Forging partnerships

Is there anything in this world that can be priced even higher while the unfolding economic recession has made almost everything, from raw materials, to oil, to properties, and stocks less expensive?

Probably "better prescriptions" for struggling enterprises is one. That has raised the confidence of Xu Shaochun, board chairman of Kingdee, China's leading enterprises software vendor.

"Many enterprises in trouble, amid the global economic downturn, are thirsty for efficiency and solutions," Xu tells China Business Weekly. "And we are well prepared for the opportunities."

With a year-on-year growth of 27 percent during the first six months of this year, Xu admits the financial crisis has impacted his company's revenues in the second half of this year. "But it (the impact) is still acceptable," says Xu.

Xu says his company has already identified foreign investors and joint ventures as new growth points. "We should carry on with our strength," says Xu.

Kingdee has already tied up with about 3,500 foreign or joint ventures in China since 1993 when the company was set up in Shenzhen, China's southern economic powerhouse.

To expand business, Kingdee found a strategy to forge partnerships with foreign consulting teams who knew investors in their native countries. Among them is German consultant Eberhard Hoffmann, who works like a matchmaker.

Since 2005, he has been freelancing to bring management solutions from Kingdee to the Sino-Germany joint ventures based in the coastal areas.

By now, four companies invested in by German businessmen have started to use Kingdee software and management solutions. The largest customer is Karl Mayer, a textile machinery producer that has a factory in Changzhou, Jiangsu province.

"From finance, to warehouse management, to sophisticated manufacturing management and to cost control, Karl Mayer in China has adjusted to the local business culture," says the middle-aged Hoffmann. "And Kingdee has played a vital role in the localization process."

Hoffmann attributed his matchmaking success to two advantages Kingdee has built up for the last 15 years. "One is the global competitiveness this Chinese software producer has," he says. "And the other is the rising demand of joint ventures."

The homegrown software provider should be the first resort for German investors in China, says Hoffmann. "The cost is lower when they use the domestic solutions."

As a freelance consultant, Hoffmann says his mission is to fly as a "free bird" to persuade more German businessmen in China to use Kingdee management solutions to survive the financial turmoil.

Apart from joint ventures, even foreign direct-owned enterprises have also started to realize the importance of using local management software. "We've greatly benefited from quick response from Kingdee," says Trevor Ness, Director GSI Group China, which mainly produces laser and precision machinery products.

"Any problems can be solved within 24 hours," says Ness. "It's impossible for foreign solutions providers who have limited service offices in China."

Ness says his US-based company's growth is driven by Asian sales, with Asia making up over half of total global sales revenues. "Our strategy in every country we operate in is to behave like a local company, this is one of reasons we chose Kingdee," Ness says.

Ness says the policies and regulations of Chinese financial accounting, auditing and taxation differ significantly from those of western practices and the company's system is authorized by China's Ministry of Finance and fully complies with Chinese accounting and auditing regulations. And the license, implementation and long-term maintenance costs are considerably lower compared with foreign brands.

In addition, Kingdee also supplies consultants with product knowledge, business consulting, project management and English speaking skills to understand the management requirements and ideas of the customers.

"This is real strength of our service team," says Kingdee's board chairman Xu. "What our software and service consultants do is to help them cut costs."

Downside risks

However, some observers believe that Kingdee will encounter risks as competition from global leaders impedes the growth of Kingdee's high-end product and price wars in the low-end market squeeze Kingdee's profitability in this segment.

But they say Kingdee's strong position, technology innovation, and solid execution record makes it unlikely.

Meanwhile, China's software industry is full of potential, with a mere 10-15 percent penetration versus over 60 percent in developed countries.

Morgan Stanley forecasts in a recent report that Kingdee's gross profit will reach 993 million yuan in 2010 from this year's estimated 728 million yuan, despite the uncertain global economic situation.

Another consulting company, Cazenove Asia Limited in Hong Kong says Kingdee's management has also become more cautious as the financial crisis unfolds.

"Our recent contact with Kingdee suggests similarly a more cautious view from management," says Cazenove.

Like UFIDA, its competitor, Kingdee does not see any slowdown except for certain export-oriented areas in southern China and believes that demand in north China remains healthy.

"We expect the company to maintain leadership, given its competitive edge," says Cazenove.

(China Daily 12/08/2008 page7)