China After COVID-19: How Foreign Companies Can Leverage Key IT Solutions
By Adam Livermore, Gary Shaben, and Thomas Zhang, Dezan Shira & Associates
At the best of times, China’s cyberspace environment can be difficult for foreign businesses to operate within. The country’s strict internet controls can significantly affect the performance of company networks, and its complex cybersecurity regulations can make planning and maintaining compliant and well-performing infrastructures very challenging.
COVID-19 has now propelled these issues to the crisis forefront for daily operational productivity, cost optimization, and security. The unprecedented need of foreign companies based in China to suddenly implement and shift to scaled and adaptable virtual work or telecommuting regimes for nearly all their company processes, means daily exposure to a challenging internet ecosystem, and the need to do so immediately and cost effectively.
To meet this challenge, companies need to first ensure that their now virtual workforce is enabled with stable and easy collaboration tools and uses approved channels, which are properly secured for the communication of sensitive data.
Many companies continue to find their systems and networks are not measuring up. They must conduct internal reviews of or obtain advisory on their cloud and internet infrastructure to identify how to quickly resolve performance, while ensuring data security and compliance thresholds are not compromised.
Yet, while this sudden transition has shocked corporate networks and traditional work systems, solutions for operating virtually are well-developed, and highly available. The workplace has, in reality, already become virtual-friendly or digitalized. A clear opportunity exists for companies to shift their corporate work processes online, from easy and complete company communications and scheduling, to digitalizing and possibly automating their back-office operations in China. The scope can encompass HR, payroll, finance, and accounting processes – all can be achieved in both English and Chinese.
What the COVID-19 outbreak has accelerated therefore, is the growing awareness that such solutions exist and can be harnessed to scale up productivity. Entire departments can be made more efficient, and costs reduced. These solutions have never before been in such high demand.
In part one of this three-part article series, we briefly discuss workforce collaboration, digital accounting, and expenses management. These topics are very relevant as the crisis continues to disrupt normal operations, but are also equally critical to your business’ sustainable performance long after the pandemic ends.
Working via the cloud: What does it mean and what are the solutions?
Virtual work and remote collaboration have long been a part of the corporate landscape. In recent years, digitalization and integration have vastly expanded the scope of what can be achieved remotely. Nowadays, most areas of a company’s administrative operations can be managed by moving to a more efficient online process. Unsurprisingly, flexible software is at the core of almost all of the new solutions on the market today.
Often deployed via software-as-a-service (SaaS), this cloud technology can increasingly leverage different parts of an organization to improve its productivity and efficiency, while promoting transparency. Cloud services delivered as SaaS are provided over the internet, on a subscription basis, and minimize the need to invest in servers, networks, backup strategies, and other major infrastructure.
How cloud technology works in China
In China, data centers that store and connect user data are distinct from global networks, and in a sense they are isolated. Although cloud-users outside of China communicate and collaborate with their China-based colleagues, both must use separate user accounts and cannot typically access company data from a common source. Similarly, companies headquartered outside of China can manage China-based company systems and data by using a China user account. Also, some cloud service providers, such as Google, simply do not function reliably or at all in China.
For this reason, it is essential that companies carefully choose not only the provider for delivering their China cloud services, but also how and where their data and cloud services will be set up by that provider, to ensure their continued performance, compliance, and security.
Thomas Zhang, IT Director at Dezan Shira & Associates says, “cloud technology has remained a relatively closed industry in China. While this can create obfuscation and frustration for foreign companies during the initial set up and familiarization phase, it does not hinder the overwhelming benefits of using the cloud in China.”
Our article “COVID-19: Which IT Systems to Deploy to Assist Employees Working from Home” discusses some of the most popular cloud and hybrid-cloud computing systems currently adopted in China. One of the biggest players in the market is Microsoft.
Microsoft Cloud in China
Companies that use cloud services in China often do so for reasons of performance, or because they must store data on the mainland to comply with government regulations – and this can be achieved with Microsoft’s China-based services. Microsoft is partnered with China-based 21Vianet to run four data centers in Beijing and Shanghai, providing customers with compliant services and fast connectivity between Chinese offices.
Further, Microsoft is the first cloud service provider to announce that their Chinese data centers are compliant with the European Union’s General Data Protection Regulation (GDPR). Microsoft also hosts data centers around the world, which provide several ways to achieve performance and compliance requirements and meets unique cross-border requirements.
Microsoft Azure, Office 365, and Dynamics 365 have been combined to form one comprehensive ecosystem to support business (the so-called “Microsoft Three Cloud Strategy”). They are popular among foreign companies in Asia because they offer businesses reliable, accessible, and integrated capabilities at a fraction of the cost of building them internally. The ability of the Cloud to immediately open up or switch off capacity as required allows companies the flexibility to scale costs and services as its headcount changes, or as its demand for speed and features grows.
Helping with virtual and remote work: Office 365 and Teams
Office 365 is a cloud-based productivity SaaS service, offering perhaps the world’s most popular and well-known suite of business process applications. It consists of the familiar “Office Suite” (Word, Excel, PowerPoint, Outlook in both online and on-premise versions), with more flexible and robust cloud-based features and functionality. It also can include newer communication, productivity, and analytics applications.
Among these, Microsoft Teams is notably able to help many companies better face virtual and remote work situations. It is a hub for teamwork with chat, scheduling, voice or video meetings and calls, file sharing, and more. Teams is integrated fully into Office 365, Outlook, SharePoint, OneNote, OneDrive, and dozens of other applications for very easy collaboration. Together, your employees can connect via any device, or from any location, to interact within their office, their city, or anywhere else in the world, easily and securely performing most communication and productivity tasks.
Additional tools like the Power Platform (PowerBI, PowerApps, PowerAutomate) and SharePoint can add analytics, file and data integration, and automation capabilities, to streamline business processes and provide insights on company process, performance, and health.
Together, this suite of apps can assist companies to meet the demands of operating digitally, and remotely, by improving internal collaboration, mobility, intelligence, and security, within an enterprise level digital infrastructure that is performance and cost scalable. With the right guidance about how to model and migrate to Office 365, you can be up and running, and have your staff trained, in no time.
The robust backbone capabilities of Microsoft Azure in China
More IT-oriented readers may wish to know about Azure in China. Azure is a comprehensive set of cloud services that allow developers and IT professionals to build, deploy, and manage applications. Azure is a platform as a service (PaaS), which means that businesses and individuals can ‘lease’ digital space and tools to build and run applications and websites. Azure offers businesses the option of working completely on the cloud or in a hybrid format – using both cloud computing and on-premise servers.
As a PaaS platform, Azure can host scalable websites and apps. Employees can access apps and sites hosted on Azure through nearly any mobile device while companies can regulate employee access to maintain privacy and security. Azure backs up all data across its data centers, ensuring information remains protected.
Accelerate success with the connected business cloud product Dynamics365
Dynamics365 applications work seamlessly together for a comprehensive solution that runs your entire business – including sales, marketing, service, operations, and commerce. You’ll get a 360-degree view of your organization to uncover the real-time insights that bring better results.
From traditional accounting to digital expense management
A review of accounting and expense management
Accounting, finance, and tax management activities are central to the daily operation of any enterprise. The work is complex and critical to the success of the enterprise – processing expenses and payments, dealing with costs and profitability, examining statements, and computing tax liability, among other tasks. These activities have a fundamental impact on the operational and financial viability of an enterprise. As a result, businesses today are keen to adopt systems that improve the accuracy and cost efficiency of their finance and accounting processes.
In China, the situation is more complicated for many foreign companies due to the country’s intricate invoice system and rapid pace of tax reform. China’s tax authorities mainly rely on local invoices called fapiao, for tax control, collection, inspection, and serving as a proof of purchase.
A company’s daily business activity cannot be completed without the ubiquitous fapiao. They must be issued when making sales and gathered during procurement and expense reimbursement processes. These fapiao hold the original information and data that enterprises need to conduct accurate accounting and tax declarations.
Managing both the gathering of fapiao and the related offsetting of input and output VAT as declared on these fapiao adds to the complexity of accounts payable (AP) processing work, making it difficult to organize accounting data and compute expense management efficiently.
Challenges of traditional expense management
Most small and medium-size enterprise (SMEs) leaders are familiar with manual accounts payable (AP) processes and have experienced frustration with handling China’s fapiao. Normally, when an employee incurs fees on behalf of the company, they must keep the paper fapiao or print the e-fapiao, paste the fapiao onto an A4 paper, and manually submit the fapiao together with the reimbursement report to the approver.
After physically receiving the paper fapiao from the employee or the approver, the AP staff need to check the authenticity of the fapiao, clarify that the fapiao has not already been claimed or reimbursed, and then manually enter the information on the fapiao into the accounting system and treat it in accordance with China GAAP.
They may also need to supplement additional information for group reporting purposes. Then they must wait for the approval of the relevant person-in-charge in their company to complete the payment to employees or suppliers.
The whole manual AP process is inevitably time-consuming and results in numerous challenges:
- Higher cost – physical printing of documents and manually pasting fapiao.
- Low efficiency – AP team invests time inspecting fapiao, entering data, and seeking approval.
- High error rate – manual data entry causes data errors, loss, and redundancy.
- Delay in payment – long reimbursement periods can result in late or missed payments and may motivate some staff to seek non-compliant shortcuts.
- Fraud – difficulty to verify whether a fapiao was falsely obtained or claimed more than once.
- Compliance risk – tax underpayment due to booking errors puts companies at risk of inspection from tax authorities.
- Financial systemic vulnerability – a lack of data support and delayed information make it hard for leaders to check spending, monitor cash flow, see the liabilities, and formulate budget policies objectively. Owing to these inefficient practices, the AP team is often left to struggle with mountains of paper and duplicated efforts.
How digital expense management can help to ease manual invoice processes
To resolve the above manual processing problems, the best solution is to deploy a Digital Expense Management software. A Digital Expense Management App is a cloud-based and mobile-enabled software.
A company’s staff, accounting team, and approving managers can use this app seamlessly in both English and Chinese, to better optimize and speed up business administration, simplify remote submissions and approvals, and minimize expense and approval errors.
It can be deployed ‘stand-alone’ as a complete mobile expense app and approval process – which this article will explore. The next article in this series will explain the further benefits of integrating Digital Expense Management with outsourced accounting, and an ERP system to automate information gathering, reimbursement, and various other accounting functions.
Mobile scanning of fapiao with automatic data extraction and reimbursement approvals
When an employee incurs an expense and needs reimbursement, the employee can scan the paper fapiao and upload it directly to the portal using their mobile phone. The software identifies most fapiao types by using optical character recognition (OCR) or QR code technology. This helps to digitize the fapiao and creates electronic fapiao files in company record systems. Staff can then submit all uploaded fapiao for review and approval anytime – anywhere.
AP workers and managers can track and monitor the reimbursement or payment progress online at any time. Reimbursement reviews and approvals are made via the mobile app or via a computer browser. The solution also works for streamlining vendor payment processes in the same manner.
Automatic real-time fapiao verification and enhanced expense information
The uploaded fapiao is automatically checked and verified with China’s State Tax Administration (STA) system. This avoids fapiao duplicates and the VAT credit is also calculated, which helps to avoid calculation errors and reduces a company’s exposure to fraud.
Some digital expense management applications integrate directly with popular China travel and ride-hailing services such as Ctrip and Didi. Electronic fapiaos can automatically be pulled through from these service vendor platforms into the expense management apps, to more efficiently help detail an expense for reimbursement validation.
As a result, Digital Expense Management apps help to digitize your expense process and records, increase internal control, and render the expense approvals and related accounting processes quicker and more seamless, using real-time information.
The solution is inexpensive for companies to adopt. Those with complex chart of accounts (expenses categories) can obtain expert assistance to customize the platform to suit them. Companies with simpler requirements can deploy the solution in days and receive training and support to help with their rapid adoption.
This is the right time to leverage IT solutions in China
In conclusion, now during COVID-19, is the time to digitize and optimize your processes in China. Making decisions amid China’s cyberspace environment can be difficult for foreign businesses, and yet options exist with the right guidance.
Tools to enhance functions, such as workforce communications and collaboration or expense management, are accessible, reliable, quick to deploy and cost effective – not to mention compliant, secure, and perform well in China for global companies.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at firstname.lastname@example.org.
We also maintain offices assisting foreign investors in Vietnam, Indonesia, Singapore, The Philippines, Malaysia, and Thailand in addition to our practices in India and Russia and our trade research facilities along the Belt & Road Initiative.