IT Usages for Direct Exports by China ’ s SMEs

1. IT Usages for Direct Exports by China’s SMEs Xingmin Yin School of Economics, Fudan University Shanghai, 200433, China Email: yinxingmin@hotmail.com International Seminar Information Technology for Development of SMEs in East Asia and Latin America Organized by ECLAC with collaboration of IDE/JETRO, sponsored by UNDP Santiago de Chile, 23-24 of November 2004

2. Contents • Overview of SMEs Statues in Industrial Economy • Main Features of IT Usage by Chinese Firms • IT Usages for Direct Exports: Case Studies • Problems for SMEs to Use IT in the Export Business • Policy Implications for SMEs Export

3. I. Overview of SMEs Statues in Industrial Economy • Definition of SMEs By labor force By assets and output • Product Value and Labor force • Export

4. Labor Force Composition by Firm Size 1999 2002

5. Composition of Product Value by Firm Size 1999 2002

6. Export Composition by Firm Size 2002

7. II.Main Features of IT Usage by Chinese Firms • Growth of Internet address registered with .com in China. • 13,913 in 1999 to 140,779 in June 2004 • The establishment of intranet is the basic tendency for firms. • Telephone line and modem are two major ways for firms to get on Internet, the usage of ISDN and ADSL has soared. • The basic information system has been accomplished. • Application functions of Internet by firms have been increased greatly. • Increasing trends of trade on e-commerce.

8. Application of Internet by Firms Statistics of example firms investment on informationization (2000) .

9. Trade Volume on E-Commerce, 2000-2003

10. III. IT Usages for Direct Exports: Case studies Location of case studies is in Yangtze Delta region, which boasts most dynamics in China’s economic development and relatively high opening degree. IT usages for direct exports: • Email • Information (such as commodity price and customer demand) through internet • Video meeting • Data exchange with XML • An unified EDI system in custom administration • E-trading • E-business platform

11. Location of Case Studies in Yangtze Delta

12. IT Usages for Direct Exports by Traditional Industries • Popularization of email system. • PC linkage to Internet for information. • MSN is widely used. • Website for product advertisement. • E-business platform for online trade. • To use world portals for exports, such as Asian Sourcing and Global Sourcing.

13. Case One: Software Exports Case of Three Software Firms in Hangzhou Notes: Labor amount for 2004 is the data of June 2004. Sales for 2004 is predicted by the firms respectively. Distinct characteristics: • Small-scale • Export-orientation • High growth rate

14. IT Usages for Direct Exports by Hangzhou Software SMEs Feature One: • Product of software • Software engineering Development and installment of system software directing to some specific business: financial system software, government office software. • Service and solving scheme Coding service Testing service Solving scheme

15. UniverseSoft Case: Software Development for USA Market • Partnership: Zhejiang University and State Street Group • Software engineering and reengineering Lattice system is an equity trade and execution system developed by state street in mid 1980s. It was a legacy system, which was hard to operate and maintain, but it is of critical business value. UniverseSoft completely rebuilt the system with state-of-art technologies and with new features enhanced. It is re-blooming. • Advantage of exports: cost and technology competitiveness.

16. Feature Two: • Full equipment rate of PCs • Functions of enterprise’s website • A show window • Advertisement • Possibility of e-business • Export mode of software enterprises • Data exchange with XML • Video meeting • Product delivery through Internet

17. Improvement of Telecommunication and Higher Education in Local Area (Zhejiang Province) Item Length of long distance optical fiber cable (Km) Number of telephone sets owned per 100 persons Users of Internet (million user) Computer (PC) per 100 urban household (unit) Express way (Km) New student enrollment (person) Undergraduates Postgraduates 1998 5274 20.5 / / 344 36668 2155 2002 14959 78.4 3.16 29.6 1307 152470 6111 2003 18446 88.8 3.44 40.23 1438 173519 6863

18. Experience and Problems in Hangzhou Software Exports • Experience • Policy support • Infrastructure improvement in IT usages • Increase in supply of human capital • Close international relationship • Problems • Lack of software engineers • ... ...

19. Case Two: Hongyi Electronics Appliance Exports • All the products are exported to European market. • Implementation of ERP and expansion of ERP system to export activity. • Decrease of export transaction costs through Internet • Price information of export product • Negotiation with existing clients by email • Time reduction of price negotiation due to price transparency • Both sides reduced transaction costs • Online trade Hongyi attends online bid held by European electric appliance dealers every year, quotes on prescribed time and further confirmed by video meeting.

20. Case Three: Suzhou IT Firms Name of firm Sampo Electronic Tech BenQ (IT) CO.,Ltd Suzhou Victory Tech Labor (person) 1500 7600 1200 Number of PCs 100 3000 200 Exp/output 90% 95% Supply for MNEs in Suzhou Three features of Suzhou’s IT industry: • IT manufacturing base established by FDI • Participation of the global IT industry chain • The promotion of IT usages in local SMEs

21. Sampo’s Experience in IT Usages • Oracle system is the core of the ERP system. • Sampo’s servers located in Taiwan are connected with its Suzhou subsidiary company by dedicated-lines. • Using video meetings to make SCM in good operation and reduce the communication difficulty resulted from long distance. • Sampo uses Internet to accomplish the procedure of orders but uses traditional ways to receive orders such as fax.

22. The IT Application of BenQ for the View of Export • BenQ has a rather high level of informationization. • BenQ receives MNEs’ orders and establishes supply chain through mutual visit. • Import and export business is dealt with online. • Customers can learn or download the information such as the export time, date of board, name of the shipping line, arrival time and destination. • Management online makes import & export information transparency. • BenQ website is an e-commerce platform for online orders. Sales value on e-commerce platform accounts for 20% of the total sales value.

23. IV. Problems for SMEs to Use IT in the Export Business • How to integrate IT hardware investment and software development for efficiency, and SMEs should put an emphasis on the application of software to stimulate IT hardware’s value. • Transaction done through Internet still represent a small part of the total exports due to the shortage of legal supporting system. • China’s financial system which can support e-commerce hasn’t been finished, for example, banks are unable to provide high efficiency Internet services. • Due to the lack of capital, SMEs are unable to set up websites for exporting by themselves. Portal websites charge annual fees to companies, which will be an extra burden for SMEs to pay.

24. V. Policy Implications for SMEs Export • To encourage the establishments of clusters in special zones, which set up well-functioned infrastructure including telecommunication facilities for exporting. • To increase the penetration of IT usages by SMEs. • To reform the institutional arrangements in exporting business: • The total exporting procedures should be processed online. • The safety of online exporting should be supported by the legal system.

25. Thank you!