective, open source offerings like Openstack, Cloudstack, and Eucalyptus have been piloted by major telecom carriers including China Telecom and China Unicom, as well as information and communication solution providers like Huawei and IT service providers like CIeNET. To round this out, many startup companies are developing solutions based on MongoDB, an open source NoSQL database.
Familiarity with OSS is becoming a necessary qualification for software developers and product strategy professionals. Because of the wide usage of OSS among both vendors and end users, working experience and extensive knowledge with OSS is becoming a necessary qualification not only for software engineers, but also an important factors for product strategy professionals to establish appropriate product road maps and support their business initiatives.
Back in October 2011, Microsoft named the initiative to introduce Windows Azure cloud platform into the Chinese market “Moon Cake,” which represents harmony and happiness in Chinese culture. On May 23, 2013, Microsoft made the announcement in Shanghai that Windows Azure will be available in Chinese market starting on June 6 — almost half a year after its agreement with Shanghai government and 21ViaNet to operate Windows Azure together last November. Chinese customers will finally be able to “taste” this foreign moon cake.
I believe that a new chapter of cloud is going to be written by a new ecosystem in China market, and Microsoft will be the leader of this disruption. My reasons:
The cloud market in China will be more disrupted. Due to the regulatory limitations on data center and related telecom value-added services operations for foreign players, the cloud market for both infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) has been an easy battlefield for local players, such as Alibaba/HiChina. Microsoft’s innovative way working with both government and local service partners to break through this “great wall” shows all of the major global giants, such as Amazon.com, the great opportunity from this approach to the Chinese market. We can anticipate that they will also enter the Chinese market in the coming six to 18 months.
Dane Anderson, Dan Bieler, Charlie Kun Dai, Chris Mines, Nupur Singh Andley, Tirthankar Sen, Christopher Voce, Bryan Wang
Huawei is one of the most intriguing companies in the ICT industry, but its overall strategy remains largely unchanged: imitating established products and services, then adjusting and enhancing them, and making them available at an attractive price point. But to be fair: Huawei is pushing more and more innovative products.
In 2012, Huawei’s annual revenue growth slowed down to 8% to CNY 220 billion (about US$ 35 billion). During the same period, its EBIT margin remained flat at 9%, despite the changing revenue composition due to the growth of its consumer and enterprise business. Unlike last year’s event which was dominated by the announcement to push into the enterprise space, this year’s Global Analyst Summit in Shenzhen saw little ground breaking news. It was more of a progress report:
Over the past three years, multinational companies’ (MNCs’) approach to outsourcing in China has steadily matured as they seek to leverage broader outsourcing models and source from a combination of global providers and local Chinese providers.
In my latest report, Lessons Learned From Outsourcing In China: Part 2, I analyze the key outsourcing trends and approaches to help sourcing and vendor management (SVM) professionals at MNCs select the right local outsourcing suppliers. As part of this analysis, I’ve highlighted the main service capabilities of local Chinese vendors broken down by service model and profile the different types of service providers that currently operate in China.
Key findings from the report include:
MNCs are adopting sophisticated outsourcing approaches in China. Many MNCs are shifting away from a pure global service provider approach to a broader shortlist that also includes Chinese providers. SVM professionals at MNCs appreciate local providers’ broader geographic coverage, lower outsourcing cost and more flexible service deliverables.
MNCs are also diversifying their outsourcing requirements. After signing the first wave of outsourcing contracts in the past five to 10 years, MNCs are becoming increasingly comfortable considering more sophisticated outsourcing contracts, such as best-of-breed selection, vertical outsourcing, etc.
Local outsourcing service providers are continually improving their capabilities. To approach more MNC clients in China, local providers have enhanced their geographic coverage in remote cities, accelerated consolidations, recruited senior talent for improved depth at key positions and aggressively recruited fresh graduates to manage costs.
As businesses get larger, and the need for effective alignment of the business with technology capabilities grows, enterprise architecture becomes an essential competency. But in China, many CIOs are struggling with setting up a high-performance enterprise architecture program to support their business strategies in a disruptive market landscape. This seems equally true for state-owned enterprises (SOEs) and multinational companies (MNCs).
To gain a better understanding of the problem, I had an interesting conversation with Le Yao, general secretary of Center for Informatization and Information Management (CIIM) and director of the CIO program at Peking University. Le Yao is one of the first pioneers introducing The Open Group Architecture Framework (TOGAF) into China to help address the above challenges. I believe that the five-year journey of TOGAF in China is just an early beginning for EA, and companies in the China market need relevant EA insights to help them support their business:
Taking an EA course is one thing; practicing EA is something else. Companies taking TOGAF courses in China seem to be aiming more at sales enablement than practicing EA internally. MNCs like IBM, Accenture, and HP are more likely to try to infuse the essence of the methodology into their PowerPoint slides for marketing and/or bidding purposes; IBM has also invited channel partners such as Neusoft, Digital China, CS&S, and Asiainfo to take the training.
TOGAF is too high-level to be relevant. End user trainees learning the enterprise architecture framework that Yao’s team introduced in China in 2007 found it to be too high-level and conceptual. Also, the trainers only went through what was written in the textbook without using industry-specific cases or practice-related information — making the training less relevant and difficult to apply.
The Asia Pacific (AP) growth engine did not fire on all cylinders in 2012, leading Forrester to revise its IT purchases growth forecasts for the year. While Australia, South Korea, and several ASEAN tech markets are showing continued solid growth, in other markets like China, India, Japan, Malaysia, and Vietnam, political leaders are struggling in the face of growing economic problems. My colleague Andy Bartels and I, with the help of Forrester’s AP analyst team, have recently published our revised IT purchase growth forecasts for 2013. Here are our key expectations by country:
2012’s slowdown in China will be short-lived. Despite a slowdown in 2012, China continues to attract intense vendor interest because of its size and potential for further growth. The expected government stimulus efforts in the country will offset factors such as weak demand from businesses and governments. The slowdown in 2012 (+9%) is therefore likely to be short-lived, with stronger growth resuming in 2013 (+10%).
India’s IT growth will remain slower than expected through 2014. 2012 (+7%) was a relatively lackluster year for the tech market in India. Worse than expected economic growth, combined with political gridlock on economic reforms, kept the tech market from reaching its full potential in 2012. While we expect the public sector to drive India’s IT spending growth, the impact will be limited through 2014 due to the parliamentary elections scheduled for that year.