Like an individual organic entity, the rate of change is greater in a smaller organization, as it starts from a simpler and smaller base. And like living beings, it needs its enabling systems and infrastructure to keep pace with growth.
As an organization expands its operations to new geographical markets, several new factors come into play, such as different regulations, language and business practices, to name just a few. A system optimized for a single market may be utterly incapable of handling this greater scale of complexity. The incorporation of diverse operating conditions into the business model results in new challenges, some of which are described below.
• Compliance with diverse regulations--different countries have different accounting and statutory reporting requirements, which must all be met. Further, labor laws differing across countries and local practices on compensation, hiring, retrenchment and leave have to be complied with. In highly regulated industries, such as food, chemicals and pharmaceutical, compliance with local quality standards and documentation requirements is essential.
|Cross-border transportation of raw material, components and finished goods is a different competency from handling local logistics.|
• Transportation and logistics--cross-border transportation of raw material, components and finished goods is a different competency from handling local logistics. Intimate knowledge of local custom regulations for inbound and outbound cargo in different countries, knowledge of and relationships with logistics services providers and ability to handle financial and documentation side are important for success. Equally important, if not more, is the ability to keep tabs on movements of goods, so one can keep track of inventory in transit and its impact of production and fulfillment.
• Decision making--if there is one strength that SMBs have, it is their ability to take quick decisions as their organization structure is simpler. Usually the decision-maker has adequate visibility into all aspects of operations, and decisions are informed even when informal. However, as business expands into other geographies, they begin to lose touch with operations and large parts of business become opaque. They may continue to make decisions as in the past but with less insight and information. This can hurt the business significantly. The key is to retain flexibility and speed, but introduce more rigor in the process, basing decisions more on formally collected data.
• Cultural Fit--work practices, ethics and values differ across countries as a result of diverse political, economic and social history. This is hard to define, but could be a real inhibitor to success.
• IT Vendor management--SMBs have typically grown from ground up and have usually been serviced by neighborhood IT shops. However, as SMBs venture outside of their home market, they need to look at vendors that can support them in multiple markets or be willing to work collaboratively with vendors in other markets. Further, outsourcing may become important to cope with the increase in scale and complexity. Outsourcing requires higher level of vendor management competency.
Implications for enterprise application software
This may be a good time to review the enterprise application software portfolio and replace applications if they are not suitable anymore. Chances are that if the business has grown organically, it will still have applications in use, which were not designed for multinational operations. Key things to keep in mind are:
• Scale of operations--an SMB usually ventures overseas in its growth phase. An application selected to help expansion must be scalable enough to accommodate future growth and further geographical expansion. Scalability implies not only the number of concurrent users it can accommodate, but also individual SKUs (stock keeping units), plants and warehouses. Some applications have limitations on these parameters.
• Multi-country and multi-currency capabilities--the application must be able to handle transactions in multiple currencies under different terms and conditions, to generate accounts for individual markets and also to consolidate them. Make sure that the product selected has localized versions for each of the countries in which the company is expanding or planning to expand to. Check the vendor's commitment to enhance and develop localized versions. In some countries, such as India, changes in local regulation may be quite frequent and the vendor must demonstrate commitment and capability to incorporate them in the product. Indian states are planning to move to VAT (value-added tax) next year, for example. Further, regional (such as the ASEAN Free Trade Area) and bilateral (such as the Thailand-Singapore FTA) trade agreements also need to be reflected in the product. It is also important to ascertain if the vendor provides support in local languages and if it has qualified professional service partners in each market for implementation and training.
|Multiple instances of business software increase complexity as well as deployment and maintenance expenditure. That said, single instance deployment can be impractical if telecom infrastructure in the country is not good.|
• Supply chain planning and execution systems--some ERP vendors offer pre-integrated supply chain solutions as part of their ERP offering. Also evaluate standalone supply chain offerings, which are not necessarily expensive. Check for availability of consultants who have experience in implementing such solutions among SMBs as these skills are not widely available in Asia-Pacific.
• Business intelligence--like supply chain solutions, BI is increasingly a part of integrated offerings. Though pre-integrated BI has a limitation in that does not easily integrate data from other applications, it is nevertheless a good place to start. For most requirements, it may suffice. BI is crucial for informed decision making, something SMBs risk losing when they expand quickly.
• Content management and collaboration--unstructured data is increasingly getting more important. Technology now makes it possible to handle such data. In the future, content and collaboration will be key enablers of success. Make plans to invest in such solutions.
• Consider outsourcing--a great deal of change is required to scale up and expand into new markets. Outsourcing a part of IT operations, such as application management, network management or business processes, can help SMBs cope better with change by enabling them to focus on other core areas of their business.
• Single instance versus multiple instances--multiple instances of business software increase complexity as well as deployment and maintenance expenditure. That said, single instance deployment can be impractical if telecom infrastructure in the country is not good. If there are multiple instances, policies about data synchronization need to be drawn up so that the latency in decision making is at acceptable levels.
In conclusion, growth is desirable, but to manage rapid growth through geographical expansion, a key requirement is flexible technology infrastructure, business applications and above all management style and outlook.
Pranav Kumar is research director for enterprise application software for Gartner Asia-Pacific. He is also a member of the CNETAsia SMB Advisory Board.