As president and CEO of SAP AG 's Northern Asia operations, Klaus Zimmer has overseen the company's Chinese business since 1997. Today, China's economy is booming. State-owned companies have tossed aside the shackles of a planned economy and are looking overseas for new markets and opportunities, a transformation that Zimmer has witnessed firsthand. In an interview with the IDG News Service at SAP's Beijing office, Zimmer discussed opportunities and challenges presented by China's fast-moving market.

Is the hype about the potential of the Chinese software market justified? Good question. I'm actually not so bullish as people who watch China from the outside. I see more shadows than light. I think that after 2008, when Beijing hosts the Olympics, there will be an adjustment in the economy. There is huge overproduction in many, many sectors. It's going to lead to huge overcapacity in steel, in automotives, in home appliances, and it will have repercussions on the world market.

Nevertheless, for the software market, we are on a stable platform. At SAP, we have close to 1,300 customers and 2,300 installations. That's quite substantial. The majority, of course, are smaller companies, but more than 400 are big companies.

Are Chinese companies starting to see IT as a potential competitive advantage? It's a homegrown system here. [Chinese companies] are well aware that IT can help, but they do not rely on IT for a competitive edge. They are mainly focused on labor-intensive manufacturing. They are sitting here, and they do not see efficiency gains from the ERP system helping the bottom line.

Once they go outside China and go to the U.S. or European markets, they change their thinking. For example, we had Lenovo running SAP for six years before they acquired IBM 's PC division. When they became an international company, they gave us a contract that was 10 times bigger within a year or so of the acquisition. International exposure clearly tells Chinese companies that they have to change; otherwise, they cannot compete in the world market. One of the biggest growth engines for our revenue is the internationalization of the Chinese companies.

What is the status of the CIO position in Chinese companies? Ten years ago, there was no CIO. The classic Chinese company had a general manager, a party secretary - who was the most powerful guy - and a chief engineer. These three guys managed the company. Today, you have the CIO, the CFO, a guy who is doing the investor relations and so on. It's becoming more common, especially in the banking business, where the CIO is quite powerful.

Can Chinese software companies become international competitors to global vendors like SAP? I don't think so. They are not growing beyond their language barriers. They are not a global competitive force on the world market. They possibly have a role to play in Chinese communities worldwide, but not beyond this.

What holds them back? None of them speak English. It's a big challenge for Chinese companies to become international. The country was delinked from the world market for 40 or 50 years. Today, when somebody is using Chinese ERP software like [that from Beijing-based Ufida Software Co. ], you don't have a multi?national version, and you don't have multinational support. To build that is extremely difficult.

An international Chinese company cannot rely on domestic players. That's very clear today, and it will be true for quite some years to come.

Is it easy to recruit highly skilled programmers and engineers straight out of universities in China? We generally don't get the quality of people we need. The education system is not providing them. What we have to do is train them, and that's an issue. I don't think you can come here, parachute in, and build a viable management system that can carry a huge organization out of nothing. It's not possible.

You have to build the culture, you have to build the skills, you have to build the expertise. The universities here are not teaching the right stuff. The same problem exists in Europe. In Germany, they also are not teaching the right skills. It's not really close to the necessities of the market. 

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