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Enterprise Software: What to Expect When You're Expanding
Enterprise Software: What to Expect When You're Expanding
June 15 2012
Everyone wants their business to grow, to broaden its operations within a territory or country and, eventually, across borders to other countries and continents. However, business expansion abroad entails a great deal of forethought, especially with regard to enterprise software applications. In fact, the differences in business environments may not only affect corporate business strategy, but also pose various hurdles to an organization’s software extension strategy and strategic information technology (IT) decisions overall. Such hidden issues should be researched ahead of time so that the necessary allowances and adjustments can be made to your plans for growth.
Companies need to consider numerous aspects when planning their expansion. I’ve identified four major types of possible problems that have a direct impact on IT and corporate software decisions.
The most apparent software-related cross-border issues are the differences in technical infrastructure. Indeed, the capacity and reliability of telecommunications networks, bandwidth parameters, and failure prevention measures are extremely important. In some countries it may also be helpful to understand the trends in infrastructure ownership and development strategies, data privacy and security practices, and the relevant law enforcement practices.
Owing to its relative simplicity and global availability, cloud computing can be a very attractive technical proposition for expanding companies, but, in addition to the usual hardware and infrastructure questions, there can be local legal and other considerations that may not be factors in the company’s home country.
For instance, authorities of some countries can be unexpectedly sensitive to the fact that, say, company financial and taxation data is stored abroad and not within their direct reach; there may be local requirements to keep data within a country. Such conditions may diminish the potential advantages of using cloud-based applications, and you may have to consider revising your original strategy.
Regulatory Compliance Issues
Wherever you go, the local regulatory requirements will be different; so your software system needs to be able to handle those requirements or support integration with a third-party solution that is local. Accounting requirements are a good example of this, and not the only one. International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) are frameworks, rather than rigid rules, so specific accounting structure implementations and requirements can be quite different from one jurisdiction to another.
For instance, in Russia and some other countries, a chart of accounts is fixed and mandated by the relevant ministry of finance, as is a limited register of all possible accounting transactions that a company is allowed to use in its accounting. So in order to align such an accounting model with other European or North American ERP systems you’d need to either make modifications to the existing system, or integrate it with localized accounting software, with all the challenges of synchronization that entails. In either case, additional decisions will need to be made.
It’s a similar story with local or regional taxation systems, which can be very diverse. It could be a matter of processing a value added tax (VAT)—which is not applicable in North America but is common in Europe—or dealing with unique excise duties. Even the method of calculating corporate profit tax may vary. This is all in addition to often confusing and cumbersome taxation legislation that changes at such a pace that even local residents can’t always keep up with it.
Although major high-level business processes such as purchasing, manufacturing, inventory management, and accounting look similar in broad outline, they may vary substantially at an in-depth level, so your existing ERP software is likely not designed to support them.
Example 1. In China, you are obligated to use a government-owned invoicing system to issue and register all the invoices a company generates. In this case, modifying your existing ERP or accounting system is pointless; your only option is to integrate your software with the local invoicing system. This undertaking could be especially entertaining if you are using non-Chinese global cloud-based ERP software.
Example 2. In Russia, you need to produce, sign, and forward to the accounting department a stack of physical documents in government-approved format simply to transfer materials from one warehouse to another warehouse, or to issue materials into production. These documents are strictly mandatory within Russia, but are not required elsewhere. The only way to accommodate this requirement is by modifying your existing system or acquiring localized software that naturally supports this functionality.
Even small differences in how a business process is handled can be difficult to accommodate within the same corporate-wide ERP system, whether it is on-premise or cloud, and should be investigated at the planning stage of business expansion.
Depending on where you operate, cultural issues may affect the kind of software you use or are planning to buy, as well as how you buy it.
For example, in Russia no business will buy a significant (ERP-like) system without having multiple in-person meetings with the vendor’s top management, doing extensive background checks and security verifications, etc. Trust and credibility are serious issues in Russia and therefore cloud solutions are not extensively used, although they are available and being heavily promoted.
Some countries have more corruption than others, so hidden payments of many types may simply be a standard additional expense of doing business; software markets are not necessarily exempt from such practices.
Language is another big cultural issue. While some people are easygoing about the language of their software, some countries have specific requirements. The language of your software system can also be a significant barrier to user adoption, especially in combination with business processes using terms, rules, and definitions that vary across countries, or may not even exist in some regions. Eventually, you may be forced to find a solution that is not only translated into another language, but fully tailored and localized to the region.
So How Can You Prepare
Here’s some simple advice that can help you to extend and diversify your business by making the right decisions and successfully selecting and deploying enterprise software in other countries or regions.
Know what you’re getting into. Research local requirements, business practices, and cultural business norms ahead of time. Research will help you to
Plan ahead for your software requirements
Determine when it’s better to modify existing systems to support regional requirements and when you’ll have to select and integrate local systems instead
Keep on schedule, by, e.g., anticipating integration issues or modifying your existing system beforehand (when possible) so you have fewer delays later on
Work with local experts (value-added resellers [VARs], consultants, etc.) or international experts who know local requirements
Be prepared to change business processes, make additional investments, incur additional costs, and keep an extra set of books (one for your main accounting system and a regionalized one for the local tax authorities), etc.
Consider a major system upgrade before expanding internationally. If you know far enough in advance that you want to branch out into different regions, you can replace your legacy business software with a system that’s built for international business.
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