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Int. J. Production Economics 97 (2005) 279295

www.elsevier.com/locate/ijpe

ERP implementation failures in China: Case studies

with implications for ERP vendors
Yajiong Xuea,, Huigang Liangb, William R. Boultonc, Charles A. Snyderc
a
College of Business Administration, University of Rhode Island, Kingston, RI 02881, USA
Department of Information Technology and Operations Management, Florida Atlantic University, Ft. Lauderdale, FL, USA
c
Department of Management, Auburn University, Auburn, AL, USA

Received 1 June 2003; accepted 31 July 2004

Abstract
Chinese enterprise resource planning (ERP) vendors have been able to defend the challenge from global ERP leaders
such as SAP and Oracle. This article seeks possible reasons for major international ERP vendors not being able to
dominate the Chinese ERP market. Taking an ensemble view of technology, we conceptualize ERP systems as being
embedded in complex social contexts, which heavily inuence ERP implementation and use. Based on this
conceptualization, we contend that a historical perspective and a social-cultural perspective can offer a rich
understanding on ERP implementations in China. From the historical perspective, this paper describes Chinas ERP
evolution and compares it with the ERP evolution in Western countries. From the social-cultural perspective, ve cases
in which foreign ERP vendors have failed in their Chinese implementations are presented and analyzed. Eight factors
are identied which have contributed to ERP failure. Implications of the ndings for future ERP implementations in
China are discussed.
r 2004 Elsevier B.V. All rights reserved.
Keywords: ERP failure; ERP implementation; China; Historical perspective; Socialcultural perspective; Ensemble view

1. Introduction
Although information systems help streamline
individual business functions, disparate information systems across business units may in fact
Corresponding author. Tel.: +1 401 874 9348;

fax: +1 401 874 4312.

E-mail address: xuelucky@mail.uri.edu (Y. Xue).

impede an organizations long-term development.

To take advantage of information systems, information must be shared easily, correctly, and on
time among business units. If each business unit of
a large enterprise implements independent or
incompatible information systems, communication
between business units can become much more
complicated and error-prone. The enormous costs
of maintaining various incompatible systems then

0925-5273/$ - see front matter r 2004 Elsevier B.V. All rights reserved.
doi:10.1016/j.ijpe.2004.07.008

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becomes a nightmare for executives (Davenport,

1998). Managers realized that more efciency and
effectiveness could be achieved if operations are
easily coordinated across the silo systems that
developed in the organization. An early attempt by
manufacturers to obtain the advantages of better
communications across the incompatible systems
was called computer-integrated manufacturing
(CIM). CIM was a philosophical integration of
the systems needed in manufacturing. The idea was
to have interoperable systems that were an essential
part of the manufacturing process. Many of these
systems were only marginally interoperable because
of incompatible equipment, operating systems, etc.
CIM sought to integrate most systems such as
material requirements planning (MRP), manufacturing resource planning (MRP II), JIT, etc., of the
time (see McGaughey and Snyder (1994) for a CIM
denition). The philosophy envisioned for CIM was
incorporated into the vision of enterprise resource
planning (ERP): the enterprise connected and the
systems integrated and interoperable.
ERP systems include a set of software modules
linked to a common database, and these modules
can handle basic corporate functions such as
manufacturing, nance, human resources, materials management, sales, and distribution (Slater,
1998). ERP systems focus on integrating all
internal enterprise transaction processing to balance demand and supply (Wallace and Kremzar,
2001). Through cross-functional integration, businesses can improve their productivity and customer service while lowering costs and inventory.
Hence, ERP systems hold the promise of providing
companies with greater competitive advantage.
As estimated by TEC Group (www.technologyevaluation.com), an information technology
research rm, the global ERP market in 2001
was between USD 20.5 and USD 22.5 billion
(growing 313% over 2000). Driven by e-commerce initiatives and continuing mergers and
acquisitions, the global ERP market is predicted
to grow at a compound annual rate of 10.5%
(EBN, 2002). Table 1 shows the distribution of
market shares. The ve major ERP vendors
account for approximately 63.2% of the ERP
market and the top eight ERP vendors account for
67.8% of the market.

Table 1
Global ERP market shares
Rank (by supplier)

Company name

Market share (%)

1
2
3
4
5
6
7
8

SAP
Oracle
PeopleSoft
J.D. Edward
Baan
GEAC
SCT
Intentia
Other
Total

32.0
14.5
9.0
5.0
2.7
2.5
2.1
1.8
30.4
100.0

Source: TEC Group (Jakovljevic, 2001).

The inherent appeal of ERP has not gone

unnoticed in Asia. Indeed, recent years have
witnessed a dramatic increase in ERP adoption
and diffusion in China (Huo, 2002). However,
since ERP systems are extremely complex and
difcult to implement, many implementing companies have encountered unexpected failures. ERP
success is even harder to achieve when cultural
issues are involved. Considering that most ERP
systems are designed by Western IT professionals
and the structures and processed embedded in
these systems reect Western cultures, we assume
that fundamental misalignments are likely to exist
between foreign ERP systems and Chinese companies whose existing structures and processes are
largely determined by the Chinese culture (Davison, 2002; Soh et al., 2000). As a result of these
misalignments, ERP implementation failures tend
to occur when Chinese companies attempt to
adopt foreign ERP systems. Therefore, some
international ERP giants could not establish
their dominance in the Chinese ERP market
(Liang et al., 2004).
In contrast to foreign ERP vendors difculty in
the Chinese market, an interesting observation is
that Chinas domestic ERP vendors seem to be
able to expand their market share, showing
capability to compete against their international
competitors. Taking an ensemble view of technology (Orlikowski and Iacono, 2001), we conceptualize ERP systems as being embedded in complex
social contexts, which heavily inuence ERP

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implementation and use. We believe that a

historical perspective should be taken in seeking
explanations to this observation. Hence, one
objective of this article is to analyze the differing
evolution paths of ERP in the Western world and
in China. In addition to the historical perspective,
we consider the social, cultural contexts of ERP
implementations to be critical and many contextual factors can affect ERP outcomes. Understanding what factors contribute to ERP failures
will deepen the understanding of ERP implementations and help avoid implementation mistakes,
thereby increasing the rate of ERP success in
culturally different contexts. Therefore, another
objective of this article is to identify the
factors manifested in failing ERP implementation
projects.
The rest of the article is organized as follows.
Section 2 describes the Chinese ERP market. Then
the Western and Chinese ERP evolutions are
compared in Section 3. Section 4 proceeds to
review literature on ERP implementation, and it is
followed by Section 5, which presents research
methodology and ve failing ERP cases. The case
analyses are provided in Section 6. Finally, Section
7 discusses implications of this research for future
ERP implementations.

2. Chinese ERP market

The Chinese ERP market, started in the late
1980s, has boomed in recent years as more
business managers applied ERP systems in their
organizations. According to China Center for
Information Industry Development (CCID) Consulting, the Chinese ERP market nearly doubled
its growth from approximately USD 70 million in
2000 to USD 106 million in 2001. IDC (www.idc.
com), a premier global market intelligence and
advisory rm in the information technology
industries, reported that the Chinese ERP market
grew from USD 78.4 million in 1997 to USD 243
million in 2002. From 2002 to 2005, the Chinese
ERP market is expected to have an annual growth
rate of 25%.
Attracted by tremendous business opportunities
in the Chinese ERP market, SAP, Oracle, and

281

Table 2
Chinese ERP market shares
Ranking (by supplier)

Company name

Market share (%)

1
2
3
4
5
6
7
8

SAP
UFSofta
Kingdeea
GenerSofta
Oracle
HJSofta
Anyia
Riamba
Other
Total

16.9
16.2
13.2
10.3
7.5
4.3
3.9
3.7
24.0
100.0

Source: CCID Consulting (CCIDNET, 2002).

a
Chinese ERP vendors.

other foreign ERP vendors have entered China

one after another. SAP entered the Chinese ERP
market in 1988 and Oracle followed in the middle
of the 1990s. Given their past success history, these
ERP giants anticipated taking control of the
Chinese ERP market.
In reality, it has not been so easy for the global
ERP vendors to tame the Chinese ERP market. In
the 2002 report of Chinese ERP market from
CCID Consulting, domestic ERP vendors take a
major share of the market. As Table 2 shows, the
top eight players hold 76% of the ERP market,
with six Chinese domestic companies holding
51.7% and the two foreign ERP leaders holding
a 24.3% market share. Evidently, in the competition to sell ERP systems, the foreign giants have
not demonstrated their usual dominance. Instead,
Chinese domestic ERP companies have held their
ground against the foreign giants.
Obviously, the Chinese ERP rms have emerged
as dominant players in this important market.
Next, we explore the history of ERP development
in the Western nations and contrast it with the
Chinese ERP evolution.

3. An historical perspective of ERP development

3.1. Western ERP evolution
As noted in the Introduction, in Western
countries the development of ERP went through

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several stages: inventory control, MRP, MRP II,

and ERP. The 1960s and 1970s witnessed a shift
from inventory control to the development of
MRP, which was embraced by many manufacturing companies to more efciently calculate what
materials were needed, when they were needed,
and in what optimal quantities (Ptak and Schragenheim, 2000). MRP, originally focused on the
master schedule, quickly evolved into a more
sophisticated system, which encompassed additional factors such as long-range planning, highlevel resource planning, master scheduling, rough
cut capacity planning, detailed capacity planning,
and shop oor control. By continuously monitoring operations, companies could streamline their
processes to achieve more efciency. At this point,
the MRP systems were stand-alone systems.
MRP II systems were expanded to include sales
and operations planning, a nancial interface, and
a simulation as part of the system (Wallace and
Kremzar, 2001). MRP II systems integrate the
material planning with related business processes,
and they are regarded as an effective planning tool
for all resources of a manufacturing company.
With the advent of advanced information technologies, a new challenge facing companies became
that of controlling all the major business processes
within a single IS architecture. Although MRP II
was the logical progression for production and
materials planning, companies quickly realized
that protability and customer satisfaction should
be incorporated. These requirements generated the
need for integrating capabilities such as nance,
forecasting, sales order processing, sales analysis,
local and global distribution, quality control, and
reporting and monitoring tools. The philosophy of
system integration was envisioned by CIM
(McGaugheya and Snyder, 1994) and realized in
ERP systems. ERP systems have been applied to
the management of every operation of an enterprises value chain to minimize costs and time
required to deliver products to customers.
The ERP evolution in Western countries has
developed naturally. The idea was generated in
manufacturing companies and the systems
evolved into the current concept of ERP.
Material planning drove the initial development
of systems to address this generic production issue.

Subsequently, other business functions were incorporated as the systems gradually became
mature, eventually incorporating a full range of
operating and management needs into ERP
systems. Recently, supply chain management and
customer relationship management have been
integrated into ERP systems as vendors recognized
the evolving needs of rms. Presently, ERP
systems have been developed extensively in the
US and Europe. Next, we examine the evolution of
ERP in China, one of the fastest growing locations
of manufacturing.
3.2. Chinas ERP evolution
Chinas ERP evolution took a totally different
path from that described above. Chinas domestic
ERP research and development started in 1988
and went through three stages: accounting software, nancial software, and ERP (ERP Applications Guide, 2002). The accounting software
stage was from 1988 to the early 1990s. Chinas
earliest software companies that focus on developing accounting software were founded during
this period. The Department of Finance of the
Chinese government had issued a series of policies
and regulations to encourage the accounting
software development. The major modules of the
accounting software included accounting management, reporting, payment calculation, asset calculation, material calculation, and sales calculation.
Some of the modules were designed specically to
meet Chinese accounting regulations, e.g., the
reporting module generated reports that were
formatted in accordance with Chinas National
Accounting Regulations. These reports were unique to China and the objectives were simply to
provide electronic data and to release accountants
from heavy manual accounting work.
The nancial software development stage of
Chinas ERP evolution started in the middle of the
1990s. The demand for management software
started to grow after Chinese markets opened to
the rest of the world. The Chinese accounting
software companies shifted their strategic focus to
nancial software development. One should note
that nancial software can also be considered a
management system that can support business

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decision-making. Functions including nancial

analysis, nancial prediction, nancial control,
nancial planning, and inventory management
were added to the system. The enacting of the
China Financial Software Data Interface Standard
by the China Financial Software Association
greatly enhanced and encouraged the development
of Chinese Financial Software.
At the beginning of 1999, the domestic software
industry was reoriented towards the development
of integrated ERP systems, which expanded the
accounting and nancial software to include
production, supply, human resources, and customer service capabilities. Today, development of
Internet-based ERP systems are the focus of
Chinas software industry (Huo, 2002). With
economic reforms, China is moving rapidly to
become a market economy in which competition
determines survival. Managers have been given
more autonomy and need more help from managerial information systems. Domestic software vendors are putting a lot of effort into the
development of ERP systems with unique Chinese
characteristics.
The Chinese ERP evolution is not spontaneous.
The government heavily inuenced the rst two
stages of the ERP evolution. In Chinas social
system, the governments recommendation had a
huge impact on corporate strategies, planning, and
decision-making. Many companies implemented
accounting software or nancial software in
response to the governments advocacy. This
created more opportunities for domestic software
companies to enlarge their market shares.
Foreign ERP vendors did not recognize the
potential of Chinas market until the late 1990s. By
then, Chinese software companies had already
established their brands and reputation in the
accounting and nancial software elds, and had
established a substantial market share. Based on
their past IT adoption experiences, many Chinese
rms tend to trust domestic ERP vendors more
than foreign ones. Considering the unique evolution path of the Chinese ERP market, it is
understandable that foreign ERP vendors are not
dominant in China.
Apart from the above historical perspective, an
examination of the social, cultural context of ERP

283

implementation, and factors relating to Chinese

rms ERP failure can offer a richer understanding
of why foreign ERP vendors encountered difculties in the Chinese ERP market. From the next
section, we start investigating the ERP failure
factors by reviewing past literature and constructing a research model.

4. Theoretical foundation for ERP implementation

ERP implementation is a complicated largescale project, has far-reaching strategic and
organizational implications, and can easily turn
into a nightmare for implementing rms (Davenport, 1998). According to Robbins-Gioia survey
conducted in 2001, only 51% American rms
perceived their ERP implementation as unsuccessful (IT Cortex, 2003). Given the context differences between China and the US, we anticipate
that the ERP success rate in China is even lower. It
is estimated that the ERP success rate in China is
approximately 10% (Zhang et al., 2003). The high
failure rate intrigues and motivates us to explore
what factors affect the ERP implementation in
China. We are particularly interested in the failure
of foreign ERP systems. This section reviews the
key success/failure factors identied by existing
literature and the cultural impact on ERP implementation, and presents a theoretical model
used to analyze ve failure cases in China.
4.1. An ensemble view of ERP
This research is centered on the IT artifact of
ERP. To ensure the centrality of ERP, we adopt
an ensemble view, which focuses on the dynamic
interaction between people and technology (Orlikowski and Iacono, 2001). The ensemble view
posits that, ERP systems, by denition, are not
natural, neutral, universal, or given. Because ERP
systems are designed, constructed, and used by
people, they are shaped by the interests, values,
and assumptions of a wide variety of communities
of developers, investors, users, and other actors
involved. According to Orlikowski and Iacono
(2001), IT artifacts are always embedded in some
time, place, discourse, and community. As such,

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their materiality is bound up with the historical

and cultural aspects of their ongoing development
and use, and these conditions, both material and
cultural, cannot be ignored, abstracted, or assumed away (p. 131). Hence, we conceptualize
ERP systems as embedded in specic social and
cultural contexts and these contexts have fundamental inuences on the way ERP systems are
implemented and used as well as the outcomes of
ERP implementation and use.
4.2. ERP success factors
Critical success factors (CSFs) are widely used
in the information systems arena (Davis, 1979;
Jenster, 1986; Rockart, 1979, 1982). CSFs originally refer to the limited number of areas in which
satisfactory results will ensure successful competitive performance for the individual, department,
or organization (Bullen and Rockart, 1981). As to
ERP implementation, CSFs can be understood as
the few key areas where things must go right for
the implementation to be successful. With the
ensemble view of ERP, CSFs pertain to not only
technical issues but also contextual issues including social and cultural impact on the interaction
between people and the ERP technology.
Past studies have identied a variety of CSFs for
ERP implementation, among which context-related factors consistently appear. For example,
Motwani et al. (2002) nd that organizational
environment, ready culture, and balanced network
relationships are key factors to ERP success.
Mabert et al. (2001, 2003) note that a clear
guidance on how to use outside consultants and
detailed plans for training users are critical. Based
on the case of Huck International Inc., Umble et
al. (2003) identied multi-site issues as one of the
CSFs for ERP success. Legare (2002) found that
individual characteristics (knowledge, cognitive
abilities, and motivation), group characteristics
(goals, roles, norms, diversity, and problem
solving), and organizational characteristics (strategy, resources, rewards, culture, and structure)
could inuence the success of ERP implementation. From the standpoint of IT practitioners,
contextual issues are also important. A survey of
CIOs of Fortune 1000 companies shows that

change management program and culture is one

of the top ve CSFs for ERP implementation
success (Nah et al., 2003).
4.3. Cultural impact on ERP implementation
The effects of national and organizational
cultures on IS implementation have been extensively studied (Burkhardt, 1994; Cooper, 1994; EinDor et al., 1993; Robey et al., 1992; Straub, 1994).
The discrepancy between the Western and Chinese
cultures has been recognized to have profound
inuences on IS implementations (Martinsons and
Westwood, 1997; Ping and Grimshaw, 1992). In
general, Chinese societies are based on networks of
relationships. Chinese people are more likely to
adapt to the environment rather than to seek a
scientic solution. The Chinese business culture is
shaped by paternalism, personalism, and highcontext communications, while the Western culture
is centered with individualism, impersonalism, and
formal communications. The fundamental differences between the Chinese and Western cultures
inevitably inuenced the use of information technologies developed by Western developers in
Chinese organizations. A detailed discussion on
the comparison of the Chinese and Western
cultures can be found in Martinsons and Westwoods paper (Martinsons and Westwood, 1997).
The impact of cultural issues on ERP implementation has attracted considerable attention
from IS researchers (Davison, 2002; Robey et al.,
2002; Soh et al., 2000; Zhang et al., 2003). Based
on a study of ERP implementation in a Singapore
hospital, Soh et al. (2000) identied three cultural
problems: (1) incompatibilities between organizational requirements and the ERP package in terms
of data format, (2) incompatibilities in processing
procedures required, and (3) incompatibilities in
the presentation format and the information
content of reports. Davison (2002) also found
cultural differences by comparing educational
ERP implementation practices between North
America and Hong Kong. The cultural differences
causing ERP implementation problems included
(1) different beliefs in providing access to information, (2) miscommunication due to homonyms in
the Chinese language, and (3) difculties in

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reengineering organizational processes. Robey

et al. (2002) noted that radical changes associated
with business process reengineering (BPR) were
perceived differently in Chinese and Western
cultures. In contrast to the Western cultures, the
Chinese culture is more past-oriented, reactive,
and reluctant to conduct organizational transformations. Accordingly, the Chinese culture must be
taken into account when investigating ERP
implementation issues in China.
4.4. IT focused view of ERP success
While we take the ensemble view of ERP and
emphasize the contextual inuences on ERP
implementation, it should not be neglected that
the quality of ERP itself is essentiarol for success.
In the well-known IS success model, Delone and
McLean (1992) postulate that system quality and
information quality are two central dimensions of
IS success. System quality measures technical
success, that is, the accuracy and efciency of the
IS that produces information, and information
quality assesses semantic success, referring to the
extent to which the information coveys the
intended meaning (Delone and McLean, 2003).
When studying the success of complex IS such as
data warehousing, system quality, and data quality
also prove to be signicant factors (Wixon and
Watson, 2001). It is clear that, in the research of
ERP implementation, technical characteristics of
ERP should be taken into account. While only
focusing on the technology is not advisable, only
emphasizing the context may also lead to biased
conclusions.
4.5. Theoretical model
Drawing on the ensemble view and IT focused
view of ERP, we propose a model as the
theoretical foundation to examine the ERP implementation problems in China (Fig. 1). We
postulate that two broad contextual factors could
affect ERP implementation, that is, culture and
environment. Based on the D&M IS success
model, we contend that technical issues such as
system quality and information quality have an
effect on ERP implementation. According to the

285

Culture

Technical
issues

ERP
Implementation

Environment

Fig. 1. ERP implementation model.

ensemble view, ERP systems embed the norms,

values, and cultures of the developers, which will
interact with the local norms, values, and cultures
of the location where they are implemented and
used. As a result of the interaction, some technical
issues will arise.
For example, language is not a problem at all
when SAPs R/3 is implemented in English-speaking countries, but it becomes a vital issue when R/3
is implemented in China, showing that the cultural
difference can turn a trivial technical problem into
a major concern. Therefore, as shown in Fig. 1,
culture and environment affect ERP implementation both directly and indirectly by causing
technical concerns. In the remainder of this paper,
this model will be used to analyze ve ERP
implementation failure cases.

5. Case studies
5.1. Methodology
Following Benbasat et al. (1987), Eisenhardt
(1989), and Yin (2003), case research is employed
to answer the question what are the factors that
affect foreiERP implementation failures in China? Few studies have addressed the topic of IS
failure and the problem domain remains underresearched. ERP implementation is a complicated
undertaking which involves inevitable interactions
between ERP systems and implementing contexts.
The duality of information technologies (Orlikowski, 1992) posits that IT embed developer
values on the one hand, and the use of IT
affects human action on the other. ERP systems
also demonstrate duality. Given that IT-based

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innovation is heavily dependent on the context of

application (Newell et al., 2000; Swan et al., 1999),
the implementation of ERP can be viewed as a
dynamic process of interaction, in which the
implementation of ERP shapes the rms utilization of ERP and vice versa. Consequently, it is
difcult to delineate a separating line between
ERP and context. According to Yin (2003), a
case study is an empirical inquiry that investigates
a contemporary phenomenon within its real-life
context, especially when the boundaries between
phenomenon and context are not clearly evident.
Therefore, the characteristics of ERP implementation legitimize our selection of a case research
method.
Five ERP implementation failure cases were
examined. These cases included CosmeticCo,
PharmaCo, ElectricCo, FurnitureCo, and StoneCo.1 The selection of these ve companies was
based on three criteria. First, they have to be
Chinese companies that implemented foreign ERP
systems. Second, they have experienced unconquered problems during their ERP implementations. Third, they are in differing industries and
located in different regions of China. The purpose
of applying these criteria is to facilitate identifying
common failure factors across industries and
across geographic regions, which are relatively
more generalizable.
In order to lend validity to our data, this study
used the triangulation method recommended by
Yin (2003). Data were collected using multiple
methods from multiple sources, including semistructured interviews with subjects in each company, examination of company documentations,
and examination of relevant information on public
media. Two authors called a senior manager of
each company and the person in charge of the ERP
implementation project and interviewed them using
the semi-structured questions. The interviews were
tape-recorded. The companies provided documentations on their ERP projects. In addition, the
public information regarding each company was
collected from the Internet and newspaper.
1

CosmeticCo, PharmaCo, ElectricCo, FurnitureCo, and

StoneCo are pseudonyms being used to protect the anonymity
of the companies.

Based on the data gathered from these multiple

sources, two of the authors rst performed
analyses independently and examined the cases
for evidence relevant to factors which contributed
to ERP failure. The evidence was summarized and
categorized. The two authors case analyses were
compared, and they were also reviewed by the
other two authors who offered complementary
comments. Discrepancies between the two analyses were resolved through debate and referencing
back to the case data. The cases presented in the
following ve subsections are based on the nal
analyses agreed upon by all the authors.
5.2. Case 1: CosmeticCo
CosmeticCo is a cosmetic company located in
Beijing and ranks in the top ve of Chinas 2,000
cosmetic enterprises. The company is well known
for its herbal series of cosmetics. It sells ve
product series, including skincare, hair care,
beauty care (makeup), perfume, and clinical series,
in more than one hundred varieties. The sales
networks of CosmeticCo cover Chinas entire
domestic market and about 30 foreign countries
or regions. CosmeticCo has USD 13.18 million in
xed assets, sales of USD 64.69 million, with tax
and prot of USD 22.56 million in 1998. In early
1998, CosmeticCo realized that their existing
nance software could not meet the companys
development requirements and decided to implement an ERP system.
5.2.1. Selecting an ERP system provider and a
service provider
CosmeticCo selected Swedens Intentia AB as
their software package provider and chose Legend
Advanced Systems Ltd. (LAS) (now a member of
Digital China) as their service provider. On March
20, 1998, CosmeticCo signed a contract with LAS
and agreed to pay USD 98,320 for the MOVEX
software, USD 8,390 for the design and implementation service, and USD 105,460 for the
hardware and other services.
5.2.2. Problems during the implementation process
The MOVEX software package was not totally
translated into Chinese. The English words in the

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user interface confused employees. The formats of

the nancial tables and reports generated by
MOVEX were different from what the Chinese
government required and incompatible with the
Chinese nance standards. The minus sign of
negative numbers is placed after the numbers
instead of before them. Moreover, the numbers
and other signals in the nance reports were
overlapped and became unrecognizable. As a
result, MOVEX generated manufacturing and
purchasing reports at a lower speed than the
previous manual methods. The service provider,
LAS, was not familiar with the MOVEX software
and did not follow the standard implementation
procedures as the software supplier required.
5.2.3. Results
At the end of 2000, LAS still had no good solution
for the problems described above. CosmeticCo led
a lawsuit against LAS on December 11, 2000. The
case lasted for almost 15 months. In February 2002,
mediation was achieved in the court. The court
announced that the defendant, LAS, should pay the
Plaintiff, CosmeticCo, USD 250,000 before February 28, 2002. CosmeticCo restarted its ERP project
in May 2001 after choosing HJSoft, a domestic ERP
provider, as its software and service provider. The
rst phase of the HJSoft ERP project was successfully nished in May 2002, having achieved the
integration of purchasing, sales, inventory, and
nance management.
5.3. Case 2: PharmaCo
PharmaCo is a large-scale enterprise group with
integrated science, industry, and trade operations.
As an important member of Chinas pharmaceutical industry, PharmaCo owns a holding company
whose stocks are registered and traded on the
stock market, 13 wholly owned subsidiary companies, and three associated companies. PharmaCo
has total assets of USD 547 million in 1998, with
net assets of USD 151 million. Total industrial
output was USD 248 in 1998, with total business
revenue of USD 392 million, and prot and tax of
USD 39.8 million. It earned USD 30 million from
export. PharmaCo has the ability to produce
medicines in about 20 kinds of dosage forms and

287

in ve series, including antibiotics, Chinese medical injection (a traditional Chinese medicine

product), tonics and health-care products, traditional high-class Chinese medicine, and biological
engineering medicine. PharmaCo decided to implement ERP in 2000.
5.3.1. Selecting an ERP system provider and a
service provider
After comparing the ERP systems from Oracle
and a local provider, Riamb Software Tech.,
PharmaCo selected Oracle as its ERP system
provider. The service provider was chosen from
two local software technology companies, Riamb
Software Tech. and Harbin Huaxu. Riamb Software Tech. won and signed a contract with
PharmaCo in October 2001. The total contract
amount was USD 853,659, including an USD
451,220 service fee.
5.3.2. Problems during the implementation process
PharmaCo was not well prepared for implementing ERP. The companys managers did not
fully understand that implementing ERP involved
BPR. Riamb Software Tech. had never implemented the Oracle ERP system before and was not
familiar with Oracle products. As a result, they
had to purchase some service consulting from
Oracle.
5.3.3. Results
Before February 2002, Riamb Software Tech.
only offered PharmaCo some basic training and a
few tests on Oracles test version software, but no
fundamental BPR was conducted. The mutiny
(mass departure) of more than 60 persons in
Riamb Software Tech. in March 2002 ended the
project. After 8 months, PharmaCo restarted the
ERP project. It still used Oracles ERP system, but
selected a new ERP consulting company, HAND,
a Chinese ERP service provider and Oracles close
business partner.
5.4. Case 3: ElectricCo
Ranked 29th in Chinas electric equipment
industry, ElectricCo focuses on research, production, and sales of electric and power automation,

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as well as protection and control equipment.

ElectricCo consists of two public companies, eight
joint venture companies, and 11 other subsidiary
companies. There are 4,260 employees with 2,550
professional technicians. ElectricCo has more than
1,000 products and more than 10,000 specications. Its products have been exported to more
than 20 countries or regions, including France,
Australia, and Iran. In 1998, ElectricCos sales
were USD 183 million. ElectricCo decided to
implement ERP in early 1998 to standardize
business processes, improve access to information,
and control product costs.
5.4.1. Selecting an ERP system provider and a
service provider
ElectricCo initially planned to purchase an ERP
system from SAP, but it gave up this plan because
SAPs USD 2 million price was too high. Finally,
it chose Symix, an American ERP provider. The
intended customers of Symix are American middle-sized companies, and ElectricCos scale is
similar to American middle-sized companies. The
contract was for USD 609,756, including software
and service fees.
5.4.2. Problems during the implementation process
In August 1998, ElectricCo changed from a
State-Owned Enterprise structure into a subsidiary
company structure to adapt to the changing
market. The new ERP system could not respond
to this tremendous organizational change.
5.4.3. Results
Until July 1998, the ERP implementation went
smoothly, including the data collection, BPR, and
logistics organizing. However, the radical change
in the company in August 1998 left the ERP
almost useless. The Symix ERP system was not
exible enough to adapt to the sudden organizational change. Finally, an agreement was achieved
between ElectricCo and Symix, and the ERP
project was ended. The project lasted for 5
months. After that, only some Symix ERP
modules were being used in a few ElectricCo
subsidiary factories and the majority of ElectricCos business information was managed by its selfdeveloped information systems.

5.5. Case 4: FurnitureCo

Founded in 1987, FurnitureCo is one of the
largest ofce furniture suppliers in China. FurnitureCo provides a wide range of products including
desks, conference tables, system furniture, chairs,
sofas and coffee tables, ling and storage systems,
kitchen cabinets, etc. Its distribution outlets are
widely spread over major cities in China. Twothirds of its products are sold in China and onethird of its products are exported overseas. Because
of its growing business volume and the customized
orders from customers, FurnitureCos manual
business process management could not meet the
companys growing needs. The company decided to
implement an ERP system in 1997.
5.5.1. Selecting an ERP system provider and a
service provider
Most members of FurnitureCos management
team received their higher education from the
Western countries. When they sought to adopt an
ERP system, they focused on Western vendors.
Finally, the SAP R/3 system was selected. The total
cost of the ERP project was over USD 1.22 million.
5.5.2. Problems during the implementation process
FurnitureCo had more than 10,000 products
whose costs needed to be managed by the costcontrol module of the R/3 system. The costs of
products had to be calculated frequently because
the prices of raw materials changed daily. However, the R/3 system they implemented could only
calculate the costs by using a quota planned a
priori, while the actual purchasing changes due to
the market price uctuation could not be gathered
into the system. Consequently, there were often
huge discrepancies between the reports generated
by the ERP system and real-world situation. To x
this problem they needed to change the way data
were managed inside the system, which required a
lot of customization to be undertaken. Not before
long, FurnitureCo found the maintenance fee for
the ERP system was too high to sustain.
5.5.3. Results
Problems associated with the cost-control modules caused a lot of headaches for FurnitureCo . In

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addition, the maintenance fee was around USD

700,000 a year. FurnitureCo decided to switch to a
local ERP system, Kingdees K/3 system in 1999.
SAP R/3 is terric. It is like a Ferrari sports car
which runs great on the highway. Yu Min, the
chairman of the board of FurnitureCo said, But,
it cannot run fast on Chinas bumpy road. Besides,
you cannot nd a Ferrari auto shop when it has
problems. Wed be better to buy a made-in-China
economy car. In November 2000, a K/3 system
totally replaced the R/3 system in FurnitureCo.
The K/3 system was well accepted by mangers and
employees. It saved over a hundred thousand
dollars on purchasing and production costs control alone for FurnitureCo in the rst year of
implementation, according to the CFO.
5.6. Case 5: StoneCo
StoneCo is a member of a large group company
which specializes in stone exporting, mining
processes, engineering, and stone supply and sales.
StoneCo is one of the biggest all-around stone
enterprises in China. Covering 35,000 m2, StoneCo
has a panel processing factory and specialized
polishing factory, which has priority to produce
and process imported stone. StoneCo processes
and produces various complicated technology
stones and has a solid technological capability.
Its sales were approximately USD $61 million in
1997. As the company grew, StoneCo found it very
hard to precisely manage products and business
processes. StoneCo decided to implement an ERP
system as a solution.
5.6.1. Selecting an ERP system provider and a
service provider
StoneCo selected Swedens Intentia AB as its
software package provider and chose a leading
Chinese IT company, Legend Advanced Systems
Ltd. (LAS) (now a member of Digital China) as its
service provider. StoneCo signed a contract with
LAS and agreed to pay USD 137,098.60 for the
software and hardware fees on January 23, 1998.
5.6.2. Problems during the implementation process
StoneCo discovered that the purchasing and
nance modules in the MOVEX ERP system did

289

not support letter-of-credit (L/C) payments. For

an export-oriented company like StoneCo, L/C
payments are indispensable. The nance and
accounting report format that MOVEX generated
was also different from the Chinese governments
requirement. A lot of English words appeared on
the MOVEX user interface, and the softwares
user help was in English. The reports generated by
MOVEX always had some poorly translated
words that made no sense to employees. The
cost-control module did not function well. It could
not calculate accurate costs and prices for StoneCos products because of the complex calculation
procedures. StoneCos project manager changed
twice during the ERP implementation process. The
original project manager left for a software
company that was a vendor to StoneCo. The
second manager lacked necessary capability to
handle the project.
5.6.3. Results
LAS had no good solution for the problems
emergent during the ERP implementation. StoneCo claimed that these problems came from the
complexity of the software and that the MOVEX
software was not suitable for the company. LAS
blamed StoneCo, saying the problems occurred
because StoneCo kept changing its ERP project
manager. StoneCo brought a lawsuit against LAS
in November 2000. The nal judgment was made
on August 13, 2002. The court decided that both
LAS and StoneCo should bear half of the USD
95,200 software payment, while StoneCo should
pay the hardware fee, USD 41,898.6. At the time
of writing the case study, StoneCo had still not
resumed the ERP project.

6. Analysis
Reasons that foreign ERP system vendors do
not dominate Chinas ERP market are both
historical and cultural. Foreign ERP system
vendors need to pay attention to the problems
stemming from cultural differences. From our
case analyses, eight specic obstacles are identied
for foreign ERP system providers in China (see
Fig. 2). The eight obstacles are language, report

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290

and table format, BPR, economic reform impact,

cost-control system, human resource problem,
price issue, and connection with ERP service
companies. Table 3 shows the obstacles associated
with each companys ERP experience.
Fig. 2 shows ve cultural factors. The rst factor
is foreign ERP vendors partnership with local
service providers. In order to capitalize on the huge
potential of Chinas ERP market, foreign ERP
vendors need to better adapt to Chinas ERP
market. The failures of foreign ERP implementations should encourage a more localized strategy. A
tactic for foreign ERP vendors should be to use a
local ERP service company or a consulting

company that is more familiar with the Chinese

culture to guide rms who implement their systems.
By switching to domestic service providers or
international service companies familiar with the
Chinese culture, foreign ERP vendors can mitigate
the pressures exerted by Chinese culture which
values personal relationships. However, partnering
with local service providers creates another problem
for foreign ERP vendors: training. They must
ensure that their agents know their products very
well and are reliable. A service provider who
receives little training from the vendor cannot
understand the ERP systems and will not be
competent to accomplish the implementation.

Culture
Partnership
BPR
Human resource
Report and table
Language

Technical issues
Language
Report and table
Cost control module

ERP
failure

Environment
Economic reform
Cost control module
Price

Fig. 2. ERP implementation failure factors in China.

Table 3
Factors affecting ERP implementation failures
Case 1,
CosmeticCo
Language
Report and table
BPR
Economic reform impact
Cost-control module
Human resource problem
Price issue
Partnership

Case 2,
PharmaCo

+
+
+

Case 3,
ElectricCo

Case 4,
FurnitureCo

Case 5,
StoneCo
+
+

+
+
+
+

+
+

+
+

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The second cultural factor is BPR. ERP

incorporates the western management paradigm
which causes clashes with the Chinese culture
(Martinsons and Westwood, 1997). Chinese companies need to redesign their current business
processes to make the ERP implementation a
success. Foreign ERP vendors must understand
how companies operate in Chinas radically
changing environment and help them realize that
ERP represents a totally new business process
model, not simply a piece of technology that is
easily implemented.
The third cultural factor indicates that the
human resources in Chinese companies play an
important role in the ERP implementation project.
The top management should understand that the
ERP project requires BPR and the project team
leaders should understand the companys strategies, plans, and business processes. Unrealistic
expectations and incompetent project teams often
lead to implementation failures. This nding is
consistent with the ERP research based on
Western companies. Since the human resource
problem is often complicated by the Chinese
culture, it is placed in the cultural factors category.
For example, Chinese company executives tend to
rely on experience, intuition, and insights from
personal connections to assess situations and make
decisions (Martinsons and Westwood, 1997). They
might not readily believe that they should change
their current way of doing business due to the ERP
systems implemented.
The fourth cultural factor is the report and table
format. This is not a trivial issue, since the
presentation of information has direct impact on
end users. User resistance will likely result because
of alien presentation styles. Finally, the language
poses another cultural challenge to ERP implementations. The Chinese language is pictographic
and uses gures and shapes to represent words. It
is often difcult to translate English terms into
Chinese. Inaccurate translation results awkward
Chinese words and causes many confusions.
Given the unique cultural characteristics of
China, Chinese culture must be fully studied to
avoid mistakes. As commented by the general
manager of the rst foreign ERP vendor that
entered Chinas market, You should understand

291

Chinas history and culture before you start doing

business with Chinese companies.
Economic reforms, the cost-control module, and
price are interpreted as environmental factors
because all of them are related to Chinese
companies external environment. Due to Chinas
economic reforms, Chinese companies are under
pressure to transform themselves into marketdriven enterprises. The rapid opening of Chinas
markets led to such abrupt changes that some
companies are still not ready for the new management requirements. The fast-changing environment in China requires exible ERP systems
enabling the ERP implementing companies to
customize certain modules to t their changing
needs. There is doubt that most foreign ERP
vendors can respond to these changes gracefully in
a timely manner.
Chinas changing market determines Chinese
companies cost-control functions. In Western
countries, purchasing plans are normally made at
monthly or yearly intervals and raw materials
prices are somewhat xed, resulting in relatively
stable product costs. In China, companies change
their purchasing plans frequently, leading to a
requirement for raw material costs to be updated
frequently to represent the latest market prices.
The changes take place weekly or even daily.
Foreign ERP vendors need to create more robust
cost-control modules to meet this challenge
resulting from the Chinese business environment.
The Chinese government requires specic nance report formats, which are different from the
formats provided by foreign ERP systems. The
environmental context can alter a systems functionality. While a foreign ERP system works well
in Western countries, it fails to provide fundamental outputs in China. On the contrary, Chinese
ERP vendors which primarily evolved from
nancial software vendors are experienced with
generating government-required report formats.
Therefore, Chinese ERP vendors are in favor when
Chinese companies choose ERP systems.
Foreign ERP vendors also suffer from a need to
reduce costs since they are in a competitive
environment with many local Chinese ERP
vendors who sell their products at lower prices.
For example, SAP offered ElectricCo its R/3

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Y. Xue et al. / Int. J. Production Economics 97 (2005) 279295

package for USD 1 million and USD 1 million for

installation, while the price of a Kingdees K/3
package purchased by FurnitureCo was approximately USD 130,000. Although foreign ERP
vendors have established a high-quality image in
China, their high prices for ERP systems and
services may intimidate many Chinese companies.
Finally, technical issues contribute to ERP
implementation failures. The translation from
English to Chinese for all the user interface
messages and system outputs is a difcult and
error-prone job. In many occasions, direct translations from English do not make senses to native
Chinese speakers. Therefore, great caution should
be taken to ensure that the ERP system presents
understandable Chinese. Since the interface is the
system to the users, this is a critical aspect of any
ERP system.
The three technical factors are duplicated with
some of the cultural and environmental factors.
This signies that the three categories are correlated and have intersections. The unique Chinese
culture and environment dramatically change the
operating context of foreign ERP systems, causing
unpredictable under-performance. The technical
problems are a part of the manifestation of the
cultural and environmental problems experienced
by foreign ERP vendors. For example, the
difference between Western countries and China
in terms of making tables and reports is a cultural
factor. However, this cultural difference manifest
itself as a technical problem, that is, the reporting
module of the ERP shows poor system quality
by producing incorrectly formatted tables and
reports.
In summary, foreign ERP vendors should take
the Chinese culture, environment, and technical
issues into consideration to increase the possibility
of achieving successful ERP implementations. We
discuss some implications for both academic
researchers and practitioners in the next section.

7. Implications
The results of this study have implications for
both academic researchers and ERP practitioners.
For academic researchers, this study provided

insights into the Chinese ERP market and

environment. The authors believe that historical
and cultural perspectives must be included as
important issues for IS researchers.
Since Chinese managers are reluctant to talk
about the negative aspects of their companies, it is
very difcult to collect information regarding
unsuccessful IS initiatives, especially when domestic shame should not be made public is an
important cultural value. It is regarded as offensive and rude to ask someone about losing face.
Therefore, the data presented in this article should
be of great value to researchers. In addition, this
study identied eight cultural and environmental
problems in ERP implementation. This expands
the range of cultural and environmental concerns
previously found in the literature in explaining the
factors affecting ERP implementation. Once the
reasons for ERP implementation failures are better
understood, future execution should be enhanced.
Our ndings can help ERP practitioners to
predict likely weaknesses in their companys ERP
implementation plan and lead to better planning.
The eight problems reveal a set of key areas for
foreign ERP vendors to pay attention. The failing
cases in China suggest that ad hoc remedies will
not save an ERP vendor. Instead, strategies to
address cultural barriers should be developed
before an ERP vendor enters a foreign market.
Based on our ndings, ERP vendors may develop
appropriate cultural solutions. Under such a
strategy, chances of successfully implementing
ERP and consequently taking more market share
will likely be increased.
More specically, ERP vendors should ensure
that all the modules of their system are thoroughly
and correctly translated into the native language of
the targeted market, including user interfaces,
reports, and user help les. ERP vendors should
also make their systems exible enough to easily
adapt to structural changes being made by ERP
customers in the targeted market. Major events,
such as Chinas entry into the World Trade
Organization, have caused rms to radically
reorganize, and change business processes and
supply chains. If an ERP system cannot adapt to
such changes, ERP failure is guaranteed. Some
vulnerable functions of an ERP system include

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ability for calculating rapidly changing costs and

generating the format and content of tables or
reports that meet local government requirements.
In addition, the user interface must be customized
as well as a sound help system in understandable
Chinese, and the reports must be constructed so
that the Chinese government regulations are met.
The modication of an existing ERP system to t
local cultural needs may be costly and timeconsuming. However, to sustain a rms brand
reputation, such efforts are essential.
Having a customized ERP system in place is not
enough. Product promotion and customer aftersale services are also important. In order to
achieve both, communications with customers
should be performed within the local cultural
norms, using the local values and beliefs. Given
the differences between Western and Chinese
cultures, nding a local service provider as the
middleman may be an essential tactic for international ERP vendors to legitimize their products.
One solution for ERP vendors is to seek the best
Chinese middlemen, provide through training,
build custom Chinese modules, and establish such
a close partnership that there will be no ngerpointing when difculties are encountered. The
middlemen must understand the vendors product
(all modules) and be able to communicate clearly
to the Chinese rms.
However, this temporary solution creates a
paradox. On the one hand, local service providers
help ERP vendors to transcend the culture barrier,
and on the other, some local service providers
become the bottleneck to ERP implementation
because they lack adequate knowledge about the
ERP system. In addition, service fees are an extra
burden to implementing companies. For foreign
ERP vendors, this situation will not change in the
near future. They need to build a good relationship
with a local service provider, nd the best talent
possible, and offer adequate ERP training. In the
long run, localized operations require hiring
Chinese talent to replace the local service providers
as well as good training.
Finally and most importantly, ERP is not just
an information system; it is a new way of doing
business. No implementation can be successful
without understanding the need for BPR. Since

293

Chinese people are more focused on the past, they

are more conservative and resistant to change.
Consequently, ERP systems may be put onto the
shelf after the implementation. Misunderstandings
about the nature of ERP systems further negatively inuences the relationship between culture
and ERP implementation. International ERP
vendors are unable to offer the same level of help
to Chinese companies as they would offer in
Western countries. This makes true BPR even
more difcult. With this problem in mind, the
selection of a local service provider becomes more
critical, and should encourage ERP vendors to
invest in developing their own localized service
group to work closely with their customers. Of
course, all these initiatives should be part of the
ERP strategic plan that gives culture adequate
consideration.
In summary, as contended by Ahlstrom and
Bruton (2001), foreign companies should learn
how to establish legitimacy in Chinas transition
economy by carefully taking characteristics of
Chinese settings into account. Foreign ERP
vendors are confronted with the challenge of
legitimizing their ERP systems. They should pay
attention to the three categories of factors we
identied in this paper when formulating their
legitimacy-building strategies so that the success
rate of implementing their products is augmented.
In addition, it should be noted that ERP
implementation is an ongoing process and ERP
outcomes (success or failure) are dynamic in
nature. Success at different points in time may
only be loosely related to each other (Larsen and
Myers, 1999; Markus et al., 2000). An early
success can become a later failure and an early
failure can turn to a later success. It is found that
companies experienced problems at all phases of
the ERP system life cycle, and many problems
occurring in early phases remained unnoticed or
uncorrected and manifested themselves in later
phases (Markus et al., 2000). Consequently,
caution must be exercised when assessing ERP
success, especially during the project phase, since
serious problems might be concealed underneath
the surface of the seeming success. While we
recommend ERP vendors and implementing companies to pay attention to the factors we identied

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to increase the likelihood of achieving ERP

success, we would like it to be recognized that
addressing these factors at the beginning of an
ERP project cannot guarantee later success.
Developing such a reasonable understanding will
remind managers that ERP implementation is a
dynamic process and problems can arise at any
phase of this process. As such, they will not overly
rely on pursuing a set of success/failure factors at a
given point in time, which ultimately helps achieve
long-term success.

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