The Chinese government released the ''Made in China 2025'' blueprint in 2015 to forge a strong manufacturing sector. Since then, the manufacturing sector has begun to adopt digitalized solutions to reshape the workflow and processes to improve production and efficiency.
EqualOcean recently published China's Enterprise Resource Planning Industry Research Report, which dives deep into the status quo, critical applications and dynamics of the ERP (enterprise resource planning) market. The report breaks it down from the perspective of history, market structure and tailwinds and applications.
China's ERP market
The demand for ERP comes from China's plan to build a world-leading manufacturing sector. At the moment, the industry is big but not advanced.
China surpassed the United States to become the world's largest manufacturer of value-added products in 2010. Since then, it has continued to lead the world while the United States, Japan, Germany and other countries gradually realized the importance of the ability to make goods. As the market competition becomes more fierce, these countries regarded the upgrading of the manufacturing industry as a national strategy, and they have rolled out roadmaps such as "German Industry 4.0," "American Industrial Internet," and "Made in China 2025."
As a result, the roar of machinery heralded the scale-up of the global ERP software market, which shows a trend of steady growth and is expected to exceed USD 66 billion in 2026, according to MRFR, a global market research company.
Based on the financial report of SAP, the largest ERP service provider in the world, it only generated 10.7% of its total revenue from the Asia-Pacific region (excluding Japan) in 2021, which indicates that the market has tremendous potential.
China should represent most of the growth as the largest single market in the area. In the first three quarters of 2021, according to Ministry of Industry and Information Technology, China's software sales reached CNY 1,795.1 billion (USD 280 billion), up 17% year on year. Among the sales growth drivers, the revenue of industrial software grew to CNY 168.3 billion (USD 26.3 billion), 18.8% higher than a year ago, driven by industrial digitalization.
Status quo
With the rise of digital economy, the manufacturing industry has a booming demand for cloud-deployed ERP system, prompting the top providers to accelerate cloud transformation.
In addition, important market participants and large manufacturing enterprises require ERP to meet the following requirements: covering personalized needs, data protection, and the unification and coordination among internal organizations.
Specifically, large manufacturing companies have longer industrial chains and abundant resources, which usually don't focus on developing one area. So they emphasize ERP products and solutions to satisfy their individual needs.
Besides, this group of colossuses, as premium clients, generates the most demand for ERP applications, and local software designers have begun to target the high-end market. So far, China's premium market is dominated by large enterprises, such as SAP and Oracle. But this has fueled heightened national security concerns for state-owned enterprises.
China issued policies to ensure data safety. Local ERP developers pursuing the opportunities have been working to meet those needs. Yonyou and Inspur are two companies leading the local ERP scene.
Compared with large businesses, growing businesses' resources are less sufficient so that their ability to withstand risks is weak. The companies are more conservative, caring about what ERP can bring to their business after implementing it.
Other than that, these smaller, growing companies are attaching importance to ERP. To raise capital, they consider ERP systems as a way of cutting costs, improving financials and customer satisfaction and boosting market capitalization. For example, ERP helps manufacturing companies simplify and automate operational processes, and reallocate saved resources to other functions.
ERP Trends
To satisfy various demands of business users, manufacturing ERP evolution is gathering pace. Dating back to 1960, ERP (formerly known as MRP) was developed to optimize inefficient workflows within the company by integrating firm data and boosting operational efficiency. For a long time most companies paid excessive attention to internal cost control instead of external supply chains.
But for now, manufacturing firms start to coordinate the entire business operations, owing to increased competition and rapidly changing business environment. They shift from separate departments to integrated business processes, including internal production, logistics, financials and external industrial chain.
As China’s ERP market is concentrated toward large enterprises, these businesses’ demand for ERP will mainly center on upgrades and replacement. Meanwhile, a rise in application of ERP in small and midsize businesses will boost the market.
Cloud-based ERP is typically more affordable for small and midsize businesses to implement compared with on-premises solutions, and thus this provides them with the opportunity to grow efficiently. Due to the frequently iterative nature of SaaS, the service provided can keep up with the rapid growth of these companies.
With digital transformation of the manufacturing sector, ERP systems will lay a solid foundation and put in place an information backbone for businesses. However, most organizations struggle to balance traditional ERP software's high costs against the need for flexibility, all the while meeting their business demands.
In the age of Industry 4.0, digital technologies, such as low code, robotic process automation and artificial intelligence, are poised to boost manufacturing. As advancing new technologies are expected to blend into ERP, the fully integrated ERP system will help companies gain a strong foothold in the market.
This article contains only excerpts from the report. For more details, please click to download the full report here.