Localized Microsoft ERP vs local (Russian) software: what approach to select?

When a company wants to expand its activities abroad, searching for new markets, it usually comes with its ERP solution and wants to roll-out it to a new country location. Usually, it is not just a standard version of ERP, but it comes with a bunch of customizations. Here company immediately starts to face localization issues, as its version of ERP might not support local legislation requirements - usually related to accounting and taxation. So there comes a trade-of:

• either to implement one ERP solution (that is, to merge corporate customized ERP with standard localized version of ERP, if its even exist) and struggle with localization and merging risks
• or, to implement local financial (tax and accounting) software that matches local requirements, and, if needed, to have an integration with the corporate ERP solution, facing integration risks.

What is the best option to select? Below are few options that Awara IT Solutions usually provide to its customers that are coming to Russia with their ERP solution. In general, the same principal options are valid not only for Russia, but for the other countries, too. In Russia, the most popular accounting software is called 1C. Note also that we usually recommend to keep HR & Payroll processes outside ERP and use local Russian software, as it is the most challenging part of the legislation where the most changes take place nowadays. Awara IT Solutions is not only partner for Microsoft, but also partner for local accounting software 1C, knowing pros and cons of both vendors.

Option 1. Full implementation of unified ERP solution.

This option assumes that there is only one system in place, and it is corporate customized ERP solution:

All needed corporate processes are supported as you use the same corporate customized version. Here the local accounting software is not needed, corporate ERP is used for primary data input. Both Management reports and local Statutory reports are produced from corporate ERP solution. The challenge here is to merge localization features with customized corporate ERP. This can be done in two ways:

• If amount of localization features is significant, a localized version of ERP is taken as master solution, and customized features are incorporated to it.
• The other option is to take corporate customized ERP solution and implement there only those localization features that are needed.

In any option, you will get a merged database that should satisfy local statutory requirements as well as provide all needed features to support corporate processes.

This option assumes there exists a good localized version of ERP solution. We usually recommend our customers this option as a priority, since in Russia there is quite good level of localization, allowing to match most of legal requirements.

Option 2. Implementation of local software; integration with ERP; ERP solution is used as primary source of input.

Another popular option is to use corporate ERP solution as a system that supports daily processes, and integrate it further with a local accounting software solely for statutory reporting needs:

This would allow to use all needed corporate standards and processes for daily routines, and on a periodical (monthly) basis export the data from ERP system to local accounting software. The challenge here is to develop integration, and make sure that ERP solution contains enough data details, needed to be transferred to local accounting software so it will match statutory needs. The level of integration also should be sufficient. E.g., in Russia it is not enough to transfer just GL data: the integration should be done on a document level, so the documents will be posted in local accounting software - otherwise VAT declaration will not be created. The important points here are:

• Such approach requires small customization of ERP solution, to add e.g. additional numbers of documents or descriptions in local language in order to maintain enough level of data, transferred to local accounting software.
• Please consider from which system you would need to create legal documents: e.g., sales invoices. If you need to send them immediately after creation, it will require additional customization of your ERP solution to be able to print them in accordance with local standards. Another option is to export the data to local accounting software more frequently and print documents from there, but it might limit your business processes.

Option 3. Implementation of local software; integrate it with ERP; local software is used as primary source of input.

This option would allow to match all the statutory requirements in the first hand. The corporate ERP solution is used mainly for management reporting and controlling purposes. The integration is also used usually once per month just for the management reporting needs.

Here the challenge is to adopt local accounting software to the corporate processes. Usually this option is used when there are very few of almost no corporate requirements to business processes, and users might freely use local accounting software in accordance with local standards. Also controlling function is important: foreign controllers should have enough tools to access and verify the data in the system, which is usually a challenge as local software not always provides even sufficient English interface (which is the case for 1C system in Russia).

Option 4. Implement only local software and customize it to match corporate requirements to processes

This option is used usually when company does not have specific corporate requirements to business processes, or just starts the business in this country and does not want to invest a lot in IT. Local accounting software is usually much cheaper in terms of licenses and is very rapid in implementation, as usually is presented by "box" solution (which means you can install the software and use it immediately - it has predefined chart of accounts and predefined processes).

The challenges here are to match corporate requirements in business processes and develop management reporting (which might require to input the data in a specific way). When company does not know how the business would go in this country, it can select this option. After 1-2 years of operations, it usually switches to one of the previously mentioned options.

How to select?

Awara IT Solutions recommends its customers to draft a simple table with a set of criteria, for selecting what is the best option by putting a number to each criteria:

There might be numerous criteria: Implementation cost, Initial license cost, cost of further ownership, Difficulty of scalability, Implementation time, Difficulty of education, Security limitations, Multilanguage support, Risk of reducing of performance, Integration risks, etc. Give each criteria a number - the less number would identify best option for particular criteria. Then, sum up the results for each option. The least amount should give you the best result. OF course, different criteria will have different weight, and it would also affect your choice.

Remember to cooperate with a reliable local partner to ensure your project would be successful.