SAP bullish on the SME market

For a company whose name can literally means the draining or weakening of one’s strength, SAP AG is exhibiting the opposite. The German e-business software company is not immune to the effects of a global market contraction that has been unkind to IT. But its main products continue to draw a good number of top corporate customers to tide the company over these turbulent times. 

About 70 percent of SAP’s installed base in the Philippines is for large enterprises (companies with gross revenues of over $20 million). Only about 10 percent of its clients are small and mid-sized enterprises (SMEs), but this is expected to increase in a couple of years. 

"The bulk of our market is still the large companies, but the SME segment is growing very quickly. We expect that by 2005, at least 20 percent of SAP’s global revenues will come from SMEs," said Ian Black, managing director of SAP Phils. 

Many top 100 companies, having already invested in software tools such as ERP (Enterprise Resource Planning), CRM (Customer Relationship Management) and SCM (Supply Chain Management) would prefer to deal with suppliers – usually SMEs – with technical capabilities to seamlessly link to their own internal business operations. SAP believes this will trigger a fresh wave of software acquisition by SMEs, thus they could then become SAP’s next biggest market.

"With the global economy continuing to experience a downturn, supply chain efficiency has taken center stage because people want to reduce costs. When big companies implement SCM solutions, this necessarily affects all the small companies that are their subcontractors. Most of these companies are SAP users, therefore if small companies want to integrate into these big companies, (using) SAP would make it seamless," said Marivic Gamo, marketing and alliance manager of SAP Phils. 

Large installations

Meanwhile, SAP Phils. is counting on its large installations to continue acquiring additional licenses for more users or for new functionalities beyond the core systems they have now.

"There is clearly a significant level of intent to engage in automating processes more efficiently, although it’s really constrained by the companies’ ability to invest currently," said Black. "But quite a few innovative and advanced users of our technology were able to bring business returns and business efficiency without major investments." 

Black said one way to get around the cost restrictions is to break down an ERP project, for example, into smaller initiatives to be taken one at a time. He said SAP could help its customers get the highest level of ROI (return on investments) for any of its 22 industry software solutions.  

"It could be that even the adoption of a mini-application within a suite could solve a particular problem, generate revenue, reduce cost, fix a problem or improve customer relationship. Our customers don’t have to take all our products at once, but take a priority application for their project," he added. 

Because every organization has very specific business issues that drive it to do things in a certain way, SAP included in its go-to-market strategy the identification of a customer’s unique concerns first before offering anything from its broad product line. 

"One of the key things that help us identify if a company needs SAP or not is to identify its compelling reasons, which are different from one customer to another. After that, we recommend what it could do first," Gamo said.

Such a strategy seems more relevant during bad times as priorities change. But when markets are experiencing success and the economy is growing, Black said the time companies spend evaluating decisions on expenditures dramatically decreases and that they tend to simply buy because their customers are also buying. 

New products

Along with SAP’s bullish forecasts for the SME market are two new product lines – Business One and All In One – targeted at the sub-100 user marketplace. These two products were among those featured in the recent SAPPHIRE user conference abroad. 

"A lot of interest for these products is coming from the subsidiaries of our major customers with standalone applications, or the partners of their customers that also need to be integrated with a distributor or manufacturer," Black said. 

Aside from presenting SAP’s latest offerings for the SME market, the recent SAPPHIRE event focused on the evolution of enterprise systems, with defined upgrade paths and new strategies for solution management, new cross applications to help companies derive value from existing assets, and the latest CRM solutions. 

Last Oct. 17, SAP AG announced its financial results for the third quarter and nine months ended Sept. 30. Operating income for the third quarter of 2002 increased significantly to 336 million euros (2001: 159 million euros). Third quarter operating income, before charges for stock-based compensation programs and acquisition-related costs, improved from the previous year to 316 million euros (2001: 201 million euros).

Net income for the third quarter of 2002 was 202 million euros (2001: 37 million euros), or 0.65 euro per share (2001: 0.12 euro per share). For the quarter, revenues in Europe, Middle East and Africa increased nine percent to 913 million euros (2001: 841 million euros). Revenues in the Asia-Pacific region increased four percent to 203 million euros (2001: 195 million euros)

"SAP’s technology offering, including Portals, Business Intelligence and our exchange infrastructure, combined with our solutions and service offerings, has been the catalyst for many of the strategic customer engagements signed this quarter and will continue to propel the demand for SAP solutions," said Hasso Plattner, co-chairman and CEO of SAP.