Read SAP: Establishing a Research Centre in China (Case) in your course pack.How can SAP’s Shanghai Research Center be successful in attracting and retaining top local researchers in China?Leaving aside the talent issue, discuss the pros and cons of locating SAP’s Shanghai Research Center in Shanghai.What are your most important concerns?What do you see as the greatest benefits?Use this week’s readings, lectures, and your analysis of the case to write a 2 page (1½ -spaced) analysis that answers these questions. Use 12 point Times Roman font size with one inch margins all around.HKU817
SAP Research adds strategic value to the company through seeking out and
championing new ideas, exploring emerging technologies, and experimenting
with fresh ways of deploying existing solutions. Research opens our minds.
– Dr Peter Zencke, Head of SAP Executive Board1
The three major challenges in setting up a research centre in China include
getting good people, setting up a research program, and developing
relationships with the universities and government agents.
– Dr Ming-Chien Shan, Vice President of SAP Research Palo Alto and China2
In the cold January of 2008, Markus Alsleben, vice-president of SAP Labs China, was sitting
at his desk in Shanghai, contemplating the recently established SAP Research Centre, a
division of SAP Labs in Shanghai, China [see Exhibit 1]. SAP Headquarters in Germany was
eager to evaluate the success of the new division and was pressuring its Chinese location for
results. However, up until this point in time, the research centre had been little more than a
concept. So far, it had been able to hire only a few researchers and the research itself had not
yet begun.
As a global leader in enterprise resource planning (“ERP”) systems, SAP already had a
number of research and development (“R&D”) labs located around the world. However, most
R&D labs were focused on software development. SAP, however, had been regularly
organising cutting-edge research activities globally with SAP Research, the technology
research arm of SAP. The research group had developed a track record of significantly
contributing to SAP’s product portfolio by identifying and utilising emerging information
technology (“IT”) trends through applied research and corporate venturing. The SAP
Research division, which employed over 400 people worldwide, had already established
SAP (2007) “Research in Dialogue. SAP Research Report 2006”, (accessed 1 February 2008).
Company interview on 6 March, 2008.
Maya Kumar and Markus Alsleben prepared this case under the supervision of Kuldeep Kumar for class discussion. This case is
not intended to show effective or ineffective handling of decision or business processes.
© 2009 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or
transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the
internet)—without the permission of The University of Hong Kong.
Ref. 09/408C
SAP: Establishing a Research Centre in China
research units in Germany, Canada and the US. Interested in accessing fresh ideas from the
Chinese talent pool, Shanghai was designated to be the next site for an SAP Research unit.
However, Alsleben was not convinced that China had been the right choice to establish a SAP
Research. Having just started hiring researchers, the research group was already having
trouble attracting research talent for its team. Furthermore, the location of the centre in
Shanghai Software Park was not fostering the sort of cross-company collaboration and crossfertilisation that SAP had hoped for. Had this location in China been the right choice for a site
for SAP’s Asian research? What would the developments in China foretell for the success of
SAP Research in China?
The ERP Software Industry in China
Starting as early as 2003, the establishment of an R&D centre in China was considered
attractive due to limited competition in the IT industry, as well as perceived low barriers to
entry into software research in China. However, the limited supply of high-profile researchers
in China required special attention. The ongoing rapid development of China’s economy and
inflow of foreign direct investment was changing the nature of R&D activities in China,
leading to increased competition for top researchers. Moreover, local Chinese competitors
such as Yongyou and Kingdee continued to attract the attention of small- and medium-sized
customers, particularly other Chinese companies [see Exhibit 2], and a considerable share of
local university graduates as employees.
The Chinese government had a major influence over the domestic market for ERP systems. A
large number of big firms, especially those large enough to be potential customers for SAP,
were either directly owned by the Chinese government or were joint ventures or partnerships
with state-owned enterprises (“SOEs”). The subsidiaries of large foreign companies often set
up partnerships with retired state officials and party cadres or with SOEs in an attempt to
make their transition into China easier. Even after retiring from the government, former state
officials and party cadres in China continued to maintain close relationships with their
colleagues in the government or party. This allowed the government and managers of SOEs to
influence the decisions of executives of Chinese enterprises with regard to their selection of
ERP software.3
However, ERP software systems had not yet been widely adopted in China. Even in early
2008, over 55% of enterprises in China had not adopted ERP systems from the largest ERP
software companies. 4 Instead, they contracted with other software companies, created
software in-house or chose not to use any software. For the companies that did adopt ERP
systems, local players Ufida and Kingdee dominated the small- and medium-sized enterprise
(“SME”) markets, serving 40% and 29% of these markets, respectively. SAP, on the other
hand, was a leader in the large enterprise segment in China.5
Considerations for Conducting Research in China
In the early 2000s, many Western software executives believed China had several advantages
over other Asian countries for conducting research. This resulted in big IT companies such as
Hewlett-Packard (“HP”), SAP and Microsoft choosing to enter the Chinese market early on.6
In part, the advantage they perceived was that research labs in China could be used for
multiple purposes in addition to research, including business development and management
Company interview on 6 March 2008.
SAP (2006) “Addressable Market Software License Market for China in 2006”, Internal Company Presentations.
Company interview on 6 March 2008.
SAP: Establishing a Research Centre in China
of client relationships.7 Other considerations included cost of R&D, potential for growth of
innovation in China, challenges associated with intellectual property (“IP”) protection,
government infrastructure and incentives for attracting innovation to China, and Chinaspecific business culture and practices.
Cost of Research
In the past, companies had come to China because labour in China was considered relatively
inexpensive. Companies often moved work abroad or outsourced manufacturing and other
business functions (such as marketing, finance and accounting) to lower-cost countries,
leaving the prospect of conducting research abroad to be the next frontier for offshoring work.
Moving research to countries such as China was supposed to provide large savings for
research-intensive companies, particularly as research costs continued to rise.8 Furthermore,
having their R&D units close to their already offshored manufacturing bases in China meant
easier communication between companies’ business divisions.
Additional costs, termed “transaction costs”, were usually incurred in distributing R&D work
to globally distributed locations. These included the costs of setup and maintenance of
infrastructure for IT communications, co-ordination costs, costs of travel, and costs of
controlling and monitoring R&D at locations distant from the home site. Furthermore,
exploding pay rises, especially in China and India, further complicated the cost equation and
made cost-savings lower than expected.9
While many multinational corporations (“MNCs”) claimed that they came to China for talent,
cost still remained a major factor in their decision-making.10 Key researchers were offered a
“global standard salary”, independent of location. However, local research fellows and
assistants had significantly lower salaries than in the West. Expecting this, foreign
headquarters often allocated much tighter budgets to their Asian research centres than to
North American or European centres, while at the same time expecting standard, world-class
returns. Moreover, most MNCs operating in China, while still benefiting from low-cost labour,
often limited their development of knowledge-intensive activities to more economically
developed locations in Asia such as Singapore.11
Growth of Innovation in China
Chinese were often seen by MNCs as industrious and hard-working, but not innovative or
inventive. Considering that many era-changing inventions and innovations originated in
ancient China (eg, paper, gunpowder and movable-type printing), and that a large number of
top US researchers and employees in innovative US companies were of ethnic Chinese origin,
China’s perceived shortage in innovativeness was likely related to its educational system.
This system focused on Confucian values, rewarding consensus and obedience to superiors,
and condoning out-of-the-box thinking required for innovation.
Within China, the business landscape included both MNCs and a range of government-owned,
government-associated and privately run businesses. Instead of providing customer value
through technological innovation, many domestic firms chose to compete on price.12 With the
government’s constantly changing market regulations and with many companies being
Du Pre Gauntt, J. (May 2004) “Harnessing Innovation: R&D in a Global Growth Economy”, Economist Intelligence Unit, (accessed 5 February 2008).
Company interview on 6 March 2008.
Farhoomand, A.F. (2005) “National Innovation Systems of China and the Asian Newly Industrialized Economies: A
Comparative Analysis”, Asia Case Research Centre, University of Hong Kong.
SAP: Establishing a Research Centre in China
government-run, investment in long-term, innovative technology R&D was often near
impossible. This led firms to diversify into non-technological sectors to survive. 13
Furthermore, while China did have local R&D institutes, they often lacked targeted goals for
stimulating innovation, and issues in knowledge-sharing between researchers existed through
a lack of trust and through corruption.14
The opening-up of China stimulated several government initiatives for the country to become
more innovative however, and in the 1990s, R&D quickly became a growing focus for
companies operating in China.15 China aspired to be the second-largest investor in R&D in the
world, second only to the US. China had a growing number of well-trained Chinese scientists
and engineers, earning their first degrees in China, moving abroad, and more recently
returning home after graduate level studies abroad in the West. It was hoped that these
returnees would bring back some of the innovative capabilities of the West and thus spark
R&D innovation in China.16 From the early 1990s onward, computer hardware and software
companies and companies in the advanced materials and biotechnology sectors were
beginning to be established in China. 17 The pharmaceuticals industry jumped on the
bandwagon much later, stimulated not only by cost, but also by the idea that companies would
be able to develop products faster, more cost-effectively and with fewer restrictive clinical
Challenges in Protecting IP
Well into 2008, China had one of the worst reputations for a marked lack of respect for IP
rights at the local level. Local factories continued to produce a number of copycat products,
from DVDs and women’s handbags to high-end electronics and software, and there was
concern that this disregard for IP rights could cross over into trade secrets being stolen from
research labs. Furthermore, there were concerns about the quality of research, as well as
worry over plagiarism and academic fraud.19
This phenomenon was not unique to China however. Other developing countries had gone
through similar IP development phases, with almost 70% of software installed on PCs in
central and eastern Europe and in Latin America obtained illegally in 2006—over 10% higher
than in Asia as a whole.20 However, China’s marked lack of respect towards IP rights had
become well known globally. Government efforts to curb this trend resulted in piracy rates
dropping 10% from 2003 to 2006.21
Despite China’s reputation for poor IP protection, China’s acceptance into the World Trade
Organization in 2001 was a reflection of the national government’s desire for, and ultimately
its adoption of, international standards on legislative and jurisdictional levels. Nevertheless,
there were challenges in the local enforcement of IP laws and corruption of employees. For
example, even if one factory making bootleg products was shut down by local authorities, the
owner might open two other factories at other locations to compensate for lost business.
Furthermore, only a limited number of IP infringement cases were brought to the attention of
Du Pre Gauntt, J. (May 2004) “Harnessing Innovation: R&D in a Global Growth Economy”, Economist Intelligence Unit, (accessed 5 February 2008).
Dyer, G. (5 January 2007) “The Dragon’s Lab—How China is Rising through the Innovation Ranks”, Financial Times.
Goldstein, H. (September 2002) “They Might Be Giants”, IEEE Spectrum,
(accessed 2 January 2008).
Bloch, M., Dhankhar, A. and Narayana, S. (2006) “Pharma Leaps Offshore”, McKinsey and Company, (accessed 12 January 2008).
Dyer, G. (5 January 2007) “The Dragon’s Lab—How China is Rising through the Innovation Ranks”, Financial Times.
Business Software Alliance (2007) “Fourth Annual BSA and IDC Global Software Piracy Study”, (accessed 2 August 2008).
SAP: Establishing a Research Centre in China
Chinese judges at the supreme-court level. Similar to scenarios in the West, most cases of
copyright infringement were settled out-of-court. Without being brought to the attention of
judges, out-of-court settlements made it more difficult to further develop legal practices in IP
and created a lack of examples and lessons about the negative consequences of IP
infringement that could be communicated to companies. 22 Furthermore, monetary penalties, if
imposed, were often very low.
Government: Infrastructure and Tax Benefits
Since the opening-up of China in 1978, the government of China had made efforts to
gradually become more integrated in the world economy. Well into 2006, the Communist
Party’s 17th National Congress agenda still had the goal to “enhance China’s capacity for
independent innovation and make China an innovative country”.23
To stimulate greater levels of innovation and indigenous research capabilities, the Chinese
government established new policies, including promotion of long-term investments in
technology and providing incentives to foreign companies to bring both knowledge-intensive
activities and manufacturing activities to China.24
Attracting Foreign Innovation
The Chinese government aimed to promote innovation through the return of Chinese
scientists and engineers who had worked abroad. Not only did this contribute to the local
economy, but it also improved China’s foothold in the global research market.
The Chinese government often encouraged MNCs to set up research centres in exchange for
permission to enter China and gain access to China’s resources and markets. The government
believed that R&D activities could be used to identify and develop new technologies,
products and services for future sales to customers and thus were vital for companies’ longterm success and survival. This was especially important in the fast-changing context of
software development, in which there was continuous pressure to innovate. Decisions about
scope, size and staffing of an R&D centre had considerable impact on research results and
marketability of research, thus requiring careful analysis.
The differences between the established legal environment in China and often unclear
implementations and applications of these regulations at local and company levels made
research initiatives appear difficult and risky to foreign-funded companies. Moreover, because
many large companies were state-owned, they were often averse to taking on major risks.
With research by its very nature carrying large amounts of uncertainty and risk, braving the
Chinese regulatory environment was not high on the list of priorities for these firms.25
Tax Benefits
Local tax authorities sometimes allowed for specific tax holidays or breaks on business taxes,
value-added tax or personal income taxes. For example, employees with university degrees at
software companies in Beijing were offered personal tax breaks.26 These sorts of incentives
Lynton, N. (15 December 2006) “China’s Innovation Barriers”, Business Week Online, (accessed 1 February 2007).
Hu, J. (25 October 2007) “Report at the 17th National Party Congress”, China Daily, (accessed 1 January 2008).
Farhoomand, A.F. (2005) “National Innovation Systems of China and the Asian Newly Industrialized Economies: A
Comparative Analysis”, Asia Case Research Centre, University of Hong Kong.
Dyer, G. (5 January 2007) “The Dragon’s Lab—How China is Rising through the Innovation Ranks”, Financial Times.
Company interview on 6 March 2008.
SAP: Establishing a Research Centre in China
enticed foreign companies to establish themselves in China rather than in countries with
higher taxes.
Software Parks in China
Software development and related research activities were relatively new to China and had
only started in the early 1980s on a small scale. It was not until the turn of the millennium that
the Chinese software industry reached approximately US$6.8 billion in revenue—roughly
one-tenth the US software industry’s revenue in the same year (US$63.8 billion).
To accelerate the development of the Chinese software industry, in 2000, the State Council
published “Policies on Encouraging the Development of Software and Integrated Circuit
Industries”. This document provided a framework for government support of the Chinese
software industry, including the creation of regional clusters of firms that were often in the
same industry.
These clusters usually focused on science and technology and functioned as export-processing
zones. In particular, local governments wanted to attract MNCs to set up both manufacturing
and R&D centres. In attracting these MNCs, the Chinese government wanted to stimulate
foreign multinational investment in China in the hope that this investment would promote
local innovation and contribute to the local job market.27
Typically, local governments in China were interested in attracting “knowledge companies”
to their industrial and software parks. The governments offered incentives and preferential
treatment to companies that located in these parks. Such incentives often included
inexpensive land leases or sales, or ready-made buildings with minimal or zero rent for the
first few years of occupancy.
To gain a competitive edge in attracting talented employees, software parks built close
connections with local universities. These connections were critical to ensuring that
recruitment for new employees ran smoothly.28 For example, companies such as Microsoft
identified potential candidates for employment very early in students’ undergraduate years.
Students were often offered internships, with potential for employment after graduation.
Chinese Business Practices
In Asia, relationships, termed “guanxi” in Chinese, were very important for conducting
business. However, it was often very difficult for Western companies to understand how to
navigate the guanxi-based business culture of China. To cope with these differences, many
European companies hired local consultants to develop local connections and to bridge the
gap between locals and foreigners. American companies, on the other hand, preferred to
develop their own relationships with local suppliers and customers.29
Furthermore, following Confucius’s dictums, most Chinese workers still subscribed to strong
hierarchical tendencies, thus making it difficult to stimulate the open discussions and risktaking essential for innovation.30 There was also a strong bias against accepting eccentrics and
people outside the norm, which were characteristics usually associated with innovators.
Chinese, for a large part of their history, had maintained a relatively closed society and
preferred to work mainly with those people whom they knew well.31 However, this resulted in
Walcott, S.M. (2003) Chinese Science and Technology Industrial Parks, Ashgate Publishing Ltd: Vermont, pp. 13, 121.
Company interview on 6 March 2008.
Lynton, N. (15 December 2006) “China’s Innovation Barriers”, Business Week Online, (accessed 1 February 2007).
SAP: Establishing a Research Centre in China
a homogenous research staff pool and was sometimes a huge hindrance to the development of
collaborative teams that included team members from both inside and outside of China.
Access to Talent
There were two main groups of researchers in China: those that were highly sought-after and
were globally mobile, and those that were “left behind” in their home country. Competent
researchers were scarce in China as many had been snapped up by local Chinese companies
and MNCs or had sought out opportunities abroad. Also, companies were competing to
recruit top researchers on a global scale. With booming domestic economic growth, there was
a growing talent shortage in China that was becoming increasingly difficult to counter. In a
survey of American companies, 37% of responding companies reported that recruiting talent
was their largest problem when operating in China.32
Furthermore, turnover in employee ranks was increasing as more and more researchers were
willing to regularly switch jobs for pay increases and to advance their careers. Many of the
top researchers were attracted to research facilities in the US and Europe that had more
collaborative environments. In particular, they felt that the interactions and connections at
these locations allowed them the opportunity to draw inspiration from discussions with
With the mobility of human resources and access to advanced communication and
transportation technologies, the location of these researchers was becoming somewhat
independent of the locations in which the research activities were conducted. However, there
were doubts as to whether research—a highly interactive process—could be performed
virtually. While some development groups adopted distance collaboration, most successful
research divisions were found clustered in “innovative centres” in close proximity.
Additionally, while the Western history of research spanned decades, research and related
university spending had only become a priority in China in the late 1980s. The education
system of China was not geared towards creating entrepreneurs or innovators. The standard
Chinese curriculum strongly emphasised memorising facts and did not have enough focus on
problem-solving or the teamwork essential for research and innovation. While Chinese
manufacturing was strongly process-oriented, in the case of research where abstract
knowledge processes required creativity, it was more difficult to map or enforce processorientation.
Language Barriers
The lack of oral language skills in languages other than Mandarin or other Chinese dialects
inhibited many students from finding jobs in MNCs in China. Language barriers were an
issue in international R&D ventures because even while some local Chinese were adequately
fluent in English or other foreign languages, they were more comfortable in reverting back to
Mandarin to communicate among themselves. A lack of exposure to native English speakers
was a cause of further deterioration of their English language skills. This made it more
difficult for the Chinese to communicate with non-Chinese speaking co-workers. The
confluence of these factors raised the concern that, despite the number of bright graduates in
China, there would continue to be a growing shortage of talented individuals who could work
on a global level in China.34
Lane, K and Pollner, F. (2008) “How to Address China’s Growing Talent Shortage,” The McKinsey Quarterly.
Company interview on 6 March 2008.
Dyer, G. (5 January 2007) “The Dragon’s Lab—How China is Rising through the Innovation Ranks”, Financial Times.
SAP: Establishing a Research Centre in China
To achieve optimal success, an R&D centre manager needed a solid track record of research
and a reputation and connections inside both the local academic community and the company.
These strong networks allowed managers to be effective intermediaries between the internal
and external research communities and the development teams in the company. This in turn
had the potential of enhancing the exchange of ideas and information, thereby leading to more
effective research.35 However, due to a considerable lack of talented managers in China, a
number of managers were recruited from abroad.36
SAP’s Global Business
SAP was the world’s largest business software company and the third-largest independent
software provider in the world. In 2008, the company had more than 40,000 employees
around the globe who provided its 12 million customers with unique business software
solutions in over 120 countries. Its products included a wide range of enterprise software
applications, business solutions, and services designed and implemented for businesses of all
SAP Labs: Different Roles of SAP Development and SAP Research Groups
R&D activities in the software industry differed in their scope and definition from those of
other industries. Development activities were the actual design, development, coding and
testing of software products. The process of development and testing software was similar to
the product development and manufacturing processes of physical goods in other industries,
in the sense that developers developed and manufactured new functions and product releases.
For SAP, the division that conducted these activities was SAP Development.
To maintain its cutting-edge innovative status, SAP also created a global division, SAP
Research. The objective of this division was to employ the creative energies of its researchers
to seek out and deploy cutting-edge high-tech ideas, while product developers would continue
to develop specific software solutions to meet customers’ immediate needs. The intended
outcomes of the research and SAP Research’s interactions with the product development
group were managed from an early stage, with regular discussions between the groups and
with the regular production and circulation of white papers and position papers describing
implications of the research for potential product development.
In contrast to SAP’s product development groups, which worked on new functions and
releases, the researchers’ mission was to explore emerging technologies or revolutionary
applications such as enhanced analytics (ie, semantics sense-making) and multiprocessorenabled database and ERP systems that had not yet been developed or incorporated into
products. SAP Research tracked technological trends, evaluated their potential impact on SAP
solutions and customers, and generated breakthrough, near-future ideas and technologies. The
target horizon for SAP Research was about three to five years from research initiation to
product development [see Exhibit 3]. SAP Research also had an interface with the SAP
Research Business Development division, which would assess SAP Research’s business
needs and research questions and identify research projects for SAP Research [see Exhibit 4].
These concepts could then be prototyped and handed over to standard product development
Kuemmerle, W. (1997) “Building Effective R&D Capabilities Abroad”, Harvard Business Review.
Lane, K and Pollner, F. (2008) “How to Address China’s Growing Talent Shortage,” The McKinsey Quarterly.
SAP: Establishing a Research Centre in China
While SAP had a number of development centres around the world, the six largest centres
were classified as SAP Labs. These locations were facilities and organisational units that
housed substantial activity and were managed in a different way: as a matrix organisation
with team members reporting to global heads, and with decisions made across all labs and a
substantial administrative support unit to keep them running [see Exhibits 1 and 5]. Many
smaller SAP locations were also established through acquisitions and government incentives
and, despite being globally connected, were mostly run locally. While some SAP executives
believed that increasing the number of locations of SAP increased its diversity, and hence its
innovative capabilities, this fractioning of locations led to increased overhead costs, and SAP
began to consider consolidating its R&D locations.
Generally, SAP Research chose to establish its work in existing SAP Labs facilities or
universities to gain access to their administrative functions and knowledge bases. Other times,
research centres were set up in places such as Sophia Antipolis, France and Montreal, Canada
to access other benefits such as tax cuts.
SAP R&D Global Locations
SAP R&D locations were spread around the world [see Exhibit 5], each focusing on a
specialised area of expertise. Out of its 17 largest locations, seven were focused solely on
research, five were focused on development and the remaining five conducted both R&D
activities. Having its corporate origins in Germany, SAP had originally created the SAP Labs
concept as a part of its German home-base in the 1990s. Though Germany remained the
largest location, the second SAP Labs location was established in 1997 in Palo Alto,
California. Not only was Silicon Valley a hotbed of technical innovation, but the US was one
of SAP’s largest markets. Following the establishment of the Palo Alto facility, SAP
continued to grow and quickly moved into emerging economies. In India, it grew a small
local acquisition into SAP Development Labs India in Bangalore in 1998, focusing primarily
on development. Later, SAP Research was established in Shanghai in 2003.
SAP China
SAP entered China in the early 1990s to serve global customers that had come to China in the
late 1980s and early 1990s. These client companies expected SAP to support their local
operations with localised versions of its software, compliant with local laws and regulations.
Additionally, SAP established its own sales and marketing departments and tried to engage
key local customers, such as Haier and Lenovo, to establish a local customer base. A
development lab was established in Shanghai in 2003 as the company expanded its role as one
of China’s leading local software suppliers.
In March 2006, SAP announced its decision to construct a new set of buildings, the SAP Labs
China Campus, to house its Shanghai development group. These buildings were to be located
in one of Shanghai’s most prestigious industrial parks, the Shanghai Pudong Software Park. It
was expected that this new campus would help strengthen the company’s ties to the regional
and local markets, and would also give SAP a new venue to expand its innovative research,
continuous learning and investment in local talent.37
For details, see SAP Labs China’s website, English edition: (accessed 3
March 2008).
SAP: Establishing a Research Centre in China
Decision to Establish a Research Centre in China
After considering different short-listed locations in Singapore, Bangalore and Shanghai, the
final decision was taken to establish SAP Research in Shanghai. The perceived opportunities
in China were related to the large potential Chinese market for business applications. This
market still had considerable “white space” for prospective and future customers, and a
potential for many innovative and new designs that may be conceived in China through
employing local talent. With the Indian IT market overheating and with perceived
infrastructure limitations in India, SAP considered China for setting up development and
research facilities. Its expectations were that these investments would enlarge the overall
ecosystem and foster collaboration and joint research with other SAP partner companies in
China such as HP and IBM.
Moreover, because establishing such a research operation was highly encouraged by the
Chinese government and provided SAP with important leverage for selling SAP products in
China, it appeared to the executives at SAP headquarters that it was important for SAP to
establish a research unit in China. These executives hoped that establishing a research unit in
China would open up the Chinese government to purchasing and using SAP software for tax
management and internal administration in the future. This had already happened in India,
where investments in the northern Indian city of Gurgaon had resulted in closer co-operation
with the Indian government and created sales opportunities for SAP’s public-sector
Dr Ike Nassi, executive vice-president at SAP and responsible for SAP Research in the
Americas, had an added interest in creating a research centre in China. Initially, SAP had
performed research primarily in Germany with EU-sponsored funding. Because the research
was government-funded, any research findings from its German establishments became
public knowledge and it was impossible for SAP to patent new technologies. As SAP grew,
the German headquarters allocated a budget to establish a small research unit of 25
researchers in Palo Alto using company-sponsored funding. Even though this new centre was
located in a creative hotspot, there was concern as to whether the internal SAP research
community was large enough to stimulate innovation. Nassi was therefore eager to establish
another corporate-funded research centre. Given his and Alsleben’s extensive experience in
China and Palo Alto, it appeared that these two SAP Labs locations would work well together,
and both Alsleben and Nassi were strong champions for establishing a research location in
While SAP had considered several reasons for establishing a research centre in China, due to
headcount and budgetary concerns, the company delayed the decision to build SAP Research,
a software research centre, until late 2007. By this time, SAP’s China development group had
demonstrated credible results and employed more than 200 software development
Following the success of the development group, SAP decided to continue taking advantage
of the technical talent pool available in China. In particular, SAP planned to conduct
advanced database and application research in China and to establish a world-class software
research facility. Ming-Chien Shan, vice-president of SAP Research in Palo Alto, was
approached to create, establish and lead the SAP Shanghai research unit focused on nearfuture technologies. With many years of research experience, including a similar senior
SAP (2007) “SAP Reinforces Importance of India to Company’s 2010 Growth Strategy”, (accessed 2 February 2008).
Company interview on 6 March 2008.
SAP: Establishing a Research Centre in China
research position at HP in China and many contacts in the IT research field, Shan was an ideal
candidate for this position.41
However, similar to the size restraints of SAP’s California lab, SAP China’s research group
was initially capped at 40 researchers. Between 80% and 90% of SAP’s total researcher
headcount remained in Europe. Meanwhile, competitor technology companies had placed on
average over 300 researchers per company in China.42
Choosing a Research Location within China
As MNC investment continued to grow in the 2000s, much of China’s growth was attributed
to foreign investment and foreign technology development. However, the Chinese
government’s hope was that knowledge created in domestic academic institutions would
stimulate innovation in domestic and foreign firms.43
SAP decided to start the China unit of SAP Research in the Pudong Software Park in
Shanghai. With SAP Labs already located in Shanghai since 1992 and boasting a fully
operational and established campus with spare capacity, setting up SAP Research in Shanghai
seemed like the most convenient and lowest-cost option. Even though the software park had
not attracted the volume of software and IT companies that it had initially planned to attract,
there were still a number of technology companies in the surrounding area. Moreover,
Shanghai researchers were too far away from Beijing to be able to interact with the active
network of researchers from other companies. Having a centralised research lab seemed
preferable, as SAP felt that they could attract customers and high-profile researchers in the
Shanghai area and that this location allowed them to avoid high competition for researchers in
However, despite many other eligible sites for establishing research centres, most IT
companies, such as Microsoft and Tata Consultancy Services, had set up their main research
labs in Beijing, a government and administrative city with a number of top universities [see
Exhibit 6]. There were few pioneering research clusters to be found outside of Beijing,
particularly in IT and management science research, which were applications relatively new
to Chinese businesses. In particular, these companies wanted to be in proximity to China’s top
universities and government research centres. Beijing offered them proximity to other
software companies as well as to their biggest customer, the Chinese government.
Consequently, there was a large concentration of IT researchers in and around Beijing that
met regularly to network through both formal and spontaneous network gatherings. It was
through such gatherings that many innovative ideas emerged and were discussed and
exchanged.45 The numerous engineering and production centres in southern China were also
major sources of innovation. As companies continued to be established in this area, the
knowledge capital available in these areas was accumulating rapidly.
Why Locate in a Software Park?
The decision to set up SAP Research in the Pudong Software Park was easy for Nassi, Shan
and Alsleben. While the company had a development centre in Shanghai with strong ties to
SAP headquarters in Germany and strong regional management, Alsleben had already
fostered close relationships with local customers, suppliers and the local employment market,
and these were factors of proximity that they hoped would aid both their research and market
Walcott, S.M. (2003) Chinese Science and Technology Industrial Parks, Ashgate Publishing Ltd: Vermont, pp. 13, 121.
Company interview on 6 March 2008.
SAP: Establishing a Research Centre in China
development. In contrast to nearby second-tier cities such as Hangzhou and Suzhou, Alsleben,
Nassi and Shan felt that the Shanghai Software Park offered better infrastructure, proximity to
other firms, access to skilled employees, and the lifestyle attractions for managers and their
families of being in the most international city in China [see Exhibit 7].46
Local governments in China were very interested in attracting “knowledge companies” to
their industrial and software parks. They offered incentives and preferential treatment such as
inexpensive land leases and ready-made buildings with zero initial rent fees. However, SAP
Research moved into the existing campus operated by SAP Labs China and, because it was
not a separate legal entity, it did not qualify for these incentives.47
Recruiting for SAP Research China
It’s because the economy is booming here and because the flexibility and
market potential is huge here, everybody, whether individual or enterprise,
wants to come to China.
– Dr Ming-Chien Shan, vice-president of SAP Research Palo Alto and China
Hiring for SAP Research China started in the last quarter of 2007. By March 2008, SAP
Research had recruited four experienced researchers and three younger developers to join the
research team. As SAP was looking for high-profile research candidates, the recruiting
process turned out to be a challenge for SAP China’s human resources function. This was the
first time SAP Labs had built such a high-profile team in China and the goal by the end of
2008 was to have 20 full-time researchers on board plus 20 full-time PhD interns.48
Attracting Talent
With over 400 senior researchers worldwide already, SAP Research had the ability to
leverage existing resources to set up the China location. It needed to determine how to attract
some of these researchers from other locations to its Shanghai location, as well as recruit new
employees in China.49
To improve training of Chinese nationals’ research skills as part of the country’s rapid
economic development, SAP Research China accessed the development group’s previously
established connections with the top 10 universities in China. Unlike other research centres,
SAP Research began by funding research projects at top Chinese universities such as Fudan
University, Beijing University and Tsinghua University. The reason for this approach was to
leverage university research resources and to learn Chinese approaches to research issues.50
Nassi headed both SAP Research Americas and SAP Research China, making SAP Research
China part of a core global team. New graduates were keen to work with an MNC that was
considered to be the leading global enterprise software provider. Furthermore, Chinese
returnees and foreigners interested in the Chinese IT industry also found SAP to be an
attractive company. Local Chinese ERP and software companies often did not have strong
research divisions, nor were they perceived as excelling from a technical or marketing
perspective. The current hires were attracted to SAP Research for its balance between
successfully publishing papers and keeping in line with SAP’s business strategy of inventing
new technologies that could be used in product development. Furthermore, this research was
SAP: Establishing a Research Centre in China
practical, unlike traditional university-based academic research, where the focus was on
theoretical issues only.51
With only very few experienced research staff available locally, SAP aimed to attract senior
research staff from the US and Germany to fill its more senior positions. However, attracting
research personnel to China was very different from attracting talent to sunny Palo Alto in
Silicon Valley. To date, it had hired only one senior researcher from the US. Remaining hires
had four years or less of working experience, mainly in China. A number of Chinese-born
people in the US and a number of foreigners with the desire to move to China had also
approached Shan. The growth of the Chinese economy made China appear to be an exciting
place for these applicants, full of opportunities and potentially valuable work experience.52
However, as SAP Research set up its research lab, it realised that it needed to be careful with
its employee selection. It required all candidates to have good academic qualifications and
experience. Because the primary language at the company was English, the ability to speak
Mandarin was not the primary concern. Instead, recruitment was primarily based on technical
skills.53 Additionally, it was difficult to find people who were highly trained in ERP, were
considered creative and at the same time had a reputation for publishing a number of papers.54
Returnees also believed that they had an advantage over those who had never left China. At
one time, any foreign education or employment experience was considered valuable in China,
and a job upon returning to China was almost guaranteed. However, the returnees applying
for jobs in China during the time of SAP Research recruitment were sometimes those who
had not been successful in the US or European job markets and were therefore returning home.
Additionally, SAP also had some overseas Chinese applicants who wanted to return to China
because of national and ethnic pride. These individuals saw the opportunities for personal
growth in China. One of the high-profile applicants from the US had worked at a competing
research lab for 15 years and already had a number of publications. His stated motivation to
come to China was that he felt that there would be more flexibility to pursue research projects
in China.55
Shan soon discovered that there were a number of high-technology companies competing for
research talent in China. However, 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. As a result, there was only a limited talent pool within
China that all technology companies wanted to recruit from. It was not uncommon for the
best candidates to be offered generous compensation packages and then receive counter-offers
from other more-desirable employers.56
One of the biggest challenges that SAP was having in the recruiting process was that, while
SAP’s business applications were well recognised, its research division was not as well
known in Chinese employment circles. Compared to IBM or Microsoft, SAP was not a well
known employer in China. Moreover, from SAP’s Chinese language website, it was not clear
that it was actively recruiting for research. SAP Research was often confused with the moreestablished and larger SAP Application Development Labs. This often created
misunderstandings and confusion in the recruitment process for SAP Research.57
SAP: Establishing a Research Centre in China
Compensation Packages
Between 2003 and 2008, it was an employee’s market in China, with annual salary raises in
the double digit increases of Renminbi. In one case, SAP had offered a high-profile PhD
candidate an attractive compensation package. The offer was quickly countered by IBM and
by Chinese search engine company Baidu. Both were very high-profile and highly desirable
employers in China. This posed a challenge to Shan. If he chose to increase his offer, it would
demonstrate that he was willing to play the money game, and the salary wars could escalate.
While Shan’s offer was already generous and above the industry average, due to budget
constraints imposed by headquarters, it was still 20% to 30% less than other offers received
by candidates.58
Compensation packages were difficult to assess because high-level research positions were
relatively new in China and there was not much comparison data available from management
or recruitment consulting firms. Moreover, there were already major talent shortages in
research and management in China.
It was also common for junior local employees in China to change jobs to obtain big boosts in
salary. While 15% annual pay rises were normal, potential local employees did not feel shy
about asking for a 40% to 100% increase over their current salaries.59
This aggressive focus on monetary compensation stemmed from a number of sources. China
was in a socioeconomic transition as it entered into the 21st century. Social security was no
longer provided by the government, leaving people with no safety nets or retirement plans.
Consequently, Chinese families from a range of backgrounds often invested their savings in
the education of their children and expected their children to take care of them in their old age.
Additionally, because the Chinese labour market offered many opportunities, it seemed
relatively easy to change jobs. Local employees were quick to change jobs if they were
dissatisfied, and graduates and new recruits openly discussed offers from different Chinese
employers with each other. Young local employees had not yet realised that a curriculum
vitae with many short term positions was not considered attractive to employers. Expatriates,
on the other hand, expected to receive similar or even higher base compensation than they
would receive in the US for working and living in China.
SAP hoped that the research team employees would stay with the company for the longer
term, as researchers often were involved in research projects requiring three to seven years of
work. However, there were questions as to whether there were enough interesting projects
available. Furthermore, the company needed to train employees for a minimum of three
months to become productive in the company.60
To entice employees to stay with the company for a longer period of time, SAP offered its
employees a competitive salary, participation in local high-potential programmes, foreign
visits (highly prized by the Chinese), the opportunity to work with global counterparts and,
for long-term senior staff, a subsidised car policy. Despite an attrition rate of only 8%, SAP
was competing with much larger companies such as Microsoft and Google, which could offer
much higher compensation and incentive packages, as well as attractive stock options.
There were also a number of factors that Shan needed to confirm prior to hiring expatriate
members of his new team. A researcher’s family, especially the spouse, needed to be
SAP: Establishing a Research Centre in China
amenable to relocating to China. Furthermore, potential foreign employees could not expect
big expatriate salaries and benefits just because they were being asked to move to China.
While such plush benefits may have been available 10 years ago, they were becoming rare.
Thus assessing employees’ motivations for relocating to Shanghai and the adaptability of not
only employees but also their families was important.61
Graduate Recruitment and Internship Programmes
By the end of 2007, SAP had already set up programmes to build relationships with China’s
top 10 universities in computer science and to raise awareness among their graduates of SAP
Research as a potential employer. SAP felt that fresh graduates in particular would bring fresh
ideas to its research. Shan and his colleagues often travelled to local universities to develop
and maintain contact with their professors. Shan, an experienced researcher, was himself a big
selling point for attracting people to SAP Research. Top graduates expected a high level of
personal engagement, and because 70% to 80% of new hires for SAP Research China would
be fresh graduates, Shan’s presence was an important way to ensure that the best candidates
were attracted.62
Additionally, SAP Human Resources set up a number of programmes to help promote PhD
internships at SAP Research. The interns would act as participating members of the team and
work with one or two researchers, focusing on one specific project at a time. In addition to
recruiting interns from within China, in March 2008, an arrangement was set up with Stanford
University for its engineering students to come to Shanghai for three-month summer
internship positions. The opportunity to work with Stanford students was also an incentive for
top Chinese interns to join SAP in China.63
Establishing SAP Research in Shanghai was important for Alsleben to further increase the
profile of SAP Labs China from being a pure development location to becoming an R&D
facility. With the first researchers hired and initial topics assigned, he wondered if SAP
Research would further grow through acquisition of new topics and competencies. With a
dynamic marketplace and strong competition for top researchers among Chinese subsidiaries
of global companies such as Microsoft, IBM and Oracle, attracting talent to SAP Research
China and retaining key employees seemed to be major challenges.
SAP Research had made a bold move in establishing a presence in China. Almost all of the
worldwide increase in additional researchers in 2008 went to China. Despite the alreadyestablished SAP Labs with excellent relationships with local universities and companies, not
many PhD graduates from Chinese universities were aware of SAP’s activities in China. In
addition, China did not have a long history of IT-related research and Shanghai did not yet
host a significant cluster of such activity, unlike the US or Europe, where SAP Research
already had a significant presence.
Alsleben had mixed feelings about the future prospects of this unit. His long years of
experience at SAP China made him concerned about the sustainability and future growth of
such a unit. Shan, the head of SAP Research China, had also identified difficulties in hiring
top talent due to strong competition among IT companies in China. He also raised concerns
about the time required to mature the team as well as measures to retain key staff.
SAP: Establishing a Research Centre in China
Alsleben was especially concerned about whether this location in China had been the right
choice for SAP’s research in Asia and whether it could leverage China’s rapid industrial
growth, large manufacturing base and large number of Chinese enterprises requiring modern
business software solutions, especially in the SME segment. What would be necessary to win
the war for talent in the competitive Chinese labour market for high-profile PhDs, and how
could the company ensure retention of key researchers, considering the long-term
commitment required for the often long-lasting research projects?
How could Alsleben address all of these issues to safeguard SAP Research’s further growth
and to help establish SAP Research China as an integral contributor to SAP’s worldwide
innovation network? Alsleben left the office with a multitude of challenges that needed to be
addressed urgently. What would the developments in China foretell for the success of SAP
Research in China?
SAP: Establishing a Research Centre in China
Head Office; responsible for
overall management of global
organisation. Made up of the
executives below:
Leo Apotheker
Finance and
HR, Processes
& Information
Global Service
& Support
Claus Heinrich
Gerhard Oswald
John Schwarz
Peter Zencke
Werner Brandt
Jim HageMann Snabe
Global &
Source: SAP (2008) “SAP Corporate Profile”, Company Internal Presentation.
SAP Labs
The global technology research unit of SAP, focusing
on near-future technologies
Creates new functions and product releases
Source: Company Interview on 6 March 2008.
Research &
SAP: Establishing a Research Centre in China
Oracle built a reliable, dynamic and flexible IT infrastructure that allows applications and
services to be used in a modular, functionality-driven and secure way. While it has strong
database technology, applications are not its core business. In collaborating with other
scientific and commercial R&D sectors, it focused on four main areas: product development
(development of new and existing products), solution development (researching emerging
technologies and bringing local or industry-specific solutions to market), strategic projects
(working with customers to create and implement solutions), and partner enablement
(working with hardware and software partners).64
Part of Oracle’s growth strategy was to aggressively acquire competitors. Despite its attempts
to create a harmonised suite of applications for its customers, its diverse acquisitions created
integration challenges with its existing products. To address these issues, the company created
a product suite called Fusion to better integrate applications from acquired companies.
In Asia, the company set up Oracle Asia Research and Development Centers in Beijing and
Shenzhen to create innovative new products and enhance existing products for the local and
global markets. The remaining Oracle sites in Asia were located in Shanghai, Gurgaon, Seoul
and Singapore.65 In China, it has a strong reputation, with strong ties to the government and a
growing focus on SMEs.
The Microsoft Corporation had a line of business management software called Microsoft
Dynamics. Its software included a range of integrated e-business products, including financial
management, human resource management, manufacturing, customer relationship
management, and supply-chain and business development.66
Microsoft Research invested heavily in research, with a total of US$6.58 billion dedicated to
R&D for all its products in 2008. At the time, it had developed its enterprise information tools,
strengthened its client, server and tools segments, and entered entertainment-related markets,
including online gaming.67
The main Microsoft Research offices were in Redmond and Silicon Valley in the US, with
additional locations in Cambridge, England; Bangalore, India; and Beijing, China. Each of
these research labs had focussed on different long-term research topics, not restricted by the
need to get a product out on the market.68
The R&D centres were more numerous, with 1,000 employees at five Asia-Pacific centres
alone to develop products for local markets, the company’s fastest growing region for the past
four years.69
In China, Microsoft consisted of Microsoft Research Asia, the Microsoft Advanced
Technology Centre and product R&D teams. Its first office appeared in Beijing in 1992 and,
in January 2006, the Microsoft China Research & Development Group was established to
For details, see Oracle Research and Development’s website:
For details, see Oracle Asia Research and Development Center’s website:
For details, see Microsoft Dynamics’s website:
For details, see Microsoft Research’s website:
SAP: Establishing a Research Centre in China
strengthen local partnerships and create a global innovative research base for Microsoft. With
campuses in Beijing, Shanghai and Shenzhen, it continued to grow in the Chinese market well
into 2008.70 To refine its product for the Asian market, it worked on handwriting recognition
and typing of Asian characters.
Sage China
Sage China, a subsidiary of the Sage Group in the UK, has a small presence in China. In 2008,
it catered to over 1,000 customers in China with a range of software management solutions
including ERP, HR, and e-business software.71
UFIDA (Chinese Name: Yongyou)
UFIDA was considered the largest Chinese business software company in the national market
and the largest Asian management software supplier in the Asia-Pacific. Founded in 1988, the
headquarters of UFIDA was located in Beijing, with 60 offices throughout China, primarily in
northern China, and sales offices in Hong Kong; Tokyo, Japan; Singapore; and Bangkok,
Thailand, and over 2,000 partners.
Its product lines included ERP software, group enterprise and industry solutions, and a range
of management solutions for various industries, often localised for the Chinese market. 72
While its international experience and product functionality may not be as advanced as its
global competitors, it does have a strong foothold in the local SME market and more
competitive prices.
In 2008, UFIDA claimed to have the most powerful enterprise management software R&D
system and the largest enterprise application software R&D system in China and the AsiaPacific. With 1,400 researchers, its headquarters R&D Centre was located in Beijing, and it
also had a Nanjing Manufacturing Industry R&D Base and the Shanghai Advanced
Applications Research Centre.73
Kingdee International Software Group Company Limited
Kingdee International Software Group Company Limited (“Kingdee”) was recognised as a
major provider of enterprise management software and e-business application solutions in the
Asia-Pacific SME market, but was limited in the larger enterprise market. In China, it catered
to both private companies and to government enterprises with both software and softwarerelated management and IT consultation services related to its products. 74 It was highly
localised, creating products for the local Chinese market, with strong sales capabilities and
strong support from the government and industry associations.
Founded in 1993, its headquarters was located in Shenzhen, on the border of China beside
Hong Kong. The R&D centres were set up in Shenzhen and Shanghai, and it had 39 branches
for sales and consulting services throughout mainland China, with a strong focus on southern
China. In the Asia-Pacific region, it had over 3,200 staff and 400,000 customers. It was also
For details, see Sage Asia-Pacific’s website:
For details, see UFIDA’s website:
For details, see Kingdee’s website:
SAP: Establishing a Research Centre in China
awarded the ISO9001 International Quality Accreditation, the first enterprise application
software provider to receive this award in China.75
In 2007, IBM and Lehman Brothers acquired approximately 7.7% of Kingdee. With Kingdee
as one of the leading enterprise management software and e-business application solution
suppliers in China and IBM a global innovator in the software industry, it was likely that the
partnership would boost each party’s competitiveness both within China and in global
Digital China Management Systems Limited
Digital China Management Systems Limited was registered in Shanghai in 2001 as a joint
venture between Digital China Co., Ltd and Data Systems Consulting Co., Ltd in Taiwan. It
focused on providing enterprise management software and management and IT consulting
It was also knowledgeable in the Chinese manufacturing and circulation industries and had
experience in the Chinese market. The company had an R&D centre that promoted R&D of
ERP and e-business software and services that catered to both Chinese company needs and
global solutions.77
For details, see Digital China Management Systems’s website:
SAP: Establishing a Research Centre in China
Focus SAP Research
Qualified Idea
Customer Pilot
Production or
Spin Off
Collaborative Research
Applied Research
Source: SAP (2007) “Research in Dialogue. SAP Research Report 2006”, (accessed 1 February
SAP Research involved a combination of business-oriented research and close collaboration
with customers as well as exploration of near-future technologies. Depending on location, the
SAP Research approach differed slightly. In Europe, many projects were co-funded and
executed with the European Commission, a division of the European Union. These projects
were usually longer-term. In the US, with project partners at universities and within the
industry, SAP was more flexible and could create short-term projects.78
The SAP Research Group had two types of portfolios: applied research portfolios of three
years or less and experimental research portfolios of seven years or less. The applied research
portfolios were often pursued at R&D centres while the exploration of near-future
technologies tended to occur primarily at the SAP Research Labs.79
SAP researchers mapped the research process: first identifying technologies that may be in
line with SAP’s business strategy; then obtaining expert opinions from academia and industry
partners to validate that a research proposal was in line with current trends; then participating
in a collaborative research project including an initial feasibility study, as well as prototypes
to test in a real-world setting; and finally a transfer process where theoretical research was
relayed from the Research division of SAP to the internal Development and Solution
Management teams for product development, occurring throughout the research process.80
The process started with having think tanks and online communities to determine what
customers wanted and needed. It also often involved its customers through the entire project,
from prototype to finished product. This allowed the customers’ specifications to be
incorporated into the design early on and for projects to be custom-built.81
SAP (2007) “Research in Dialogue. SAP Research Report 2006”, (accessed 1 February 2008).
SAP: Establishing a Research Centre in China
SAP Research focused on social, business and technology trends that were likely to have an
impact on the way businesses worked and potentially shape the future market. Technologies
that were not part of SAP’s product portfolio at the time of research were still in line with
SAP’s corporate strategy. Trends were studied to ensure that the needs of tomorrow’s
customers were met and to identify changes in technology that may have affected different
Trend analysis was essential in separating hype from potentially useful innovations. SAP
Research screened and studied recent IT research reports published by groups, such as
technology consultancy Gartner. Subsequently, the researchers analysed and discussed these
trends with external academic and industry partners to understand where these changes were
coming from and their potential impact on business opportunities.
While analysing these trends, researchers focused on the market climate and whether these
trends could be realised in a product in the future. Additionally, a new field could be realised
if the trend was not within one of their existing research fields. Once trends were recognised,
research fields within the trend were identified and carried out through research project
To evaluate potential trends in the IT field that could impact future business opportunities,
SAP Research evaluated a range of industry reports. Additionally, there were a number of
discussions with external collaborators in universities and industry partners to determine the
best topics to research.
In 2008, SAP Research was studying 14 different research fields around the world that
affected business, society and technology. Within each of these fields, there were a range of
different research projects. These fields included:
• Advanced web technologies
• Real-world awareness
• Real-time enterprise transparency
• Future manufacturing
• Next-generation enterprise SOA
• Service ecosystems
• Security and trust
• Open source
• Mobility
• Interoperability
• Technologies for emerging economies
• End-to-end simplicity
• Business-centric networks
• Industrialisation of software development.83
SAP (2007) “Research in Dialogue. SAP Research Report 2006”, (accessed 1 February 2008).
For details, see SAP Research’s website:
SAP: Establishing a Research Centre in China
Source: SAP Research (2007) “SAP Research Fields”, (accessed August 20, 2008).
SAP: Establishing a Research Centre in China
SAP Research was located around the globe in nine countries. There were two types of
research centres, those co-located with an SAP Development Lab and those co-located with a
leading university. The university-connected SAP sites were usually less expensive to
maintain, with only one or two SAP researchers working with university professors. While
beneficial financially and in terms of stimulating research ideas, this option sometimes was a
constraint to research-funding choices.84
These research centres employed 233 employees, 90 PhD candidates and 200 working
students in 2007. The global diversity found within and connected to these centres allowed
SAP to access a range of ideas and expertise worldwide.85
In addition to collaborating with universities, SAP worked with government, industry partners
and customers across national and organisational boundaries to create new ideas for potential
business software solutions.86 Furthermore, innovation often came from within the company.
Employees actively participated in SAP INSPIRE projects. These projects were introduced to
foster an environment for SAP employees where employees were encouraged to build on their
ideas and create their own incubator projects within the company. Innovative projects such as
PROVE—a way to discriminate between authentic and counterfeit goods—were created with
resources and support from SAP’s Executive Board. These projects tended to be on average
18 months long, much shorter than traditional research projects.87
SAP Research Centres (SRCs):
• SRC Montreal, Canada
• SRC Palo Alto, US
• SRC Sophia Antipolis, France
• SRC Walldorf, Germany
• SRC Shanghai, China
Campus-Based Engineering Centres (CECs)
• CEC Belfast, UK
• CEC Brisbane, Australia
• CEC Darmstadt, Germany
• CEC Dresden, Germany
• CEC Karlsruhe, Germany
• CEC Pretoria, South Africa
• CEC St. Gallen, Switzerland
• CEC Zurich, Switzerland.88
Company interview on 6 March 2008.
SAP (2007) “Research in Dialogue. SAP Research Report 2006”, (accessed 1 February 2008).
For details, see SAP Research’s website:
SAP: Establishing a Research Centre in China
Source: SAP Research (2008) “SAP Labs”, Company Presentation.
SAP: Establishing a Research Centre in China
Shanghai, a busy metropolitan city, had a range companies that focused on manufacturing and
R&D. On the other hand, cities such as Beijing, Shenzhen, and Xi’an possessed a number of
strong academic institutions nearby that participated in collaboration and knowledge
Other first-tier cities, such as Shenzhen and Guangzhou, located in Guangdong Province near
Hong Kong, were also considered ideal for development with their abundance of skilled
labour. However, the labour and cost of property made these the more-expensive locations in
Second-tier cities such as Suzhou, Dongguan, and Shenzhen were strong in manufacturing
and their proximity to the ports of Shanghai or Hong Kong, as well as less expensive labour
than Shanghai or Hong Kong, made them attractive alternatives for establishing research
centres. For example, the Suzhou government had created a modern industrial park with
several amenities and offered discounted or free rent to their initial tenants as incentives to
locate in Suzhou.91
Walcott, S.M. (2003) Chinese Science and Technology Industrial Parks, Ashgate Publishing Ltd: Vermont, pp. 13, 121.
SAP: Establishing a Research Centre in China
The Shanghai Pudong Software Park was established in 2003 by the Chinese Ministry of
Information Industry and Shanghai Municipal Government. Considered the “national
software export base”, it was established within the Zhangjiang Hi-Tech Park in Pudong, the
eastern side of Shanghai, as part of the Chinese government’s initiatives to improve the
competitiveness of the software industry in China. To attract companies to establish
themselves within the high-tech park, it provided a range of value-added services and
infrastructure for businesses that settled in this region, including telecommunication,
broadband, finance, legal, logistics, training, security, hospitality and entertainment services.92
In 2008, there were over 1,000 enterprises registered in the park, including both
manufacturers and R&D centres. In addition to SAP, Citibank, Sony (China), TATA (India),
INFOSYS (India), Satyam Computer Services and Bearing Point had established R&D
centres there. Additionally, there were clusters of companies in the chip-design, informationsecurity, system-integration and software-export industries within the high-tech park.93
Source: SAP (2008) “Internal Layout Plan for SAP Labs China”, Company Presentations.
For details, see Zhangjiang Hi-Tech Park’s website:

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