The ERP market of Chinese manufacturing was 2.393 billion RMB, with the growth rate of 22.28% in 2004. Domestic vendors accounted for 55.18% of market shares. But the profit ratios of local vendors are relatively low. The competition is fierce.

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1. An overview of the ERP application of Chinese manufacturing in 2004

In 2004, the competition in Chinese manufacturing was fierce. Customer needs were more and more individualized, domestic market was internationalized quickly, international investment to Chinese manufacturing was quickly improved. All these factors have urged Chinese manufactures to pay more attention on IT application, in order to improve their innovation ability, to achieve better management, to strengthen the collaboration with supply chain partners, and to improve the core competence.

As an essential management system, ERP gained wider application in 2004. The satisfying ratio of the customers was largely improved than 2003. SMB market became hot in the ERP application. The ERP value chain, including software and solution providers, consulting companies, training companies and service agencies, has emerged in China.

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2. Analysis of ERP market of Chinese manufacturing in 2004

Based on the research of e-Works, the total application software and service market of Chinese manufacturing was estimated to be 5.673 billion RMB (including the channel revenue and consulting services revenue), among which, the market of management software was 2.751 billion RMB (including ERP, CRM, SCM and OA); PLM software (including CAX and cPDM) is 1.579 billion RMB; others (including MES, automation software) are 1.343 billion RMB. The Chinese manufacturing ERP market was 2.393 billion RMB, with a positive growth in 2004, increasing 22.28% than 2003, which was 1.957 billion RMB. However, it was only accounted for about 1% of the overall global ERP market.

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Totally different from the global ERP market, there was no much acquisition in Chinese manufacturing ERP market in 2004, which showed that this market was still in the early stage. With the rapid growing needs of manufacturers, middle and small ERP vendors could still survive by their unique features and channels. The statistic of e-Works showed that there were at least 60 domestic ERP vendors whose revenues were higher than 5 million RMB.

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The market share of ERP vendors fluctuated slightly. The revenue of top five ERP vendors accounted for 55.37% of the total market; the revenue share of top ten ERP vendors was 70.83%. This status will almost remain the same in 2005, which means that the concentration rate of ERP market is relatively low. It reflects that China ERP market is immature, and acquisition will not occur frequently in the next few years.

Both international and local ERP vendors paid more attention on SMB ERP market in 2004. Expanding channels was a distinctive characteristic this year. In 2004, several ERP software and service providers originated from large manufacturers grew very fast, such as FAW Qiming, Shanghai Automotive Information Systems, Shenzhen Lianyou, Wuhan Dawnpro, Shanghai Baosight, Petro-CyberWorks, etc.

International ERP vendors were dominant in high-end market. However, domestic companies won the competitive advantage in SMB ERP market. The revenues of Chinese ERP vendors, such as UFIDA (UFSOFT) and Kingdee were much higher than international vendors. The market share of domestic ERP vendors was 55.18% in Chinese manufacturing ERP market.

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Fig.1 The distribution of Chinese manufacturing ERP market

3.ERP application status of Chinese manufacturing in 2004

In general, the application degree of ERP in Chinese manufacturing industry was still low. The ERP application rate was only 10.4% in Chinese manufacturing. Even in machinery industry, which applied ERP earlier than other industries, the application rate was only 15.7%.

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In 2004, Chinese manufacturers improved from the stage of being inculcated by ERP vendors to the stage of wise selection. They chosen ERP solutions based on their own needs, and their expectation with ERP application became more and more rational. 35% and 8% of ERP customers considered that their ERP system achieved or surpassed expectation. However there were still 45% of ERP customers thought that ERP applications were less than expectation, and 12% thought that it was far from satisfaction. As a whole, the satisfaction rate of ERP application was increased that 2003 to some extents.

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Fig.2 Satisfaction Rate of ERP application of Chinese manufacturing in 2004

Feedback from manufacturers showed that the most remarkable benefit of ERP application was reducing the stock and manufacturing cost, while accelerating the cash flow, shorting delivery time, and improving product quality. The executive managers could make more accurate decision based on the data of ERP system. ERP application has brought substantial benefits for Chinese manufacturers.

Fig.3 The benefit of ERP application for Chinese manufacturing in 2004

The research of e-Works revealed that the most frequently used ERP modules were financial and logistics in Chinese manufacturing, following were production and cost management, which were mainly applied in large and medium size manufacturers. However, the applications of workshop management, JIT and decision support system just began in about 5 years, so, the application ratios were relatively low.

 

 

Fig.4 The application rate of ERP functions for Chinese manufacturing in 2004

Among all the ERP modules, the application of financial module and logistic module brought more benefits. Many enterprises have preliminarily streamlined their financial and logistics. Besides, the application effect of supplier management and customer information management were also good. However, the application of production management and cost management was average. The functions of human resource and distribution management were too simple to satisfy the deep requirements of the manufacturers, so the satisfying ratio were poor.

Fig.5 The application benefit of different modules

 

The internal integration of ERP modules made a great progress in 2004, which was very poor before. 28% of Chinese manufacturers felt that the integration of ERP modules was excellent. 49% thought that it was good. Only 3% found it was poor and 1% thought it did badly. It highlighted the technological improvement of ERP vendors.

Fig.6 The internal integration of ERP modules

4.The development of ERP technology in 2004

1) Internal integration of ERP system achieved quantum jump.

Financial background ERP vendors, such as UFIDA, made great progress in internal Integration. The newly launched ERP software U860 of UFIDA became a milestone in the technological innovation, which could meet the diversity needs of the manufacturing enterprises.

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2)The integration between ERP and other application system improved

International and local ERP vendors paid more attention to the integration between ERP and other application software. The hottest area was the integration between ERP and PDM, ERP and MES. Kindgee released its own information integration platform named BOS, which could greatly improve the integration ability with other application software.

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3)ERP vertical solutions became abundant

Domestic ERP providers, such as Langchao, paid more attention in providing solutions for different industries and made remarkable achievements. Moreover, international ERP vendors like QAD highlighted more in automotive and electronics industries, which brought it fruitful success in the market. SSA, INFOR(MAPICS), EXACT and IFS also provided multi-industry solutions to meet the needs of different manufacturing sectors.

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4) Application of platform, component based technology increased

Service Oriented Architecture (SOA) has been introduced to China by international vendors. SOA is one of the mantras of Web services, based on Loose Coupling Architecture. It defines software components by their own industry need, to improve the response capability. Oracle and SAP are in the lead. Domestic vendors, such as UFIDA and Kingdee have rebuilt their architectures and developed web service oriented software systems based on multi-tier architecture, multi-database and multi-platform to ensure their ERP systems configurable for the manufacturing customers. KSERP made some salutary endeavor in software platform too.

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5) Integration with RFID

With several advantages of RFID, such as long service life, long reading distance, informative security, tremendous storage capacities, IBM, SAP, Microsoft, QAD, SSA, SoftBrands and other ERP vendors introduced their RFID-ERP integration solutions in 2004. Domestic ERP suppliers also concerned for this field and developed the related solutions.

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6)ASP based ERP application emerging

ASP, a web-based service model, was booming again in 2004. ASP based ERP had been introduced by I1 INC. and has been applied by some assembly-to-order manufacturers. The ASP based ERP brought out by Guangzhou Tianjian for the textile industry in Zhang Cha, Dong Guan city, Guangdong province, reached practical level.

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7) Coupled with BPM (Business Process Management）

ERP is changing from function oriented to process oriented. International ERP vendors, such as SAP, IFS, SSA, have integrated BPM module (or Dynamic Enterprise Modeling, DEM) in their ERP systems to divide the data, functions from the processes, so as to improve the re-structure abilities in ERP systems. Under the support of Chinese Ministry of Science and Technology, Golden Thinking released an ERP system integrated with BPM and improved the adaptability to the manufacturers.

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8)Added functions to fulfill the SOX Act.

IBM, SAP, ORACLE, QAD have introduced their related solutions to fulfill the SOX Act. With more and more Chinese companies becoming IPO in USA, domestic ERP software companies began to pay attention to the requirements put forward by SOX Act, and developed the corresponding solutions.

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5. The trend of ERP market and application in Chinese manufacturing

China will be ongoing critical strategic opportunity in the next 5 years. Fast growing infrastructure construction and foreign investment have inspired the increase of China Manufacturing. In the next 5 years, with the fiercer competition, more and more Chinese manufacturers will change from traditional management to modern management. Therefore, they are in urgent needs of ERP, which contribute to the continuous increasing of ERP market. There will be more and more international ERP providers accessing Chinese ERP market.

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e-Works estimates that in 2005, ERP market of Chinese manufacturing will reach 2.941 billion, with the growth rate of 22.9%, and the compound annual growth rate will be 23% in the next 5 years. In 2009, the Chinese manufacturing ERP market will reach 6.7 billion, which will account for more than 2% of ERP global market. Chinese ERP market will start to merge, and the degree of centralization is going to have a remarkable rise.

Fig.7 The trend of Chinese manufacturing ERP market in the next 5 years

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ERP technology will be component, platform based, flexible, and using SOA structure. ERP will be more tightly integrated with MES, PLM, CRM, SCM, and has more integration interface with hardware technology like barcode, RFID, automation and stereoscopic warehouse, and couple with advanced management concept, for instance lean production, JIT, and 6σ. Thus, the Integration from plan, management to control will be achieved.

Chinese manufacturers will be more and more rational to choose the ERP solutions based on their unique needs. ERP application will be quickly spread in the fast growing SMB manufacturers, deeply and fully applied in the manufacturers with partial ERP application. While choosing and applying ERP solution, more and more manufacturers will adopt the third party consulting services.

Chinese manufacturing will provide tremendous opportunity for the development of ERP industry in the next 5 years.