On the first day of SAP’s annual Sapphire conference, SAP announced a strategic partnership with China Telecom, the largest telecom provider in the world by subscriber size, to host SAP’s SaaS ERP solution, SAP Business ByDesign.

For me, this is a major announcement for two reasons:

• First, in order to execute SAP’s global business strategy in China, the company needed to adapt the Business ByDesign solution, and to work with a local supplier. And in this sense, China Telecom gives SAP China the opportunity to further localize the SAP Business ByDesign solution, as well as to meet local requirements, in order to have a truly scalable SaaS business in China.

• The other major point with the China Telecom partnership is that now all global SAP services partners will be watching to see how the partnership will evolve. So far, SAP Business ByDesign has not been available to other IT services partners to host, since SAP has been focused on making sure the solution was working properly, that new customers could be brought on efficiently (with approximately 10% of the effort of a traditional ERP implementation), and that performance, reliability and security KPI’s were met. Thus China Telecom marks the first partner to host the ByDesign solution, and for the time being, the only one…

Specifically for the Chinese market, this new SaaS offering will support the multi-pronged approach that is being applied by SAP China’s President, Hera Siu. As Ms. Siu explained to me at Sapphire, “… large state-run enterprises were the earliest adopters of IT, while privately-owned entities (POE’s) have traditionally been IT laggards, and need to modernize their IT.” Taken a step further, one could consider that the POE’s are at a similar stage as U.S. companies in the early 90’s, grappling with the importance of enterprise management systems and the promise of business process engineering. This also explains why, as Ms Siu confirmed to me, on-premise ERP is king for these mid-market POE’s, with the ability to customize and to have physical ownership of the system and data, being of the highest importance.

Concerning on-demand in China, she explained that for larger enterprises and for POE’s who are looking to go global (as opposed to those focused on the local market), SAP Business ByDesign can be a very suitable ERP solution. On one hand, POE’s, as IT laggards, can take advantage of their clean IT slate by adopting the preconfigured processes within the SaaS solution. While on the other hand, large enterprises looking towards global growth can leverage ByDesign under a “hub-spoke” model, in order to more efficiently roll-out an integrated and consistent ERP solution outside of China through the SaaS model.

While it is clear that SAP China is taking quite a unique path compared to SAP’s operations in “mature” countries, this partnership may turn out to be an instance where a new delivery model piloted first in an emerging market like China, helps seed new partnership models elsewhere. PAC will be sure to keep up-to-date, both with SAP China’s future performance, as well as the evolution of its work with China Telecom.