“Above all, China needs support in the area of logistics”

Klaus Zimmer
Klaus Zimmer

Mr. Zimmer, how long have you been living in China?

Zimmer: I first came to China with my old department leader, and now Siemens’ CEO, Heinrich von Pierer, in the Spring of 1985. The reason for that visit was a joint venture study with the Chinese planning authorities. I have been living and working in China since 1989.

Was it difficult for you to adapt to a culture that is relatively alien to West Europeans?

Zimmer: In 1989, I moved from Munich to Shanghai. My job there was to set up the Siemens communications division in Eastern and Southern China. At that time, Shanghai was a gray, dark city. At 10 at night, all the traffic lights on the streets were turned off – there simply wasn’t any traffic any more. Western foods and other goods were very difficult to come by. I was forced to adapt to the Chinese way of life very quickly.

What do Western business people in China need to be aware of – from a legal, political, or cultural point of view?

Zimmer: Traditionally, the Chinese read downwards from the top left to the bottom right of a page. If you look at children reading, for example, you get the impression that they are constantly nodding and saying “yes”. In contrast, we read from left to right. From a distance, it looks as though we are shaking our heads and saying “no”. In China, only a positive attitude leads to success. This also means laughing every now and then. This also applies to business life – which Europeans often find hard.

In addition, in Asia, business life and private life are not as strictly separated as they are in Germany or the United States. The boundaries here are blurred. Business life encroaches on private life – everyone is available 24 hours a day and you are often contacted late in the evening or over the weekend.

Where is China’s economic life located?

Zimmer: Private companies are mainly located in Southern and Eastern China. Most international companies are situated in Shanghai, and large national companies are located directly in Peking or in Northern China. These divisions are historical. At the beginning of the Eighties, the south was open first, and it was mainly private companies that were established. At that time, Shanghai was still closed, and therefore concentrated on international companies such as VW, Alcatel or Siemens. Large national companies such as Sinopec, Cosco or BOC traditionally have their headquarters in Peking. Corporate finance or flotations usually come via Hong Kong.

Has the one-time British colony of Hong Kong “settled in” well?

Zimmer: Up until recently, Hong Kong tried to cut itself off from China – as in colonial times. But Hong Kong has now finally understood that it is part of China. The future of the one-time British colony now rests to a considerable extent on internal trade with China. This shift in attitude has been expressed through a higher degree of cooperation, such as in huge infrastructure projects. For example, Hong Kong is to be integrated in the Pearl River Delta.

How do you assess the general economic situation and the importance of the software market in China?

Zimmer: When I started working for SAP in China seven years ago, there was no software market. Software and service were included in the hardware price. We have helped create a software market in China. Up until a few years ago, China was a state-controlled economy. Services and software were undervalued as “intangible”, because there were and are enough well-trained people. Companies only started posting software acquisitions as investments, rather than costs, and thus tax-deductible, about three or four years ago.

In interviews and in talks with the Chinese governments, I have expressed my support for moves to give software the status that it has in Europe or the United States. Since China has been a member of the World Trade Organization (WTO), our groundwork has borne fruits. Today, the government supports enterprise resource planning (ERP) in the long term with tax benefits or gives loans to companies that want to use ERP as a tool for change management or to increase efficiency.

And how has SAP developed in China?

Zimmer: SAP China now has around 500 employees, only six of whom do not come from China. We are a local organization with a great deal of enthusiasm and team spirit. Our growth rate was more than 90% in each of the past two fiscal years. I assume that the software market will continue to grow strongly. There are clear signs that this is the case, for example the fact that our average contract volume is constantly increasing. However, we are also aware that, in rapidly growing markets, there are industries that overestimate what a current development can do. In those cases, the necessary adjustments then have to be made.

In the long term, China will return to the economic position of power it last had in 1820. Then, China had a 30 percent share of the gross global product. Economic growth will be determined by two factors: First, the number of additional hours that are worked in the national economy, and second, the increase in efficiency that will be achieved by measures such as the introduction of ERP. China still has a long way to go in both respects.

What industries are the most important for SAP in China?

Zimmer: In the short term, the oil and gas industries and steel production are extremely important for SAP in China, as these industries are the most competitive in global terms. However, over the medium and long term, this will change. In the future, banks and utility companies will be at the forefront, because at the moment, there is still a period of non-availability which will last until 2006.

SAP has set up its own sales organization in China. Most of our sales employees have been with SAP for four or five years, and have grown with our company. In recent years, this team has learned to concentrate on giving the customer real added value, rather than on just selling technical functions. In 2003, we also set up channel sales with 12 sales partners in the SAP environment and three distributors for the SAP SMB solution SAP Business One.

What is the most talked-about software topic in China at the moment?

Zimmer: China only spends a fraction of the amount that companies in Europe or the United States spend on IT. The government has recognized this and has introduced special programs to promote “XinXiHua”, which means information technologies in companies. Here in China, “informatization“ primarily relates to enterprise resource planning. The term, and the software behind it, was brought to China by SAP in 1997. We thus set standards in this country at an early stage, and are now further extending this position with mySAP ERP.

Solutions for supply chain management such as mySAP SCM or special technologies such as RFID are also gaining more interest, since China has since developed into the “low cost manufacturing center of the world“, and above all needs help in the area of logistics. International companies such as Tyco, Siemens, and P&G have manufacturing locations in China, sell locally in China, and export their products across the whole world. The global system network of production and distribution facilities demands the kind of supply chain solutions that are offered by us.

What is the demand like for other solutions from the mySAP Business Suite?

Zimmer: I think there will be an increasing demand for SAP NetWeaver, particularly in the area of banking, which traditionally generates 70 percent of IT demand. Banks have installed point-of-sale systems and ATMs in order to automate the front office area. With more than 10,000 branches for each of the major banks, this represents a considerable investment. The back office area has generally been covered by custom developments, which are now outdated and can no longer cope with the volume of data. Here, SAP NetWeaver helps us support the step-by-step transition from the inhouse solutions to SAP’s industry solutions for financial management.

What is SAP China’s strategy?

Zimmer: We have created a program for growth called “China 300”. This program should take effect by the Olympic Games in Peking in 2008. SAP will concentrate on eight industries and achieve higher growth in them. These industries include oil and gas, banking, or utilities, for example. In addition, we will be focusing on small and midsize businesses. In the medium term, this market will have the highest growth rates. It is a great help to us that SAP Labs China in Shanghai is concentrating on the development of our global SMB solution. In addition, we have gathered a huge amount of experience in recent years relating to local requirements such as the Chinese characters.

What is your personal motto?

Zimmer: “Carpe Diem”