Sap: Establishing a Research Center in China

IE Business School

SAP: Establishing a Research Center in China

Swastik Mukherjee

Managing People in Global Organizations

October 14, 2015

Professor Sully Taylor

1. Problem Statement

Despite being open for just a few months in China, the SAP HQ in Germany was eager to find out if the investment made in China was en route to any success or not. In spite of having hired three researchers by March 2008, the team was already facing trouble attracting additional talent to the team. Furthermore, the location in the Shanghai Software Park was not being as beneficial as initially thought, as the fostering of cross-company collaboration and cross-fertilization that was hoped for had not happened. Questions were being privately asked about the viability of the location and whether SAP Research Lab in China would be a monumental success or failure?

1. Analysis

What needs to be noted here are a few reasons that could possibly be factoring in to the research center’s slow start. After reading the case in its entirety, I am of the opinion that it is too soon to consider the venture to be a failure. Despite the many headwinds, SAP as a brand, with its pedigree in data and enterprise resource management will eventually prove to be a success in China. Patience is the key, to state a cliché.

The headwinds included, but were not restricted to:

1. Lack of first mover advantage: The biggest problem that I identified from the case was that SAP had moved into China much later than its rivals. Also, the location in Beijing where most of its competitors were housed, may have looked like a bad idea at the beginning but going by the lukewarm interest in SAP at the Software Park, I believe one of the lessons learned is that being clustered with their competitors may not be a bad prospect. It gives the company more credibility and ability to leverage the relationships extended to Beijing in order to attract top talent. Despite Shanghai being well-known place in the western world, most of the top level graduates still prefer Beijing over Shangha, and since 37% of the firms cited talent recruitment one of their biggest problems, I believe that will be addressed if SAP had more exposure in Beijing.
2. IP Protection Issues: China was, and still is, one of worst offenders in terms of protection of intellectual property. There were mounting concerns that disregard for IP rights could cross over into trade secrets being stolen from research labs. SAP was probably comforted from this by China’s acceptance in to the World Trade Organization in 2001, which was a reflection of the government’s desire for international standards on legislative and jurisdictional levels. But IP challenges continued to remain. Most IP infringement legal cases were settled out of court which made it more difficult to further develop legal practices in IP and created lack of examples and lessons about the negative consequences of IP infringement that could be communicated to companies.
3. ERP culture in China: ERP software systems had not yet been widely adopted in China. By 2008, only 45% of the companies in China had adopted ERP systems from the larger ERP software companies. Instead they contracted with other software companies domestically and created ad-hoc systems or chose not to adopt any software. SAP, being a leader in large enterprise segment in China, was unable to attract the small and medium scale businesses.

1. Recommendation

My recommendation would be to be patient. As mentioned earlier, SAP is a global leader in its segment and is an extremely well-known brand. In spite of the existing problems that it may face, it is still relatively early days. Its position in the software park is strengthened due to governmental subsidies and incentives, local university tie ups, joint research opportunities as well as internships. The park is technologically superior than its Beijing counterpart and SAP can leverage its existing supplier and customer relationships due to the earlier presence of SAP firm and development lab. SAP was already offering great deals to its recruiting base and had an attrition rate of only 8%. What it could do is establish a bit more of ‘guanxi’ with its customers and government officials to improve goodwill and reduce attrition. What it needs is time.