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SAP Software Development in China: Challenges and Opportunities

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Clas Neumann, head of SAP Labs Operations and Fast Growth Markets, and Rui Cheng Li, MD Labs China, talk about the focus of SAP’s research and development (R&D) efforts in China.

Q: What are the major changes you have witnessed since SAP established its first entity in China?

Neumann: There have been so many changes, it is really difficult to know where to start. Besides the obvious changes like the super-fast development of the economy, tech infrastructure and also the political weight of China in international bodies, we have also seen very specific changes in our business.

Initially, the concept of software and paying a licence fee for the use of software was not widely known. Many customers found it counterintuitive to pay for intellectual property when the physical value of the CD was only a few Yuan. This has changed dramatically, thanks to the rising Chinese software industry and the government’s strong modernisation efforts.

In addition, the knowledge base of our customers has changed significantly. Our first 10 customers, after we entered China in 1995, were from a group of large joint ventures between foreign multinationals and Chinese conglomerates. Today, 90 per cent of our customers are Chinese companies from the private sector and state-owned companies.

Finally, IT-related research at universities, and higher education in general, has improved a lot. Initially, it was challenging to find capable software developers or IT specialists in China. Today there is a large supply. Nevertheless, the talent situation in Beijing or Shanghai is still difficult, whereas in Xi’an or Chengdu it is a bit easier for an IT company to find highly skilled engineers.

When did SAP decide to invest in R&D in China?

Neumann: We started our SAP Labs China in 2003, after performing localisation engineering for our products for a few years. Based on the excellent experience we had, we also decided to pursue global R&D work in China. As success breeds success, more business units from SAP were convinced that China is a great place to develop software. Today, China is our third largest R&D hub in the world.

Has SAP’s R&D team developed products that are primarily for China?

Neumann: For many years, the Chinese market was too small to justify such a large R&D set-up. Therefore most of the products were exported and successfully implemented by global SAP clients. Today, the situation has changed a bit. We feel that in many areas, China is either the biggest market (e-commerce, robotics, machine learning) or is also a technology and adoption leader (e-payment systems). So naturally, we have put more research and product development in these areas in China and are slowly transforming our SAP Labs China in that direction. As the SME market in China is also a strong growth engine, we have developed our latest cloud-based product “SAP Anywhere” here in Shanghai and had our global product launch in Beijing last year.

With China’s well documented air pollution deterring some people from locating here, and administrative issues often making it challenging to secure required visas and work permits, what measures has SAP taken to ensure that it is able to attract and retain the talent it requires for its R&D operations?

Neumann: Indeed it isn’t easy to attract foreign talent to large cities in China due to the fact that the living conditions are seen as very difficult. What we do is that we offer more flexible models, where the family can also stay outside of China, or we offer shorter assignments than before. We do not have visa or work permit issues as we usually only bring highly qualified engineers with many years of successful track record to China.

Overall the situation of bringing foreign experts to China is still satisfactory, and we try of course to participate in a small way to make the overall situation better through our technology solutions.

What are some of the other key challenges SAP faces in terms of China’s regulatory environment?

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