Bank Systems & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Management Strategies

10:42 AM
Paul McDougall, InformationWeek
Paul McDougall, InformationWeek
News
Connect Directly
RSS
E-Mail
50%
50%

The Place to Be

U.S. companies including MasterCard are using technology to overcome barriers to doing business in the world's hottest market.

Since China's entrance into the World Trade Organization three years ago, U.S. businesses and multinationals from other countries have accelerated their efforts to enter the world's hottest market. With good reason: It's where the growth is.

The nearly 1 billion consumers between the ages of 15 and 65 in China have more disposable income than at any other time in the country's history. That's changing what they buy -- and how they buy it. "For the first time, we see people in Beijing and Shanghai using credit lines to manage their finances and improve the quality of their lives," says Willie Fung, general manager of China operations for MasterCard International Inc.

Beyond favorable demographics, import growth is virtually assured. As a WTO member, China must cut tariffs on imports gradually, from an average of 23 percent when it joined WTO to 12 percent.

To tap this market, U.S. multinationals rely heavily on business technology to make their Chinese operations efficient and profitable. The software and infrastructure available are remarkably similar to what's used in the West. Chinese-language enterprise applications from Oracle, SAP and Siebel Systems, for instance, are available, as are leased high-speed telecom lines.

So what distinguishes the business-technology strategies that multinationals are putting to work in China from those used in more-developed markets? Western companies are discovering that education and collaboration are the most vital components of a successful in-country technology strategy. The tools are at hand but haven't been widely used and haven't been applied to specific business goals. That's particularly true given that most Western companies in China must cooperate closely with joint-venture partners and merchants that may not have much experience with business technology.

It was a lesson that General Motors Corp. learned the hard way. Two years ago, the company rolled out Siebel customer-relationship-management software at its operational centers in Shanghai. The automaker sold 386,710 vehicles in China in 2003, and year-over-year sales have jumped 49% for the first two months of 2004. GM, which sells most of its vehicles in China through joint-venture partner Shanghai Automotive Industry Corp., was looking to develop a more-sophisticated view of Chinese car buyers. However, local dealers had never heard of CRM and had little incentive to provide GM with the sales data it needed to make the project work.

"They were reluctant because it's something they never had to do before, and they just weren't used to it," says Addons Wu, CIO for GM China. To encourage broader participation, GM built a Web portal that makes it easier for dealers to order vehicles. To use it, however, they must provide the customer information GM wants. "Now, by default, when we get a vehicle order, we get the customer data at the same time," Wu says.

Getting Chinese partners to embrace technology is crucial for companies that want to capture market share as efficiently as possible. Because of generally poor logistics and infrastructure, Chinese companies' expense-to-sales ratios greatly exceed those of Western companies. Logistics costs can be up to 50 percent higher than in the U.S., according to a recent study by Accenture. In other words, it's easy to go broke trying to make a buck in China. To control costs, GM -- the No. 2 foreign auto seller in the country behind Volkswagen -- would like to replicate key aspects of its global IT model within Shanghai Automotive. For instance, GM uses a consistent PC image at all of its operations worldwide and is helping Shanghai Automotive move onto a similar platform. GM provided its partner with the basic specifications but relied on the company's IT staff for the implementation. "They have the local knowledge. If we tell them what we want and why we're doing it, then they will take that information and do it cheaper than we could," Wu says. Persuasion, he counsels, wins out over power plays. "In China, we put more time into getting consensus," Wu says. "You can order people to do things once or twice, but you lose your influence after that."

GM also wants to integrate electronically all its operating units in China to develop a more-efficient supply chain. Among other things, it's using SAP software to coordinate sales and shipping information between its factories and its warehouse and trading unit. For now, most knowledge flow is out of GM and to its partners, but Wu expects that to change. "China is still learning best practices in the automobile industry," he says, "but in the future, there will be more local innovation that finds its way out into the broader marketplace."

Training business partners in E-commerce has been critical to MasterCard International's establishing itself in China. The country lacks central credit-rating agencies, but regional credit bureaus that profile the banking and payment histories of residents in metro areas such as Beijing and Guangzhou have emerged. About 60 million Chinese carry MasterCard-branded debit cards, but very few have true credit cards. In five years, the company hopes to have 100 million Chinese credit-card customers, which will come as more credit bureaus emerge and Chinese consumers get comfortable with purchasing on credit. The government also is encouraging Chinese consumers--second in the world in terms of their savings rate--to open their wallets and spend to stimulate the economy.

In fact, the Chinese government built much of the infrastructure required for a national credit card system. In 1999, it completed work on the Golden Card project, an effort to construct a national cross-bank network to facilitate bank-to-bank credit-card transactions. "We've already accomplished the infrastructure-building in China," Fung says. "The urgent requirement now is educating the banks, government and consumers."

To that end, MasterCard provides consulting services to regional banks to help them automate processes such as credit scoring and credit reviews. It's also helping them implement automated transaction-processing systems such as VisionPlus from PaySys International Inc., a First Data Corp. subsidiary. The software, which is available in China through the IT integrator Shanghai Huateng Software Systems Co., automates key parts of the credit card payment cycle, such as payment authorization. Fung says Chinese banks will need to adopt such technology if they are to compete with the many foreign banks targeting China under the WTO liberalization. "The international banks carry a lot more knowledge about the credit industry, so Chinese banks will need to rely all the more on technology," Fung says.

Previous
1 of 2
Next
Comment  | 
Print  | 
More Insights
Register for Bank Systems & Technology Newsletters
Slideshows
Video
Bank Systems & Technology Radio
Archived Audio Interviews
Join Bank Systems & Technology Associate Editor Bryan Yurcan, and guests Karen Massey and Jerry Silva from IDC Financial Insights, for a conversation about the firm's 11th annual FinTech rankings.