1. Is Shanghai the right choice to locate an SAP Research Lab in Asia? What competitive advantage does this location provide? Discuss the positives and negatives of this location considering the overall SAP Research Strategy. Although Shanghai provides some competitive advantages, it is not the right choice for SAP to locate its research lab in Asia. Shanghai provides the following competitive advantages as one of SAP’s choices to locate its SAP Research Lab in Asia: •Large potential Chinese market for business applications: oERP software systems are not yet widely adopted in China.
In early 2008, over 55% of Chinese enterprises had not adopted ERP systems, either used in-house systems or no systems. SME (which had potential to grow into large enterprises) market was dominated by two local players oA potential for many innovative and new designs that may be conceived in China oSAP executives hoped that establishing a research unit would open up the Chinese government to purchasing and using SAP software for tax management and internal administration in the future •Government support: Chinese government provided various support to stimulate greater levels of innovation and indigenous research capabilities in China. Such support included and was not limited to tax benefits for both enterprises and employees, creation of software parks, tightening of IP protection regulation (despite continuing challenges), etc. oEstablishing a research operation was highly encouraged by the Chinese government, which would help SAP to develop its business relationship with the Chinese government and eventually strengthen its market position in China •The existing development group (SAP China Lab): Most convenient and lowest-cost option oEstablished connection with the top 10 universities in China to provide access to a quality talent pool •Shanghai as a city (comparing with nearby second-tier Chinese cities and some other cities in Asia): oOffered better infrastructure, proximity to other firms, access to skilled employees, and the lifestyle attraction for managers and their families of being in the ost international city in China Given SAP Research’s mission to explore emerging technologies or revolutionary applications and to direct future product development, the location of Shanghai offered additional benefits besides the competitive advantages discussed above: •Collaboration with SAP China Lab (product development) •Avoidance of high competition for researchers in some other locations (e. g. Beijing)
Despite the above positive aspects of choosing Shanghai, there were more critical negatives of this location: •Fierce competition for limited local talents: This was the single most important issue that would veto choosing Shanghai as the location for SAP Research Lab in Asia. There were a few detrimental issues: oThe talent pool of local universities would provide very limited candidates. Although China had over one billion people, Chinese education system was not geared towards producing graduates with innovation capabilities. Only the top 1% of graduates of Chinese master’s degree and PhD programmes had received the same quality of education as those graduating from top European and US universities. ” Even worse, the “highly sought-after and globally mobile” group was “snapped up by local Chinese companies and MNCs or had sought out opportunities abroad”, leaving behind largely less qualified as researchers. oAttracting experienced research staff from the US and Germany also proved to be unsuccessful and difficult as well. There were few pioneering research clusters outside of Beijing, particularly in IT and management science research, which resulting in most IT companies (like Microsoft and Tata) setting up their main research labs in Beijing. Beijing also hosts many of the top Chinese universities. Comparatively, Shanghai lacked such proximity and thus did not foster an environment for collaboration and networking among researchers, which ultimately would limit new idea generation and innovation. SAP’s research division was not as well known as its business applications. Hence, misunderstandings and confusion were created in the recruitment process for SAP Research, which made attracting local talents more difficult. •Given the significant involvement in the IT industry from Chinese government and Chinese business practices of relationship-oriented, Shanghai not being China’s government and administrative center also made it dis-advantageous to become a hub for research labs.
Overall, Shanghai might not be a wise pick by SAP to set up its research lab in Asia. 2. How can SAP’s Shanghai Research Center be successful in attracting top local talent as well as top experienced researchers from around the globe? Can SAP Research China achieve world-class, innovative research, on-par with Western counterparts, without offering extremely high compensation packages? Due to its job nature, researchers often need to be involved in research projects requiring three to seven years of work.
To entice employees to stay with the company for a longer period of time will be quite difficult, especially in its Shanghai Research Center, whose host city offers abundant employment opportunities. Moreover, the analysis in question 1 shows that attracting talents both locally and from abroad is a tough competition. So, SAP Shanghai Research Center’s employee incentive program will have to accommodate both short- and long-term.
On top of a competitive (not extremely high) package, which have to be in line with its global pay scale, SAP could consider offering a tenure system similar to that of US universities professors. Before granted tenure, research staff needs to fulfill a certain mid-term (say a minimum of five years) employment with SAP research division and demonstrate creative and innovative capability via delivering research achievements. The tenure researchers will be offered life-time employment and opportunities to work in the Research Labs that SAP has around the world.
In addition to granting SAP stock options, researchers may share profits generated from new applications being developed based on their research results – of course, how to measure and convert into monetary terms will be quire challenging because research results usually do not generate direct returns. On the other hand, SAP should consider revisiting its research resource map so that more resources would be allocated to non-European territories, like US and Asia. The growing SAP research community in Shanghai might help to attract more local and international researchers to come and work in Shanghai Research Lab.