B2B e-Commerce in China's Automotive Market

A G X S W H I T E PA P E R

B2B e-Commerce Strategies for
the Chinese Automotive Market
A Guide for European and North American Manufacturers

Table of Contents

Section 1—China’s Opportunity for High Volume Sales and Low Cost Manufacturing ............................4
The World’s Fastest Growing Automotive Market ..............................................................................4
China’s Manufacturing Opportunity ....................................................................................................5

Section 2—Challenges of Competing in China’s Automotive Market .......................................................7
Increasing Competition.......................................................................................................................7
Variable Demand ................................................................................................................................7
Variable Supply...................................................................................................................................8
Materials Management and Logistics Challenges ..............................................................................8
Export Dynamics.................................................................................................................................9
Keys to Supply Chain Management Success....................................................................................10

Section 3—Assessing B2B e-Commerce Readiness in China..................................................................12
Four Infrastructure Requirements for B2B e-Commerce...................................................................12
Infrastructure.....................................................................................................................................13
Technical Support .............................................................................................................................14
Large Business Enterprise Application Infrastructure .......................................................................15
Small Business Application Infrastructure ........................................................................................16
Technology Focus in China ...............................................................................................................17

Section 4—Defining a B2B e-Commerce Strategy for China...................................................................19
Your Value Chain in China ................................................................................................................19
Assessing Trading Partner Readiness ...............................................................................................21
Automating B2B Business Processes...............................................................................................23

Section 5—Implementing a B2B e-Commerce Strategy in China...........................................................25
Large Customers...............................................................................................................................25
Large Suppliers.................................................................................................................................28
Small and Mid-Size Suppliers ..........................................................................................................30

Section 6—GXS, Your Trusted Partner in China......................................................................................34
Automotive Industry Domain Expertise............................................................................................34
GXS Resources in China ...................................................................................................................34
GXS Experience in China ..................................................................................................................35
GXS B2B e-Commerce Solutions ......................................................................................................36

B2B E-COMMERCE STRATEGIES FOR THE CHINESE AUTOMOTIVE MARKET
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List of Figures

Figure 1—Annual Sales of Vehicles in China

Figure 2—Keys to Supply Chain Success in China

Figure 3—Assessing B2B e-Commerce Readiness in China

Figure 4—Trading Partner Segmentation (Manufacturing for Sale in China)

Figure 5—Trading Partner Segmentation (Manufacturing for International
Export)

Figure 6—Sample Trading Partner Readiness

Figure 7—Pull Based Replenishment

Figure 8—Recommended B2B Architecture for Demand Chain

Figure 9—E-Business Document Exchange Usage

Figure 10—Communications Methods Used with Suppliers

Figure 11—Computer Based Customer Interactions

Figure 12—Recommended B2B Architecture for Supplier Integration

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Section 1

CHINA’S OPPORTUNITY FOR HIGH VOLUME
SALES AND LOW COST MANUFACTURING
The World’s Fastest Growing Automotive Market
The Chinese automotive market has been growing at an average of 10 percent annually,
much faster than any other region in the world. It is growing much faster than other emerg-
ing markets such as India, Latin America, Central and Eastern Europe. Automotive sales
have been relatively modest in the maturing markets of North America, Europe and Japan.
In contrast, China’s domestic automotive market is predicted to account for 15 percent of
global growth in the next five years.

Figure 1—Annual Sales of Vehicles in China (1995-2010)

Source: China Auto Monthly

There are two main drivers behind the rapid growth of the Chinese automotive industry:
• Increasingly open economic policies in China.
• The rising income per capita amongst Chinese consumers.

China’s Open Economic Policy
The most significant changes in the economic policy are being driven by China’s accession
into the World Trade Organisation (WTO). Protectionist legislation has traditionally restrict-
ed foreign participation in the market. The restrictive policies are now being abandoned in
favour of more open economic policies.

WTO membership has significant implications for the domestic automotive market in
China.

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• Tariffs and quotas—Historically, tariffs and quotas have discouraged foreign OEMs
from importing vehicles for sale in China. Tariffs on foreign imports averaged 200
percent in the 1980s and 100 percent in the 1990s. With China’s WTO accession,
tariffs are being dramatically reduced to levels of 25 percent as early as 2006. Quotas
have historically limited vehicle imports to 30,000 vehicles a year. The quotas are also
being phased out in the coming years.

• Sourcing—Historically, manufacturers were required to source up to 80 percent of
parts and materials locally from Chinese vendors. These local requirements are being
completed phased out with the new WTO legislation.

• Retail and Distribution—Foreign enterprises have historically been prohibited
from owning retail distribution networks such as retail dealerships. With the WTO
accession, foreign enterprises will be able to own both wholesale and retail distribution
entities.

• Financing—Non-Chinese banking institutions have been restricted from providing
consumer loans for vehicle financing. Over the coming years de-regulation will enable
foreign financial institutions to compete for a piece of the sizeable Chinese consumer
loan market.

Emerging Middle Class of Consumers
The opening up of Chinese economy has led to surging demand for consumer products.
China’s manufacturing sector has exploded in response to the dramatic increase in demand.
As a result millions of Chinese have migrated from rural central and western regions to
China’s eastern manufacturing centres. In search of a better life, these Chinese citizens are
abandoning traditional agricultural vocations in favour of higher paying manufacturing
careers. Across the eastern and southern regions of China an emerging middle class is devel-
oping. The average Chinese middle class family now has an annual household income suffi-
cient to enable investment in a home or an automobile.

China’s Manufacturing Opportunity
With a population of 1.25 billion people, China has the world’s largest labour pool. It is
also one of the lowest cost labour pools. Chinese workers wages are very low compared to
traditional manufacturing centres in North America, Europe and Japan. As a result, many
suppliers are manufacturing labour-intensive parts and materials in China.

Automotive manufacturers are adopting two main strategies for manufacturing in China:

• Building Manufacturing Capacity—Many large automotive manufacturers are invest-
ing in building and operating their own plants in China. The local production capaci-
ty provides easy access to China’s domestic market. The plants can also be used to
produce low-cost parts for export to western markets at a considerable cost advantage.

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• Sourcing from Third Parties—Not all automotive manufacturers are building
production capacity in China. Instead, some manufacturers are establishing sourcing
relationships with Chinese manufacturers. Using a sourcing model reduces risk, cap-
ital investment and time to production.

Automotive Manufacturers in China
Three ownership structures exist in China’s automotive sector:

• State Owned Enterprises—The development of China’s automotive industry was
heavily influenced by the political structure that China embraced throughout most
of the twentieth century. In the 1950s and 60s, China’s centrally planned govern-
ment established a number of state owned automotive OEMs and suppliers. As
China has migrated to a more open economic structure in the last few decades, these
state owned enterprises have evolved into new structures. Many of the original state
owned enterprises have become partially privatised through public offerings or direct
investment.

• Joint Ventures—Prior to China’s accession into the World Trade Organization, the
Chinese government enforced strict ownership policies regulating ownership of
domestic enterprises. Foreign corporations were prohibited from holding a control-
ling interest in businesses operating in China. As a result, foreign OEMs and suppli-
ers established joint ventures with local Chinese manufacturers. These joint ventures
proved very successful by merging the local market expertise of Chinese manufactur-
ers with the best-in-class products of American, European and Japanese industry
leaders.

• Wholly Foreign Owned Enterprises—As the domestic market has been de-regulat-
ed, a new group of wholly foreign owned enterprises is emerging. These wholly
owned enterprises are predominantly American, European and Japanese OEMs and
suppliers seeking to capitalise on the promise of China’s market opportunity.

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Section 2

CHALLENGES OF COMPETING IN CHINA’S
AUTOMOTIVE MARKET
Increasing Competition
European and American OEMs such as Volkswagen and General Motors have long-estab-
lished leadership positions in China. However, the competitive landscape is quickly changing.
The dramatic growth of the Chinese market continues to attract record levels of foreign
investment. As a result, established industry leaders have witnessed significant decreases in
market share and profitability in the last 24 months. Impressive growth rates have been
observed by Japanese OEMs such as Honda and Korean OEMs such as Hyundai. Domestic
OEMs such as Chery who specialise in compact vehicles are grabbing market share as well.

Variable Demand
The Chinese automotive market has experienced consistent double digit growth year-over-
year. However, there have been several periods during which growth has not met forecasted
expectations. Various factors have combined to cause the fluctuating demand changes.
Root causes include:

• Government Policy—On several occasions during the past decade the Chinese
government has intervened in the domestic automotive market. Concerned with the
extraordinary growth rates, China’s leader’s enacted policy designed to “cool down” the
market. Regulatory measures included raising interest rates for consumer loans and
enforcing quotas on new vehicle registrations. The policies effectively curbed demand
for consumer automobile purchases.

• Consumer Credit and Financing—China lacks a nationwide system for assessing
consumer credit worthiness. The lack of a sophisticated risk management system for
consumer automobile loans has resulted in an unusually high level of defaults. The
government modified banking policies in 2004 to reduce the risk of loan failures.
Consumers are now required to outlay a minimum of 20 percent of the vehicle price
to qualify for a loan. Term periods can only extend for a maximum of five years.
Raising the qualifications for consumer loans has limited the segment of the popula-
tion who can afford new vehicle purchases.

• Price Wars—Increased competition in the Chinese market has resulted in price wars.
Manufacturers have continually reduced prices in an attempt to increase market share.
In fact, the effect was the opposite. A decrease in sales was witnessed. Many Chinese
consumers are first-time car buyers. They lack experience and confidence negotiating
such a major purchase. On anticipation of further price decreases, many consumers
elected to “hold off” on purchasing a vehicle.

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• Health Concerns—Outbreaks of SARS and the Avian flu virus have occurred in China
during recent years. A broader epidemic rate could have significant repercussions for
the Chinese economy. Lower consumer confidence would greatly curb new automo-
bile purchases.

Variable Supply
The rapid growth of the Chinese market has led to a high degree of variability in supply.

• Raw Materials Pricing—China’s explosive demand for raw materials to support local
construction and manufacturing activities results in dramatic price fluctuations. Costs
for raw materials such as steel can vary significantly from year to year.

• Import Policy—In 2004, the Chinese government amended import legislation that
governed the categories of products subject to tariffs and quotas. Cars with certain
imported subassemblies may now be taxed at the same rate as fully assembled vehicles.
The policy change was designed to increase the percentage of content sourced from
local suppliers. As a result, many manufacturers were forced to redesign aspects of their
supply network to avoid tax penalties.

• Over-Capacity—The growth potential of the Chinese market has led many OEMs to
invest heavily in production capacity over the past five years. Most major OEMs are
planning significant investments in manufacturing plants through to the year 2010.
If production capacity increases as scheduled the market will quickly reach a point at
which supply exceeds demand. The imbalance will result in further price pressure and
margin erosion.

Materials Management and Logistics Challenges
China presents a unique set of challenges for materials management and logistics:

• Over-capacity—China’s logistics and distribution infrastructure has been significantly
challenged to keep pace with the growing demand for transportation. The national air,
marine, rail and highway infrastructure is currently underdeveloped relative to the
demand for transportation. As a result, logistics costs are 40-50 percent higher than in
North America or Europe.

• De-centralised regulation—To further complicate matters, regulation of domestic
trade is de-centralised. Provincial governments manage regulations on trade
declarations, shipping documentation, and transportation duties on a regional basis.
The complexity of understanding local regulations is a frequent source of shipment
delays. A simple paperwork error can hold up a shipment, which could take weeks to
reschedule.

• Distributed Plant Locations—Manufacturing locations are not concentrated into spe-
cific geographic areas. Only five of China’s provinces can claim they are home to more

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than 10 percent of the economy’s component manufacturing plants. The remaining 50
percent of production is divided amongst 21 other provinces throughout the country.
The fragmentation of manufacturing locations results in a need to transport materials
much further distances to reach value chain participants.

• Third Party Logistics Services—Historically, the government has encouraged domes-
tic manufacturers to own and operate their warehouse and transportation infrastruc-
ture. Today, 70 percent of Chinese manufacturers own their vehicle fleet and 80 per-
cent own their warehouses. A services market is beginning to emerge for domestic
logistics. However, the market is highly fragmented today. Currently there are over
18,000 transportation and logistics providers in China, none of which enjoys a share
of more than 2 percent of the overall market.

• In-Transit Challenges—Occurrences of theft and freight damage are much higher in
China than in Western nations. Additional supply chain costs are incurred to replace
stolen and damaged items. However, even greater losses can be realised when materials
shortages interrupt production.

Export Dynamics
China’s vast low-cost labour force provides an extremely competitive manufacturing cost
structure. However, the extension of the supply chain to China results in significantly longer
lead times for exports to North America and Europe. Lead times of 30 to 45 days are com-
mon for parts traversing a supply chain from China to North America or Europe. The low-
cost economics of manufacturing in China will provide significant benefits during times of
steady production. However, the long lead times can be problematic when demand fluctua-
tions are encountered or design changes are required.

• Demand Fluctuations—Production in China reduces a manufacturer’s ability to
respond quickly to changes in demand. Demand for automotive products can change
unexpectedly as a result of competitive behaviours, energy prices or weather events. If
unforeseen increases or decreases in demand occur, a manufacturer must wait at least
30-45 days for their adjusted forecasts to flow through the supply chain. The result of
such latency in the supply chain can easily cause a surplus of inventory or a missed
sales opportunity.

• Design Change—Manufacturing in China reduces the ability to quickly implement
changes to part or vehicle designs. Consider the case of a safety recall for a part manu-
factured in China. The OEM will need to wait 45 days or longer before they can
assure the market that they have remedied the safety defect. The effects of such latency
in the supply chain are compounded when one considers the on-going movement to
standardise parts across models and brands. As more manufacturing is moved offshore,
safety recalls and design changes to individual parts will have a broader impact on
vehicle populations. As a result, recalls of parts manufactured overseas will create a
dramatic impact on sales and supply.

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Selecting Products to Manufacture in China
China’s very attractive labour costs can be leveraged to export parts for the aftermarket or
production around the world. However, China is not the only low-cost manufacturing cen-
tre. North American manufacturers have been sourcing from Mexico for several years.
Western European manufacturers are beginning to source more production from Central
and Eastern Europe. The costs and challenges of exporting from China should be com-
pared to the near-shore options in Europe and North America.

Ideally, parts exported from China would be those which derive the majority of their costs
from labour and also lend themselves to efficient international transport. Examples of parts
with lower fully landed costs include compressor valves, alternator pulleys and steering pin-
ions. Bulky parts such as fuel tanks and windscreens with their associated high transporta-
tion costs should continue to be sourced closer to final assembly.

Keys to Supply Chain Success
There are two keys to success in competing effectively in the Chinese automotive market:

• The ability to react quickly to changes in supply and demand for both domestic and
international value chains.

• Achieving superior operating efficiencies in functions such as demand forecasting,
materials management, local logistics and cash management.

A key enabler to achieving superior operating efficiencies is the ability to measure key supply
chain metrics such as perfect order fulfillment, demand forecast accuracy and cash-to-cash
cycle time. Supply chain metric measurements require accurate, complete, up-to-date informa-
tion from all trading partners including suppliers, customers, banks and logistics providers.
A real-time feed of high quality data should be delivered to Enterprise Resource Planning
(ERP) or supply chain management systems. Metrics should be continuously monitored to
identify opportunities for improvement.

Figure 2—Key to Supply Chain Success in China

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• Shipping and Receiving Automation—Automation of logistics functions is a high pri-
ority for manufacturers seeking to minimise unexpected materials shortages. Electronic
exchange of advance dispatch notifications, shipment status updates and proof of
delivery can reduce the probability of documentation errors that result in unexpected
delays.

• International Export Visibility—Visibility to international logistics is critical for suc-
cess. Minimising the financial impact of design changes and safety recalls requires
being able to identify exposure through visibility to all inventory in the supply chain.
Variable demand patterns arising from petroleum prices, consumer confidence or
political events requires global supply chain agility. In many cases, finished goods and
future production could be redirected to other regions around the world. For example,
if China’s market slows, local manufacturing could be redirected towards Europe or
North America.

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Section 3

ASSESSING B2B E-COMMERCE
READINESS IN CHINA
Four Infrastructure Requirements for B2B e-Commerce
Deploying technology in China presents a unique set of challenges. An understanding of
these unique local challenges can help to reduce the risks of project delay through proper
advance planning.

For a B2B e-Commerce program to succeed, four aspects of technology infrastructure are
critical to success. The four aspects are:

• Infrastructure—The widespread availability and high reliability of data networks and
electrical utilities within China is a critical pre-requisite to e-Commerce.

• Technical Support—The availability of local resources with relevant language skills for
implementation and on-going technical support will be critical to success.

• Application Infrastructure
– Large Businesses—B2B e-Commerce offers minimal benefits without systems to
analyse the data received from trading partners. ERP systems must be deployed
and utilised before B2B programs can be successful.

– Small and Medium Businesses (SMBs)—For B2B e-Commerce to achieve
critical levels of adoption, it is important that SMBs are only required to have a
minimal level of IT infrastructure including PCs and Internet access. SMB soft-
ware packages for accounting and finance can accelerate capabilities to exchange
orders and invoices.

In the following sections we will explore the current level of adoption in the four categories—
infrastructure, technical support and application infrastructure for both large and small
businesses.

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Figure 3—Assessing B2B e-Commerce Readiness in China

Infrastructure
Compared with North America, Europe and Japan, China’s infrastructure is less mature.
Transportation, power and networking systems vary based upon geographic region and suffer
from poor levels of reliability.

• Internet Connectivity—Most manufacturers in the automotive supply chain are con-
nected to the Internet. However, the public Internet is not as reliable as in many west-
ern nations. Connectivity varies based upon geographic region and network carrier.
Users in many regions report frequent intermittent outages. As China’s infrastructure
continues to expand and modernise, the levels of availability will rise to global stan-
dards, but in the meantime it is important to plan for some interruptions to service.

• Network Exchanges—A consortium is currently being organised to create a Chinese
Network eXchange (CNX). The CNX will offer secure, reliable information exchange
similar to the ANX, ENX and JNX exchanges. However, today most connectivity is
achieved via value added networks or direct point-to-point connection. Both the
Internet and private line technologies are used.

• Power—Rapid development of power-intensive manufacturing plants and the emer-
gence of a growing middle class have dramatically increased the demand for electricity.
As a result, Chinese utility providers have not been able to keep pace. In certain
regions, the electrical infrastructure has become overburdened. Unplanned blackouts
can take entire manufacturing facilities off-line for several days at a time. Local utility
providers are investing heavily to increase capacity with the latest energy generation
techniques such as nuclear power.

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Technical Support
Locating the appropriate IT skills can be challenging as well. There are fewer IT professionals
on the market with extensive experience in B2B e-Commerce.

• Expertise/Skills—Creating a technologically advanced workforce is a key goal of the
Chinese government. Numerous programs exist to encourage youths to pursue
engineering and computer related degrees. Consequently, Chinese universities graduate
thousands of new technical professionals each year. However, experienced personnel
are in high demand throughout the region. Locating personnel with prior B2B
e-Commerce or enterprise application integration experience is very challenging.
Multi-national corporations often rely upon IT resources from Europe and North
American for technical expertise. It is not uncommon for IT personnel from Europe
and North American headquarters to be located on-site in China during major IT
initiatives such as an ERP deployment.

• Documentation—Documentation is not available from many vendors in Chinese.
The lack of localised materials frustrates users and prolongs implementations. To
many, B2B e-Commerce, supply chain management and enterprise resource planning
are new technologies which introduce new terminology. These new concepts further
compound the documentation challenges.

• Implementation Support—Many vendors, including larger multi-national IT vendors,
do not provide support directly in China. Instead, the vendors rely on a network of
local consultants and value added resellers to provide implementation and technical
support. The local organisations have the necessary language skills and a strong under-
standing of Chinese customs. However, the local consultants and VARs lack the broad
experience in implementation and technical support that the global IT vendors pos-
sess. Lack of experienced local support can prolong project timeframes when unfore-
seen challenges arise.

• On-Going Technical Support—Local phone based technical support is a challenge
particularly during non-business hours. Larger vendors, who deploy a 24x7 “follow the
sun” strategy, route calls to Europe or North America depending on the time of day.
Increasingly, English speaking regions such as India and the Philippines are staffing
low-cost, 24x7 call centres. The remote call centres typically lack Mandarin and
Cantonese language skills. Consequently, Chinese IT personnel who do not speak
English are not able to access timely support during off-hours. The problem is exacer-
bated by the increasing number of factories operating multiple shifts around the clock
to maximise output.

• Geographic Variances—Technology support is very challenging in the more remote
Central and Western regions of China. Due to the poor transportation and communi-
cations infrastructure, these remote regions are less developed than coastal provinces.
Government funding and special economic trade zones are concentrated on the

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Eastern seaboard due to its proximity to Pacific Ocean and the key intra-coastal water-
ways of the Yangtze and Pearl rivers. Manufacturers locating plants in Central and
Western regions may experience more challenges recruiting qualified IT professionals.

Large Enterprise Application Infrastructure
The success of any B2B e-Commerce initiative depends upon the maturity of the company’s
internal enterprise application suite. The deployment of an Enterprise Resource Planning
(ERP) application to manage warehouse, production, transportation and accounting func-
tions is a critical pre-requisite to any e-Commerce program.

ERP in the Chinese automotive community
ERP adoption in China remains quite low outside of multi-national corporations. Studies
from firms such as AMR Research suggest that the adoption rate is as low as 5 percent
nationally. Most automotive manufacturers who are not using ERP systems have achieved
some level of automation with a stand-alone accounting package, spreadsheet or other pack-
aged application. Manufacturers are expecting to move quickly away from these independent
methods to a more comprehensive, integrated approach. It is envisaged that ERP implemen-
tations will not necessarily be as broad in scope as in North America, Europe and Japan.
Functions such as payroll, human resources, customer relationship management and sales
force automation may be excluded from the early stages of implementations. Nonetheless,
the trend towards automation is encouraging for B2B e-Commerce.

ERP Vendors
Both Oracle and SAP have a strong presence in China. These large, global ERP vendors
have enjoyed particular success with China’s multi-national corporations and state-owned
enterprises. SAP has approximately 500 customers in a wide range of industries including
automotive, high tech, consumer goods, telecommunications and utilities. Oracle’s pres-
ence has increased with the acquisition of PeopleSoft. The merged company claims to have
approximately 600 customers in the manufacturing and services sectors. QAD also has a
strong base of multi-national and local customers in China. In total, QAD has approxi-
mately 500 customers concentrated in the manufacturing sectors such as automotive.

In addition to the large, global ERP vendors, a number of regional software packages are
popular. Vendors such as IFS, MAPICS and SoftBrands offer specific functionality for
automotive manufacturers.

ERP Vendors in China
Digital China Oracle

Epicor QAD

IFS SAP

Infor SoftBrands

Microsoft SSA Global

Source: AMR Research

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The following excerpt from the AMR Research study “Inside the Chinese ERP Market”
(September 2005) provides a summary of the level of adoption of ERP in China:

“The size, growth, and sheer desire to gain a competitive edge lured global Enterprise Resource
Planning (ERP) vendors to China. They have opened offices, signed local partners, and translat-
ed their software—but few are finding success. While the ERP terminology has become wide-
spread in China, the adoption of the systems outside of Western multi-nationals doing business
in the region remains low. Less than 5 percent of the companies in China are using an ERP
system, and the percentage of satisfied users is far smaller still. Apart from Chinese users’
inadequate perception of ERP, the key reason is the products’ insufficient flexibility to meet user
needs. Further hampering penetration is the assumption that a Western-style value proposition,
operating model, business process design, and supply chain integration model would quickly fit
an emerging market like China.

Chinese companies will evolve to some standards of global business, but they will do so in a
uniquely Chinese way. Most Chinese users prefer to use the system to automate current
processes rather than change processes to fit in an ERP system.”

Another driving force in ERP adoption will be the desire to compete in the world’s equity
markets. An increasing number of Chinese companies are conducting initial public offer-
ings to become listed on the Hong Kong, London or New York stock exchanges. The pres-
sure to maintain growth and meet stockholder expectations will drive the need for visibility
to corporate key performance indicators (KPIs). These KPIs can only be effectively meas-
ured by implementing ERP systems across the company’s entire operation.

Small Business Application Infrastructure
Small business accounting packages have a high level of adoption throughout China.
Adoption is broadly encouraged by the government, private enterprise and society. Chinese
companies prefer accounting packages that are relatively inexpensive and easy to use.

Small Business Accounting Applications in China
Manufacturing companies were the first sector in China to adopt accounting software packages. • Over 12 million small busi-
nesses in China
Today manufacturers represent the largest user group with 27 percent of the overall market.
Telecommunications and financial services are also large users of accounting software packages. • By 2006, an estimated 98
percent of all businesses
will use accounting software
The Chinese government has a strong influence on the accounting software industry.
China regularly establishes goals for its larger brands to establish international recognition • Manufacturing companies
and achieve market share targets. All software accounting vendors must have their applica- represent 27 percent of all
accounting users today
tions certified by the Ministry of Information Industries (MII) prior to commercial avail-
ability. Each vendor must recertify on an annual basis.

The Chinese accounting software market is very fragmented. Vendors focus geographically
on specific sectors and regions. Each of the six different regions of China has a different
vendor with the dominant market share. The table below lists a few of the best known
accounting software vendors with their region of concentration.

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Chinese Accounting Software Vendors

Accounting Software Vendor Geographic Focus
User Friend Software North
Kingdee Software South
Beijing Anyi North
Hangzhou New Grand Southeast
Langchao Guoqiang General
Tianjin Tiancai North
Powerise Software Central
Beida Jade Bird North
NeuSoft Northeast
Topsoft Software West
Tsinghua TongFang North
Beijing Peking University Founder North
Superdata Software South
UFSoft General

Source: Highbeam Research

Technology Focus in China
The readiness of the network, power, support and application infrastructure in China is a
critical factor in the adoption of B2B e-Commerce technologies. Equally important, however,
is the attitudes and perceptions of corporations towards technology. The attitudes and invest-
ment priorities for multi-national corporations differ in many respects from Chinese corpora-
tions.

Multi-nationals headquartered in the heavily developed regions of Europe, North America
and Japan face significant cost pressures. Growing labour costs in these regions have driven
multi-nationals to invest significantly in computer automation. This automation reduces
manufacturing costs by eliminating the need to pay high cost labour rates for routine, low
skill tasks.

Unlike the North American, European and Japanese markets, the driver for technology adop-
tion in China is not cost reduction. Prevailing labour costs in China remain very low relative
to western nations. As a result implementing technologies such as ERP, Supply Chain
Management and e-Commerce provides relatively limited cost savings.

Instead, Chinese companies view the value of deploying business applications in:
• The ability to scale through periods of rapid growth.
• The ability to ensure consistent manufacturing quality.
• The ability to service customers according to their preferences.

These factors are leading drivers for technology in China.

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Drivers for E-Commerce in China versus North America,
Europe, Japan

North America, Europe, Japan China
Reduce Costs Scale for Rapid Growth
Customer Preferences Ensure Quality and Consistency
Measure Supplier Performance Customer Preferences

Scale—Many Chinese manufacturers are experiencing rapid growth. This guide has already
mentioned the fact that the automotive market has experienced double digit growth for the
past five years. The market is expected to grow faster than any other on the planet through
2010. Today many business processes are manual or heavily customised. Processes based upon
spreadsheets, fax and e-mail do not scale effectively. As a result Chinese corporations are seek-
ing automation of enterprise functions and supply chain functions through technology. The
scalability provided by automation will enable Chinese manufacturers to capitalise on the vast
potential of the rapidly growing domestic market.

Quality—Chinese manufacturers are keen to establish themselves as high-quality providers to
the global automotive market. High quality in both products and customer service are two
areas in which the Chinese are still viewed as lacking. Global manufacturers comparing sourc-
ing options between China, India and Central Europe will factor both costs and quality into
their decision making processes. Electronic exchange of information can be a critical tech-
nique for improving both quality and the customer experience. E-Commerce eliminates the
need to re-key data into back office systems from paper, fax or email. Errors resulting from
handwriting misinterpretations and typographical errors are eliminated. Improving data
quality raises perfect order fill rate, reduces invoice discrepancies, and prevents unnecessary
shipment delays. Improved quality metrics result in higher customer satisfaction, retention
and growth rates.

Customer Preferences—Tier 1, 2 and 3 suppliers are increasingly trading with wholly for-
eign owned enterprises or joint ventures of European, Japanese and American OEMs. As a
result, Chinese suppliers need to adopt business practices that increase their attractiveness to
multi-national business partners. Multi-nationals expect electronic integration for forecasting,
inventory management, logistics and settlement processes. The maturity of business processes
and e-Commerce capabilities are often key factors in meeting customer expectations.

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Section 4

DEFINING A B2B E-COMMERCE STRATEGY
FOR CHINA
To define a B2B e-Commerce strategy for China, three critical questions need to be
answered:
• Which value chain segments will gain the most from e-Commerce?
• Which trading partners will be the first to participate?
• Which business processes should be automated?

The Value Chain in China
First, let us explore which value chain segments will benefit most from e-Commerce. Most
automotive manufacturing activities in China can be classified into one of two value chain
categories:
• Domestic—Manufacturing of vehicles and parts for sale in China’s local market.
• International—Manufacturing of vehicles and parts for sale in the rest of the world.

Multi-national corporations will manage these two value chains separately. Local Chinese
divisions will have responsibility for defining the manufacturing, sales and IT strategies for
the domestic value chain. Corporate headquarters or the appropriate divisions in North
America, Latin America, Europe, and the remainder of Asia will have responsibility for the
international export value chain. Timeframes, objectives and priorities for local value chains
may differ significantly from the goals of export value chains. As a result, distinct B2B
e-Commerce strategies should be developed for each.

Manufacturing for Sale in China
The majority of production capacity in China today is focused on meeting the domestic mar-
ket opportunity. Only 0.5 percent of the Chinese population owns a car today. Most of the
production today is therefore focused on building new vehicles for first time buyers. As the
local Chinese vehicle population continues to grow, a sizeable domestic aftermarket will begin
to emerge as well.

All but a negligible percentage of the vehicles sold in the Chinese market are manufactured
locally. Current regulatory policy in China discourages vehicle imports through the use of tar-
iffs and quotas although these are being reduced/phased out over the coming years.

The first step in defining an e-Commerce strategy for China is to identify and segment the
trading partners in your value chain. Trading Partners can be segmented into four primary
categories:

• Customers—For suppliers this may include OEMs, upper-tier manufacturers, or after-
market retailers. For OEMs it may include retailers and distributors.

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• Suppliers—Includes both direct materials and indirect materials suppliers. These sup-
pliers can be located within China or importing from the rest of the world.

• Financial Institutions—Facilitate payment transactions between participants in the
automotive value chain.

• Logistics Providers—Include marine, air, rail and ground transportation vendors as
well as third party logistics providers.

The diagram below provides a segmentation of trading partners relevant to the local China
market. Trading partners are categorised by function in the value chain (customer, supplier,
financial institution or logistics provider), location (China or international), country of origin
(China or international) and size (large or small).

Figure 4—Trading Partner Segmentation (Manufacturing for Sale in China)

Manufacturing for Sale in Rest of World
An increasing amount of production capacity is focused on exporting parts from China to
the rest of the world. Most of the export-focused production is designed to manufacture parts
and components rather than fully assembled vehicles. The exported components are used for
new vehicle production or aftermarket sales.

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Only a negligible quantity of vehicles is exported to the European or North American mar-
kets today. However, slower growth and increased competition in the local Chinese market
will change this trend in the future.

The first step in defining an e-Commerce strategy for export activities is to identify and seg-
ment the participants in your value chain.

The diagram below provides a segmentation of participants relevant to the international
export value chain. Participants are categorised by function in the value chain (aftermarket
sales, production manufacturer, parts manufacturer or logistics provider), location (China or
international), country of origin (China or international) and size (large or small).

Figure 5—Trading Partner Segmentation (Manufacturing for International
Export)

Assessing Trading Partner Readiness
Next, let us explore the different levels of e-Commerce capabilities amongst participants in
China’s automotive supply chain.

Value chain participants can be segmented by the level of e-Commerce experience. We will
segment companies into three categories:

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Category B2B e-Commerce Experience
Multi-National Multi-national corporations have extensive experience with ERP, EAI and B2B
Corporations e-Commerce technology in other regions. The value proposition of technology
is well understood. As a result, multi-nationals will be the first to deploy
these technologies in China.

Large Chinese Chinese corporations are new to ERP, EAI and B2B e-Commerce. However,
Corporations China’s Top 100 corporations are quickly learning about the advantages of
technology. As a result they are beginning to aggressively deploy B2B pro-
grams. Adoption will be slower due to the challenge of balancing the need for
rapid growth with the necessity of adopting business processes for ERP.

Small and Medium China’s smaller businesses lack B2B e-Commerce experience. As a result, very
Chinese Businesses low levels of participation exist today amongst the SMB segment. The motiva-
tion for SMBs to adopt B2B technology will be the desire to grow their busi-
ness with strategic accounts.

Trading partners should then be segmented based upon the volume of business transactions
in the relationship. Automating information exchange between higher volume trading
partners will provide the highest immediate impact. However, analysis should be performed
to determine the highest volume partners. Large multi-national companies with advanced
e-Commerce skills may not necessarily be the largest customers or suppliers in your value
chain.

When trading partners are evaluated based upon both transaction volumes and B2B capabili-
ties the areas of highest impact become obvious. The figure below illustrates the typical
trading partner segmentation for a local Chinese supply chain. Automation of trading part-
ners in the upper right quadrant will yield the maximum immediate benefits.

Figure 6—Sample Trading Partner Readiness

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Automating B2B Business Processes
Finally, let us explore which business processes Chinese automotive companies are automating.
Most OEMs and Tier 1 suppliers are adopting pull based replenishment models for their
supply chains in China. The diagram below illustrates the electronic information flows between
customers and suppliers. A customer in this context could be either an OEM or a Tier 1-N
supplier. A supplier could be a manufacturer at any tier of the value chain (Tier 1, 2 or N).

The most popular business processes for automation in China are planning, consumption
and replenishment. E-Commerce has not yet been widely embraced for payment processes in
China due to government regulation. Invoicing and payment transactions are largely manual.

Figure 7—Pull Based Replenishment Model for E-Commerce

Source: AIAG

Pull-Based Replenishment Business Processes

Production Specification and Purchasing
A relationship between a customer and a supplier commences with the following
processes: sales, selection and purchase order processes.

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• Sales and Marketing (Supplier)—Customers define product specifications and pricing
for a required part. The specifications are then delivered to a small group of suppliers
who bid on the opportunity. After a thorough review of proposals a supplier is selected.

• Purchase Order Management (Customer)—Terms and conditions are negotiated for a
blanket purchase order between the customer and the supplier. A series of materials
releases will be executed against the purchase order to fulfill on-going production needs.

Planning
Once a relationship has been established between a customer and supplier a regular planning
cycle will be established using the following processes:

• Planning Production and Schedule and Control (Customer)—The customer will
send a production planning schedule or material release regularly to their suppliers.
The planning schedule communicates the material requirements generated by the cus-
tomer’s production control system. Requirements include the type of part, quantity
needed, delivery location and forecast dates.

• Order Management (Supplier)—A supplier will compare the prior planning schedules
received to the latest version. Differences will be identified to assess the impact on pro-
duction planning. The supplier will acknowledge the schedule to confirm acceptance of
the new plan.

Consumption and Replenishment
As manufacturing processes occur, materials will be replenished at regular intervals using the
following processes:

• Consumption Process and Replenishment (Customer and Supplier)—As materials are
consumed by a customer’s manufacturing process, replenishment authorisations are sent
to the supplier. These authorisations are formatted into a shipping schedule which pro-
vides specific schedule and delivery information for the parts required. The shipment
schedule relates directly to the planning schedule in the “Planning” phase described above.

• Manufacturing Shipping (Supplier)—Suppliers send an advanced shipping notice
(ASN) or dispatch advice to correspond with each physical delivery. The ship notice is
typically sent as the materials leave the supplier’s loading dock. Ship notices must be
submitted prior to the arrival of the materials otherwise the customer will not have the
proper information to receive the goods.

• Manufacturing Receiving (Customer)—If the customer identifies errors in the
advanced ship notices, an application advice will be sent to the supplier. The customer
may choose to correct the advanced ship notice directly or reject it completely. Suppliers
are required to correct and resubmit rejected ship notices. Once the materials are deliv-
ered to the customer then additional verification will be performed. Discrepancies
between the materials received and the advanced ship notice will be identified in a
receiving advice returned to the supplier.

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Section 5

IMPLEMENTING A B2B E-COMMERCE
STRATEGY FOR CHINA
The technology gap between multi-national corporations and Chinese corporations will
become less significant in the next two years. For simplicity, we will consider both multi-
national corporations and large Chinese corporations as one group.

GXS recommends dividing your China B2B program into three segments:
• Large Customers
• Large Suppliers
• Small and Mid-Size Suppliers

The following section will explore the unique requirements of each segment. Analysis from
GXS experience and a recent survey conducted by the Automotive Industry Action Group
(AIAG) will form the basis for the recommendations.

AIAG’s China E-Commerce Survey
In September 2005, the Automotive Industry Action Group (AIAG) along with GXS and
QAD sponsored a study to assess the readiness of Chinese automotive suppliers for B2B
e-Commerce. The survey interviewed business decision makers in 220 Chinese automotive
suppliers. Suppliers were well distributed across participants at multiple tiers of the value
chain. Respondents included a mix of state-owned enterprises, private enterprises, joint
ventures and wholly owned foreign enterprises. Additional information about the survey
methodology and demographics can be provided by GXS, AIAG or QAD.

Large Customers
First, we will explore integration with large customers. Large customers can include:
• Multi-national corporations and their joint ventures buying for domestic sales.
• Multi-national corporations and their joint ventures buying for export sales.
• Chinese state-owned and private corporations buying for domestic sales.

B2B e-Commerce will enable your customers to reduce administrative costs for planning and
replenishment processes. Integration also leads to higher account retention and growth by
reducing the likelihood of errors to orders; simplifying everyday interactions and improving
the overall customer experience.

Technical Solution Requirements
To integrate with Chinese and multi-national customers, four major standards components
are required as shown in Figure 8 below.

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Requirements for Integration with Large Customers

Requirement Technology
Integration with back office applications for real-time import and export Integration broker
of data. Shipping and accounting information will be extracted.
Production schedules, receiving and remittance data will be inserted.

Mapping and translation of data into multiple document formats including Translation server
XML & XML BODs, VDA, EDIFACT, and ANSI X.12 EDI.

Exchange of electronic documents with customers in China using a Transaction Management—
secure, high performance, reliable transaction processing network. Local to China

Exchange of electronic documents with customers in Europe, Japan and Transaction Management—
North America using a secure, high performance, reliable transaction pro- International
cessing network.

Figure 8—Recommended B2B Architecture for Demand Chain

Back Office Systems
VDA

XML
Transaction
Processing
Network
EDIFACT

Customers
EDI
ANSI X.12

Meet diverse Specialized network to B2B integration technology
customer technology exchange messages with to interact with
preferences business partners back office systems

E-Commerce Document Standards
No preferred document standard has been established in China. The majority of manufactur-
ers are using an international standard. In many cases joint ventures or wholly foreign owned
enterprises have adopted the prevalent standard from their country of headquarters. European
OEMs and suppliers and their respective joint ventures have adopted ODETTE EDI docu-
ment standards such as VDA. North American OEMs and suppliers have adopted ANSI
X.12 EDI document standards. Japanese and Korean OEMs and suppliers have adopted
EDIFACT standards. Many Chinese OEMs have started e-Commerce programs with a new
XML based infrastructure. Other automotive manufacturers are not using an e-Commerce
standard at all. Instead, these companies have created web sites or file transfer mechanisms to
exchange data.

The AIAG B2B e-Commerce survey reflected the diversity of document standards currently
being utilised in China.

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Figure 9—E-Business Document Exchange Usage

Source: AIAG China B2B Survey - September 2005

The lack of a dominant standard in China will complicate B2B e-Commerce efforts.
Standards organisations are beginning to discuss the need to standardise e-Commerce prac-
tices in China. However, the problem is not likely to disappear as China continues to grow
its export manufacturing. International sales to foreign buyers in North America, Europe and
Japan will necessitate communication in the customer’s preferred e-Commerce standard.

To integrate with a diverse community of international and domestic OEMs, suppliers will
need to be able to exchange information in four or more formats (XML, VDA, EDIFACT
and ANSI X.12 EDI). Manufacturers that can master such complexity will be differentiated as
more “customer friendly” and will realise greater participation in B2B e-Commerce programs.

Case Studies in Large Customer Integration

Tier 3 Raw Materials Manufacturer
GXS provides B2B e-Commerce services to one of China’s largest manufacturers of raw
materials. The Tier 3 supplier ranks amongst China’s 10 largest corporations and ranks
globally in the Fortune 500. The manufacturer supplies materials such as steel, aluminum
and iron to a diversified set of sectors including automotive, aerospace, shipping, construc-
tion and petrochemical industries.

The Tier 3 supplier is organised into over 20 different business units and subsidiaries.
Consistency and quality across operating units was a priority for the executive team. As a
result, a special subsidiary was created to provide e-business services to its various business
units. IT support for all B2B customer and supplier functions is now performed by one
centralised technical support group. All customer and supplier e-Commerce transactions
are managed by a central, enterprise B2B gateway.

The Tier 3 supplier licensed GXS’ integration broker technology, Enterprise Gateway,
which includes a robust suite of communications modules, a high performance translator
and a business process management tool. A GXS professional services team customised,

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deployed and tested the Enterprise Gateway in the Tier 3’s own environment. Training
services were provided to end-users to enable self-service and management of the technolo-
gy. GXS is currently in the process of integrating over 2,000 trading partners through its
Community LinkSM on-boarding service for this Tier 3 supplier.

Global Tier 1 Automotive Supplier
GXS provides B2B e-Commerce services in China to one of the world’s largest Tier 1 sup-
pliers. The supplier operates in over 40 countries around the world supplying a diverse
range of electronics, transportation components and safety systems to leading OEMs.

An e-Commerce platform for domestic and international trading was required. Due to
the breadth of the Tier 1’s operations around the world, a variety of electronic messaging
standards were required. For its customers around the world, the Tier 1 supplier needed to
support a diverse range of electronic document standards including EDIFACT, VDA,
ANSI EDI and XML. Additionally, integration with the Tier 1’s ERP system, QAD, in
SNF format was critical.

GXS was selected due to its strong local support in China. Key selection criteria were local
data centre operations; local technical support 24x7 in English, Mandarin and Cantonese.
GXS is the only B2B e-Commerce provider with both a strong Chinese and global pres-
ence in Europe, North America and Japan.

The technology selected was a dedicated B2B Enterprise Gateway for Chinese operations.
The Tier 1 supplier chose to outsource the deployment and management of the Enterprise
Gateway to GXS to reduce time to market and implementation costs. Once the B2B
Enterprise Gateway was deployed, the Tier 1 supplier first pursued integration with its key
customers. International customers who were accustomed to e-Commerce were integrated
first. Phase two of the project connected multi-nationals and larger customers operating in
the domestic Chinese market. Phase three will expand the e-Commerce program to the
Tier 1’s supply chain, ramping over 60 suppliers around the world.

Large Suppliers
Next, we will explore the integration of large suppliers. Large suppliers may include:
• Multi-national corporations importing to China
• Multi-national corporations manufacturing locally in China
• Chinese state-owned and private enterprises manufacturing locally in China

The fastest return on investment will be achieved by integrating with larger suppliers that
supply the majority of volume of direct materials. These larger suppliers often have the
resources, expertise and budget to quickly deploy a complementary B2B infrastructure.

To integrate with Chinese and multi-national suppliers, four major technology components
are required.

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Requirements for Integration with Large Suppliers

Integration with back office applications for real-time import and export Integration Broker
of data. Shipping manifests for materials in-transit, electronic invoices
and logistics data received from suppliers will need to be inserted into
ERP applications.

Mapping and translation of data received from suppliers into the appro- Translation Server
priate back office formats. Support for popular document types including
EDI, XML, SAP IDOC, Oracle Application format and flat files is recom-
mended. Supporting a broader set of B2B standards accelerates and
broadens adoption by suppliers.

Exchange of electronic documents with suppliers in China using a secure, Transaction Management—
high performance, reliable transaction processing network. Local to China

Exchange of electronic documents with import suppliers from other Transaction Management—
regions of the world using a secure, high performance, reliable transac- International
tion processing network.

Case Studies in Supplier Integration

Global Tier 1 Automotive Supplier
GXS was approached by a multi-national Tier 1 supplier to integrate its Asia-Pacific oper-
ations. The Tier 1 supplier operates 10 production plants throughout Asia-Pacific primari-
ly in China.

The first phase of the project will integrate 200 domestic and international suppliers with
one of the Tier 1’s Chinese production facilities. The Tier 1 supplier will provide produc-
tion release schedules to its supplier community. Suppliers can download the schedules via
an on-line web portal accessible via any PC with an Internet browser. Suppliers will pro-
vide acknowledgements of material releases and the corresponding advanced ship notices
electronically. Electronic documents will flow directly in and out of the Tier 1’s suppliers’
QAD production and manufacturing systems.

The second phase of the project will expand to include all of the Tier 1 supplier’s Chinese
production facilities. Integration will extend to additional suppliers as well as third party
logistics providers (3PLs). Many of the 3PLs provide vendor managed inventory services
on behalf of their suppliers. An electronic workflow will coordinate the distribution of
production schedules to suppliers and return the related advanced ship notices from 3PLs.
Electronic proof of receipts will be provided by the Tier 1. Suppliers will use the receipt
confirmations to generate electronic invoices. The Tier 1 supplier will gain visibility to its
supply chain through a web based dashboard that tracks all activity. Reporting on supply
chain metrics to key performance indicators will be generated.

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Small and Medium Suppliers
Finally, we will explore integration with small and medium suppliers. The fastest return on
investment will come from integrating with your highest volume suppliers. However, once
large suppliers are enabled, significant additional supply chain efficiencies can still be
achieved by integrating with the remainder of your trading partner community. The majority
of small and medium suppliers will be currently manufacturing in China for sale on the local,
domestic market.

Typically, lower volume suppliers will be highly specialised manufacturers with lower
revenues. These smaller suppliers are often more challenging to integrate to your extended
enterprise. Most small suppliers are constrained by limited resources, expertise and budget.
These limitations delay, deter or prohibit the small suppliers from implementing a B2B
e-Commerce program.

Current State of Readiness of Small Manufacturers
The AIAG China B2B Survey evaluated the readiness of automotive manufacturers to partici-
pate in e-Commerce initiatives. Survey participants were asked via what means they typically
used to communicate with their customers. A large percentage of the surveyed manufacturers
were using verbal communication (in-person meetings and phone calls) or paper-based
processes (post or fax) to exchange information with customers. Only 30 percent of the
manufacturers surveyed used computers for e-Commerce.

Figure 11—Communications Methods Used with Customers


Computer based e-Commerce communications range from unstructured data exchange via
email; keying data into customer portals and automated machine-to-machine transactions.
Most automotive manufacturers using computers for B2B e-Commerce today prefer email or
a web portal. GXS anticipates that this trend will change in the near future. However, most
small to medium sized manufacturers will continue to use the most cost-effective, easy-to-use
B2B e-Commerce platform available to them.

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Figure 12—Computer Based Customer Interactions


The leaders in the Chinese automotive market will be able to master the complexity of their
supply chains including interactions with smaller suppliers. A successful B2B e-Commerce
program must offer a variety of e-Commerce enablement options for smaller suppliers.

To achieve a critical mass of small business suppliers, a choice of relevant solutions must be
offered. Solution options with multiple tiers of pricing and levels of technical complexity are
recommended to maximise participation. Additionally, it is important to recognise that a
comprehensive range of support services for smaller businesses will be required.

Requirements for Integration with Small and Mid-Size Suppliers

For small businesses an easy-to-use, low cost solution should be offered. Web portal with pre-con-
Ideally the solution would require a minimum level of technology infra- figured automotive forms
structure. Web-based forms are the most popular solution. Only a PC and
an Internet connection are required to use such a solution. The Web
forms should have pre-configured templates for creating popular docu-
ments such as advanced ship notices (ASNs). The Web forms should also
be able to display and print planning schedules, shipment schedules,
receiving advices and application advices.

For mid-sized businesses a solution which allows for quick deployment Translation software—
should be offered. This solution should be extensible to a broader set of desktop or server based
business processes and trading partners as e-Commerce needs grow.
Translation software packages are a popular solution and can be either
desktop or server based. A translation package should allow for simple,
GUI-based mapping of data fields. Translation packages should also sup-
port a variety of e-Commerce standards which include XML, VDA, EDIFACT
and ANSI X.12 EDI.

Exchange of electronic documents with suppliers in China using a secure, Transaction Management
high performance, reliable transaction processing network is required.

Trading partners must be educated on the importance of e-Commerce Education
programs in the value chain.

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Requirements for Integration with Small and Mid-Size Suppliers (continued)

Trading partners must be offered consultation on the variety of enable- Consultation
ment solutions available.

Once a solution is selected, trading partners will require on-site or Implementation Support
phone-based implementation support.

Requires a test with sample data exchange to validate connectivity and Testing Services
interoperability—this is a recommended GXS best practice.

Success in the local Chinese market will require offering services in both Local Language Support
Cantonese and Mandarin.

On-going technical support should be offered for troubleshooting and Technical Support
problem resolution. Ideally, 24x7 support should be offered across multi-
ple channels such as web, chat and phone.

As time passes your B2B e-Commerce program will continue to develop. Change Management
OEMs and suppliers around the world will continue to automate an
extended set of business processes. Additionally, each new vehicle and
part design year will change your supplier community. It is imperative
that your e-Commerce program should include a process for managing
change.

Figure 13—Recommended B2B Architecture for Supplier Integration

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Case Studies in Small Supplier Integration

Joint Venture with North American OEM
GXS provides B2B e-Commerce services to one of China’s largest domestic OEMs.
The OEM is a joint venture of a North American OEM and a Chinese state owned
enterprise. Today the joint venture has over $1B USD in annual revenues. The OEM is
aggressively expanding in order to service the Chinese market. Their plans include investing
in new manufacturing plants throughout China and also over 10 new vehicle models in the
next two years.

The OEM has already completed several phases of its B2B e-Commerce program including
the deployment of an Enterprise gateway. The next phase was to broaden the e-Commerce
program to include an additional 150 suppliers in the Chinese community. The supplier had
a community which had suffered from a widely differing range of skills which had complicat-
ed the integration efforts. Each supplier had a different level of e-Commerce experience, IT
resources and capital budget. The OEM required a specialist to contact each of the suppliers,
assess readiness for e-Commerce, provide consultation on an approach and support the
implementation process. The OEM decided that the GXS Community Link service could
help to resolve previous issues and provide both on-boarding and technical support.

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Section 6

GXS, YOUR TRUSTED PARTNER IN CHINA
Automotive Industry Domain Expertise
Global Presence—GXS is the only B2B e-Commerce service provider offering services in the GXS IN AUTOMOTIVE
key automotive hubs around the world including France, Germany, Italy, Japan, Korea, Standards Relationships
• AIAG
China, US and Brazil. GXS customers include all of the Top 25 OEMs globally, 7 of the top
• AAIA
10 Tier 1 suppliers and 6,000 other automotive value chain participants. • ODETTE
• MEMA
• AAMVA
Technology Interoperability—GXS is the only company that can offer true interoperability
to all the key networks and standards throughout the world. GXS Trading GridSM offers Strong Presence in:
• Japan
message exchange for all the popular EDI-based standards (ANSI X12, EDIFACT and VDA)
• Korea
as well as for emerging XML standards. Additionally, GXS Trading Grid offers interoperabili- • China
• France
ty with the regional automotive industry networks ANX, ENX and JNX.
• Germany
• Italy
Standards Leadership—GXS is active in the VDA and Galia organisations in the European- • Sweden
• US
based ODETTE organisation. GXS also participates in the US-based Automotive Industry
• Brazil
Action Group (AIAG) and Automotive Aftermarket Industry Association (AAIA). GXS also
has strategic partnerships with the Motor Equipment Manufacturers Association (MEMA)
and the American Association of Motor Vehicle Administrators (AAMVA).

Business Process Expertise—GXS has extensive experience in core business processes
such as automotive manufacturing. Our solution consultants understand the process and
data flows that support forecasting, releasing, shipping, receiving, invoicing and payment
processes.

GXS Resources in China
GXS has more than ten years of experience in serving the greater Chinese market. The GXS GXS IN CHINA
China headquarters is located in Hong Kong. Satellite offices provide local sales and consulting Offices
support in Beijing and Shanghai. E-Skylink, a GXS distributor, provides support for Taiwan. • Hong Kong
• Beijing
• Shanghai
A state-of-the-art data centre in Hong Kong’s Cyberport complex serves as the central node
Customers
for GXS technology infrastructure throughout Asia. Multi-national customers may also • Over 1000
choose to have their transactions processed at one of GXS’s other facilities in Europe or • Bsteel
• Asia Pulp and Paper
North America.
• OOCL
• COSCO
The GXS Cyberport data centre features multi-tiered physical security including biometric and • Sinotrans
• SAI Cheng
hand geometry authentication. The data centre is designed to operate flawlessly in the event of
Support
a network or power disruption. Two DS3 ATM connections provide 54Mbps connectivity to
• Data Centre in Hong Kong
the Internet. The circuits are operated by two separate carriers with diverse physical paths. • 24 x 7 Call Centre
Uninterruptible power supplies (UPS) provide continuous power cycling in the event of any • English, Cantonese and
Mandarin Language Support
commercial disruption. Diesel generators capable of on-going replenishment provide a sus-

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tained power source in the event of a long term outage. Gaseous, FM-200 fire suppression sys-
tems rapidly extinguish threats while minimising damage to computing equipment.

GXS has a team of experienced staff of consultants, implementation support and customer
support located in China. All of our technical support and consultants personnel are local
and thus have local language and cultural skills.

GXS Experience in China
GXS has more than 1,000 customers in China. Larger customers include many of the PARTNERS, STANDARDS
AND GOVERNMENT
biggest, technologically advanced Chinese enterprises. GXS clients include top 10 companies
RELATIONSHIPS
in the automotive, telecommunications, paper, steel, and logistics sectors. New GXS cus-
• China ECNet
tomers benefit from GXS’s experience in implementing B2B e-Commerce programs for such
• GS1 Hong Kong
industry leaders. GXS can ensure best practices to accelerate growth and adoption of your
B2B programs. • GS1 Taiwan

• eSkylink
China is in the process of dissolving much of the protectionist legislation that existed prior to
its accession into the World Trade Organisation. The deregulation will follow a phased
approach that will occur over a multi-year horizon. The new open economic structure will
bring significant change. However, the government will remain a key influence in the private
sector for the foreseeable future. Industry standards organisations have an increasingly impor-
tant role to play in China’s new economy. Together, the government and standards organisa-
tions are collaborating to increase the competitiveness of Chinese manufacturers in the world
economy. Understanding the changing dynamics of e-Commerce standards in China is a crit-
ical element to supply chain success.

GXS has relationships with state agencies such as the Ministry of Information Industries
(MII) through its partnership with China ECNet. Furthermore, GXS has a long history of
leadership in local standards communities. GXS operates or maintains relationships with
most of the key e-Commerce exchanges in the electronics, logistics and retail sectors. GXS
can leverage its understanding of the market to expedite growth and adoption of your B2B
programs.

GXS in China’s Automotive Electronics Market
An increasing percentage of vehicle content is now in electronics. A recent Gartner Group
study on global sourcing in the automotive industry found that 40 percent of a vehicle’s
content is now electronics. Navigation systems, satellite radio, and television entertain-
ment systems are becoming mainstream “add-ons” in western markets. Increasing comput-
erisation of engines and automotive subsystems are driving enhancements, efficiencies and
electronics into every vehicle platform. OEMs and suppliers selling in the domestic China
market will need to leverage high tech features to differentiate and satisfy the demands of
China’s emerging middle class market. OEMs and suppliers should also consider the com-
pelling benefits of sourcing high tech components from China. China’s low-cost manufac-
turing base has made it the new centre for electronics and high tech design, development
and production for OEMs around the world.

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As a result, integration with the high tech value chain is a priority to both OEMs and
suppliers both in sourcing and selling in China.

GXS can ensure that your business is quickly integrated with the local Chinese electronics
community. GXS has a partnership with China ECNet, a joint venture between the lead-
ing electronics distributor Avnet and the Chinese Ministry of Information Industries
(MII). Together GXS and China ECNet have developed the China e-Hub exchange.
China e-Hub offers rapid enablement for high tech value chain participants in the domes-
tic market. China e-Hub services are available for many cross-enterprise business processes
such as procurement, logistics and forecasting.

GXS B2B E-Commerce Solutions
GXS offers a complete solution for your B2B e-Commerce needs in China. A review of the
needs for B2B e-Commerce integration with customers and suppliers results in four primary
requirements:
• A B2B Gateway to extract and deliver data to and from your enterprise applications
• A network to deliver B2B transactions to and from your trading partners
• Enablers for your trading partners of all sizes—small, medium and large
• A full lifecycle of community management services to ensure small and mid-size trad-
ing partners are quickly and successfully enabled.

GXS offers a complete e-Commerce solution for the Chinese automotive market consisting
of all four components discussed above:

• Enterprise Gateway—GXS integration broker suite, Enterprise Gateway, functions
as a central gateway for all information exchange with your customers and suppliers.
Enterprise Gateway is deployed behind the firewall then integrated directly with sup-
ply chain management and enterprise resource planning (ERP) applications.
Additional adapters are available which can integrate directly with SAP and Oracle’s
ERP applications. Enterprise Gateway provides high-performance document transla-
tion in a variety of formats such as ANSI EDI, ODETTE, EDIFACT and XML.
GXS provides a full range of professional services which can quickly enable your
Enterprise Gateway and provide on-site technical installation, mapping of transaction
flows as well as integration with back office applications.

• Transaction Processing Network—GXS transaction management service, Interchange
Services (ICS), provides guaranteed message delivery to your customers and suppliers.
ICS is the only transaction management service in the market which offers global
reach. ICS can be used for both domestic and export production needs. You can
exchange electronic documents with trading partners throughout China and Europe,
Japan and North America. ICS supports transaction exchanges using a wide variety
of communications protocols ranging from File Transfer Protocol (FTP), IBM MQ
Series; vertical industry specific protocols such as RosettaNet RNIF, ODETTE OFTP
and AS2.

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A GXS White Paper

• Trading Partner Enablers—GXS offers a number of e-Commerce solutions for your
entire trading partner community.
– Large Corporations—Both multi-national corporations and Chinese corporations
will require a high performance integration broker to manage a high volume of
B2B transactions. GXS offers Enterprise Gateway (described above) for multi-
nationals.

– Small and Medium Business Enablers—Small and medium Chinese trading
partners require a low-cost, easy-to-use e-Commerce solution. GXS offers three
options—GXS Application Integrator, GXS Desktop EDI and AutoHub.

• Application Integrator—is a highly-scalable, server-based translation
software package. Application Integrator includes an easy-to-use graphical
mapping tool. Application Integrator supports translation of a broad range
of e-Commerce document standards including XML, VDA, EDIFACT and
ANSI X.12 EDI.

• Desktop EDI—is a desktop translation software package. Desktop EDI
includes an easy-to-use mapping tool. Desktop EDI supports translation of
EDIFACT and ANSI X.12 EDI documents.

• AutoHub—is a hosted, on-line service available through any PC with an
Internet browser. The web forms are pre-configured to display and print the
most popular automotive documents including planning schedules, shipment
schedules, receiving advices and application advices. Additionally, turnaround
technology enables end-users to quickly create advanced ship notices, barcode
labels and electronic invoices.

• Community Management Services—GXS Community Link offers a full life-cycle of
services to enable and support your trading partner community including education,
consultation, implementation, testing, technical support and change management.
Community Link is available in 30 countries and 20 languages including Mandarin
and Cantonese.

Learn more about GXS capabilities in the automotive space at www.gxs.com/auto

About GXS
GXS is a leading provider of B2B e-commerce solutions that simplify and enhance business
process integration and collaboration. Organizations worldwide, including 75 percent of the
Fortune 500, leverage GXS’ GS1 certified global interoperability and supply chain execution
solutions. Active in the global standards arena, GXS offers solutions, powered by the Trading
GridSM, that enable customers both large and small, to connect with global partners, synchro-
nize product information and optimize the execution of supply chains. Headquartered in
Gaithersburg, MD., GXS provides sales and support to businesses and their partners world-
wide. For more information about GXS visit www.gxs.com.

37
A GXS White Paper

B2B e-Commerce in China's Automotive Market

B2B e-Commerce in China's Automotive Market

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