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Case study sap establishing a research center over china Essay

Recommendations Content Competitors SAP overview Benchmarks Products and Services China’s software industry Porter‘s “diamond model“ explains how firms can gain competitive advantage on international markets and thus become exporters of their goods and services Demand Conditions Government policies 1972 1978 SAP Founded from IBM employees in Germany SAP turns 10 providing service to 250 companies in Germany, Austria, and Switzerland 1982 Opens international subsidiaries in Denmark, Sweden, Italy, and the US Customer milestone: Dow Chemicals becomes SAP’s 1,000th customer SAP International Expansion into Switzerland 1984 1988 1989 SAP (International) AG in Switzerland controls 12 international subsidiaries in Canada, Singapore, Australia, and other countries.

33% of its revenue is spent for R&D SAP is named “Company of the Year” Marketing in the Chinese market with presentations in Beijing, Shanghai, and Tianjin. The IBM corporation, a longstanding SAP partner, is now using SAP R/3 to manage its global business processes. New York Stock Exchange (NYSE) in Q3 World’s leading provider of e-business software solutions Third-largest independent software vendor on the planet Company supports its customers with special programs designed to help them emerge from the 2009 economic crisis.

Cutbacks, SAP is able to improve its operating margin despite the difficult circumstances. Double-digit growth shows that more and more customers are
turning to SAP’s software innovations.


SAP announces its plans for growth in emerging market economies such as Brazil, India, Russia, and especially China= EUR 2 Billion World leader in enterprise applications in terms of software and software-related service revenue World’s third largest independent software manufacturer A 40-year history of innovation and growth. More than 183,000 customers in 130+ countries. More than 55,765 employees in 130+ countries.

Annual revenue (IFRS) of € 14,23 billion = $18,66 billion US dollars (2011) 1994 1998 2000 2003 Early History 1979 Goes public SAP AG Fast Track SAP in Shanghai ninth opening of a development location 2005 2007 2010 2011

The SAP HANA platform, enabling them to analyze data in seconds

SAP announces its EUR 2.5 billion acquisition of SuccessFactors, the leading provider of cloud applications. SAP’s Financial The SAP R/3 system is released for Windows
Workforce = 24,000 employees
in over 50 countries

Revenues €6.3 billion 23% increase SAP decision to construct SAP Labs Shanghai Pudong Software Park. 2006 Along with SAP Germany, SAP Austria, SAP Chile,
SAP Andina y del
Caribe, SAP Mexico, and
SAP Region Sur win

SAP Labs India receives the distinction “Recruiting and Staffing Best in Class” Software revenue of EUR 1.5 billion best quarter in SAP’s history. SAP branches out to clients in Austria and France Wave of the Future Opens subsidiaries China South Africa, Malaysia, Japan, the Czech Republic, Russia, and Mexico 1992 1996 Strategy, Structure, and Rivalry Related & Supporting Industries Factor Endowments SAP offered competitive salary, participation in local high-potential programs, foreign visits, the opportunity to work with global counterparts, and for long-term senior staff, a subsidized car policy.

SAP set up programs to build relationships with China’s top 10 universities in computer science. Staff traveled to local universities to develop and maintain contact with their professors.

SAP Human Resources set up a number of programs to help promote PhD internships at SAP Research.

Stanford University three-month summer internship positions an incentive for top Chinese interns Finding talent difficult = 1% of master and PHD graduates with same qualifications as in US or Europe

Difficult recruiting managers from abroad to China

Compensation Wars for local talent

Expatriates recruited also very expensive

Difficult to retain staff due to high opportunities
=problem for project that require 3-7 years

Annual raises were common up to 15% or more

Top graduates expected a high level of personal engagement Recruiting Challenges Solutions Key decision making for SAP Labs in China Recommendations Support of long-term investment in technology and R&D Tax incentives

Reduced 15% corporate income tax
150% deduction for R&D expenditures if R&D spending has increased by 10% from the prior year Access to cheap land
Establishing facilities in China eases market access
premise to sell products
Government allows easier access to clients
Relationship building is very important
Political stability supports long-term investments Some Facts 1.5 million employees
CAGR: 29% over past three years
20,719 firms in software industry High market potential
only 45% of companies had adapted ERP systems
Demanding customers due to specifications of Chinese market
Rapidly changing and developing market
Market of the future: trends can be identified here
Strong development of general Chinese economy Limited competition, mostly smaller companies with focus on SMEs

SAP is market leader in large enterprise segment
Focus of strategy is to deliver high quality software as a standardized solution with constant improvements and innovation SAP‘s structure: Geocentric firm sets the basis for successful operations in China Homogenous company culture

Collective decision making
„all pulling on one string“: interdependent subsidiaries Partners are available, yet underutilized: Huawei became SAP‘s first Chinese partner in July 2012 Supporting industry is not as important as in other industries business outcomes are knowledge based

only little up- and downstream activities Infrastructure Capital Resources Knowledge Resources Factor Endowments Physical Resources Human Resources Availability of skilled, hard-working, striving, aspiring workers: appr. 2.4 million graduates Workforce is comparatively cheap:

5000 – 9000 RMB per programmer
20,000 – 30,000 RMB per SAP consultant
Competition for skilled university graduates is rough Access to information available, however on a limited basis due to restrictions imposed by the government (such as controlling the internet), Internal knowledge can be built up through exchange with other SAP sites High availability, large inflow of FDI, especially in high technology sector Capital is relatively cheap

Different sources of financing available Cheap availability of land and office spaces, especially in software parks Other physical resources do not play a big role Software parks support the exchange of knowledge, lead to innovation, low communication costs Modern internet connections allow for highspeed communication with sites throughout the world Threats Wage levels rise in China companies already start moving to ASEAN countries

Loss of IP due to violations and copyright infringements
Intercultural problems might become an issue
Hofstede: cultural distance between China and Western countries is very high Language barriers
Time zone barriers General Threats Unfamiliarity Hazard
Incorrect market assessment: Do Chinese firms really want to have standardized software Inadequate knowledge of country’s norms, values, culture, business conduct Lack of embeddedness in local networks (suppliers, customers, governments…) Relational Hazards

Costs within the organization caused by geographic distance and limited flow of information Discrimination Hazards:
Differential treatment of SAP by government, customers, employees Liability of Foreignness Transnationality Index Why Shanghai? Why SAP Labs in China? Why locate in a Software Park? Recruiting Decisions SAP Labs China SAP chose the Integrated R&D Network Approach to manage its worldwide R&D sites successfully R&D networks should follow two principles:

Subsidiarity: whatever can be managed by a decentralized unit should not be taken care of in the center

Moving centers of gravity: decentralized units take over projects if they are better in doing them than others Create a good working atmosphere Care for employees‘ families
Assign interesting & challenging projects
Give responsibilities to researchers
Conduct intercultural trainings
Offer attractive compensation packages
Allow researchers to focus on research  – administrative work should be minimized Offer trainings and exchange with other R&D institutions Attract top talented and highly skilled graduates and experienced researchers Maintain tight contacts to local universities

Provide support for workers who move to R&D site Choose renowned local researcher with international experiences as a lab leader: “technological gatekeeper” Include local managers with multicultural experiences to act as cultural mediators Facilitate integration through mentors One of the key success factors is managing humans – hiring and retaining talents accounts largely for the success

Experienced managers and experts have to be transferred to new R&D site to share process knowledge, routines and culture which will improve the quality of the work and will make the R&D site an attractive place to work at. Attracting talented employees sets the cornerstone for successful R&D outcomes – contacts to universities are extremely valuable Recruitment Retention By holding turnover rates low, knowledge will be kept in the company and has the potential to multiply Each R&D site is on the same level R&D sites are closely interconnected by means of flexible and varied coordination mechanisms Each R&D site specializes in a particular field of research  development of “competence centers” Multi-dimensional coordination & information is necessary

+ Coupling of specialization and synergy effects
+ Global before local efficiency
+ Organizational learning across many locations
+ Exploitation and refining of local strengths
– High coordination costs
– Complex institutional rules & decision processes Key Characteristics 1 Long-term strategic vision for R&D site should be set Clear assignment of tasks and responsibilities for site
Outlook for development  growth plan
Quick first successes to strengthen respect and reputation for research work Determine appropriate size of R&D site for each development stage Closeness to business units Cooperation with universities and local research institutes to get fast access to new knowledge and developments Attracting new employees by close ties with universities

Getting access to informal networks to gain insight information and knowledge Searching contact to companies to be close to the market/customers Regular visits by top managers should underline importance of new R&D site Promote research outcomes

New site should be considered to be equal among other R&D locations Positioning as high-end research organization, which increases motivation and attractiveness for new employees Top management support is crucial to success of R&D site Appropriate resource allocation in terms of money, time, and people needs to be guaranteed Senior management has to be an advocate of new R&D site

Incentives for managers should include components based on success of R&D site Besides managing employees, several other key areas including attention for R&D site and sponsorship have to be tackled Top management team commitment, support and involvement Steering committee: representation of relevant parties

Led by managers with technical expertise and in-depth organizational knowledge Guidance and monitoring of R&D sites Virtual teams are the key success factor for successful team work Establish processes & infrastructure for efficient communication Allow for visits by granting travel budgets Create a strong corporate culture
Encourage taking responsibility, initiative and self-leadership 360-degree feedback Transfer of experts & managers who spread routines, culture and processes Cooperation & exchange between competence centers

Know-how and technologies need to be transferred and easily accessible throughout the organization Cross-functional and cross-dimensional communication has to be ensured over different channels, such as Visits, personal meetings, conferences, employee exchanges & trainings  set budget for traveling & exchange

 To prevent the „not-invented-here syndrome“
Central staff department should support decentralized units Alignment of corporate strategy and R&D strategy Clear allocation of research focus to prevent duplication  competence centers should have a clear focus, should set research agendas Processes & Organization Leadership & Collaboration Strategy To successfully manage the integrated R&D network, SAP has to set the right course Attention for R&D site Strategy Cooperation Sponsorship The measures serve to increase identification, internal transfer and absorptive potentials Location matters Firms need to seek resources (esp. advanced)


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