Growth will continue

The 13 percent growth in enterprise application software in 2005 will continue in the current year, driven by strong demand from SMBs, manufacturing, exports and e-governance, says Akhtar Pasha

The year gone by has been by far the best for the Enterprise Applications Software (EAS) market, and we are glad to tell our readers that many of the predictions made in Express Computer in the 2005 anniversary issue have come true.

Last year, we predicted that the EAS market in terms of new licence revenues would grow by 13 percent—and that happened. Though the final numbers have yet to come in from analyst firms, Yanna Dharmasthira, Principal Analyst, Gartner Group Advisory says, “The EAS market in 2005 in India is projected to have increased by around 12 percent to less than $70 million in terms of new licence revenues. The market has done well for the third time in a row buoyed by ERP growth which is dominant in India. It accounts for over 50 percent of the total EAS market. Auto ancillaries have been one of the main drivers for India’s SCM and ERP markets.” Other developments such as micro-verticalisation, SMBs’ manufacturing and large projects were also responsible for the growth.

An analyst from Forrester supports our findings. R Ray Wang, its Senior Analyst for Enterprise Applications says, “I am assuming growth commensurate with economic growth, and it could be 14 to 15 percent for India, which would mean $57 to $60 million.” Topping the EAS market are SAP and Oracle, in that order.

Notes Dharmasthira, “In 2004, SAP and Oracle were still on top in all types of applications—ERP, SCM, CRM—and I wouldn’t be surprised if it were the same in 2005. But yes, SSA is also counted as one of the major vendors.”

New licence revenues

The growth of new licence revenues continues to remain high for most of the EAS vendors. SAP’s dominance in ERP, SCM & CRM was reflected in its new licence revenue which grew by 60 percent in 2005 over 2004; it had many customers in every vertical one could imagine.

Reveals Nagaraj Bhargava, Director, Marketing, Alliances and Sales Operations, SAP India, “We have more customers than all other vendors’ customers put together. We have closed 180 new customer deals in 2005, of which 120 are in the SMB space and 60 are in the enterprise segment. The SMBs’ contribution has grown to 30 percent of our total licence revenues.”

The industry consolidation has made some big customers migrate from competitors’ product to SAP—it had as many as 12 competitive wins in 2005 including Celtronics, Pantaloon, DCM Engineering, ITC Retail and Bilcare.

Other EAS vendors have reported a high percentage of new licence growth. SSA Global witnessed 70 percent increase in its new licence revenues while Ramco reported 40 percent in 2005.

Consolidation pressure

"SMBs are considering the automation of their core processes. Look at their huge numbers in India—about 95 percent of the SMBs are still untapped" -R K Kanthimathi Nathan Business Head Enterprise Solutions 3i Infotech

ERP buyers have moved away from large, upfront purchases. Now most tend to licence user seats and functional ERP modules incrementally as they are deploying a product along with widespread discounting, leading to smaller average deal sizes: there has been a 15-20 percent reduction.

These things will not slow down the spending in EAS given the pace at which SMBs are growing. R K Kanthimathi Nathan, Business Head, Enterprise Solutions, 3i Infotech says, “SMBs are considering the automation of their core processes. Look at their huge numbers in India—about 95 percent of the SMBs are still untapped. They seek vertical-specific solutions since they are 85 percent pre-configured so that they go live quickly—saving money.”

Gartner believes that this will not have any effect on EAS growth. Says Dharmasthira, “At least in India it is expected to grow well, even after taking into account the fact that the industry is consolidating, which creates a level of uncertainty. The opportunity is significant. Though there is an inhibitor (consolidation), the market is expected to do well. India’s robust economy and fast integration with global markets will continue to drive rapid adoption of IT.”

Micro-verticalisation

"Micro-verticalisaton of ERPs will continue to be dominant in 2006 and driven by customer demands" -Ravi Kathuria Director, Business Consulting South Asia & Pacific SSA Global

SMBs are investing in micro-vertical solutions because integrated packages are substantially pre- configured with best practices and industry-specific domain knowledge that reduce the time for, cost of and risk of implementation. The retail vertical saw big momentum in 2005.

Ravi Kathuria, Director, Business Consulting, South Asia & Pacific, SSA Global opines, “Micro-verticalisaton of ERPs will continue to be dominant in 2006 and driven by customer demands.” Anil Bakht, CMD, Eastern Software Solutions points to an emerging vertical: “In the retailer business, their profit per item is low, so they are turning to ERP to optimise their processes—procurement and replenishment of products—and remain cost-efficient.”

Whether small retailer or large one, there are 20-odd micro-vertical ERP solutions that are available in the market, and the number continues to grow each year.

Most analysts agree that ERP will continue to grow at a faster rate, but there will be significant trends in the CRM, SCM and analytics market in 2006. Gartner expects the EAS market to grow by 14 percent in 2006 in new licence revenues, but Express Computer feels that the growth will be in the range of 15 to 16 percent. Even the Finance Minister in his 2006-07 budget announced that India wants to achieve 10 percent GDP growth, and that manufacturing will play a significant role and should grow up to 10-12 percent. He emphasised that because the economy is doing well, companies need to increase their manufacturing capacities and chalk out more plans. This will set the pace in EAS spending in 2006.

SMBs the trendsetters

“SMBs have outgrown their Tally systems or DOS-based or FoxPro-based applications that do not scale and have integration problems,” says Bhargava. Though globalisation has opened new opportunities, it has also increased challenges for Indian SMBs. If earlier the primary challenges they faced were managing cash flow and retaining HR talent, the most difficult task for SMBs today is growing the top-line as fast as possible in order to keep up the competition and manage growth since they operate with thin margins.

“We have seen SMB growth...it has gone beyond the metros in terms of demand and deployment to remote industrial hubs in Punjab, Tamil Nadu and Maharashtra,” says Chetan Pathak, General Manager, Sales & Marketing, Ramco Systems. Dharmasthira adds, “ERP projects are still top priority and manufacturing dominant...this will continue to bring up ERP and SCM revenues.”

Stiff competition

“Sustainable development is the new buzzword for Indian SMBs and EAS vendors. An increased focus on customised solutions is expected to provide fresh impetus to the ERP market in the future,” says Kathuria. “Escalating competitive pressure is forcing companies to equip themselves with modern business processes that will provide unlimited access to information and enable them to compete effectively in the emerging global market. They need systems that can help them forecast their production planning and accommodate changes at a faster pace.”

In order to stay ahead of competition, SMBs are adopting ERP systems. They are witnessing increased pressure to improve efficiency, productivity and competitiveness. Further, since some of the SMBs are working closely with large global enterprises, they are forced to adopt streamlined automated operations. The automation of the processes will enable them to conduct business as part of an extended enterprise (of large companies).

There are four areas in which SMBs want to take action: decrease operational costs, increase productivity, increase sales by tapping fresh markets, raise production capacities.

Gowri Shanker, Executive Director, Take Solutions, explains the issue in detail. “Small businesses are tier II and tier III suppliers to large corporations. The latter are not willing to carry inventory or take risk, and are therefore going in for just-in-time (lean) manufacturing. Hyundai, Ford India and Maruti are some examples of companies that have implemented just-in-time manufacturing. This trend has made small businesses hold inventories for large OEMs. Small businesses do not operate with large margins nor do they have big brands, but they face business pressure from domestic suppliers. To gain competitive advantage they have started investing in integrated solutions that give them a transparent view of their supply chain,” he says.

Exports encouraging adoption

“Indian SMBs are now looking at exporting their products to developed regions such as the US and European markets, which has resulted in the observance of tighter quality norms,” states Kathuria. The need to be globally competitive, coupled with the necessity to deploy automation software is expected to boost the uptake of ERP solutions.

Pathak agrees. “Exports is a big factor in the decision to buy ERP. Because of the growth the economy is witnessing, most industries are doing well, and there are enough examples available in the market to prove it.” Visa Steel, Blue Scope Steel, Meta Junction, Sterling Tools, Gear & Pinions, Bharat Gears and Mtech Auto are key examples. The full effect of the removal of the Arrangement on Textiles and Clothing (ATC) quota restrictions on apparel exports was felt in 2005—ERP had major buyers in textile manufacturers. Adds Pathak, “Many exporters are wanting to ramp up capacities and increase new plants to meet OEMs’ demand, and there is enough liquidity in the market as well as with banks such as SIDBI which are giving loans at low interest rates.”

Among exports, textiles and auto components top the chart of revenue-earners. Muthuswamy P, CIO of Jupiter Knitting says, “We face stiff competition from Chinese textile manufacturers whose products are 20 percent cheaper than ours. We are therefore using a mySAP ERP solution to drive our business with accurate production planning to increase orders and meet the delivery dates of customers.”

ERP directly impacting bottom-line

On an average, SMBs are growing at the rate of 25 to 40 percent in their top-line revenues depending on the size of the organisation. Observes Anil Bakht, CMD, Eastern Software Solutions, “This growth is possible if they better their performance through capacity planning, elimination of wastage and creating newer products and markets—and ERP is the only tool that can help them get there.”

Agrees Atul Aggarwal, Director, Sterling Tools, which manufactures cold forge high-tensile fasteners for automotives: “Without standard ERP packages we would not have been able to achieve 40 percent growth in the last three years. The ERP has directly contributed to our bottom-line—we spent approximately Rs 1 crore on IT systems, but the benefits derived from post-implementation of ERP are significantly higher than what we spent on the IT systems.”

CRM: catching useful customer information

"I am assuming growth commensurate with economic growth, and it could be 14 to 15 percent for India, which would mean $57 to $60 million" R Ray Wang Senior Analyst Enterprise Applications Forrester

Though CRM as a technology has not delivered, there are some interesting deployments in automating the sales force, managing customer quotations and tracking customer orders. Videocon, Exide Batteries, Eureka Forbes, Hutch Sri Lanka, Tubes & Tubings, TVS Tread, Chloroplast, Nediyara Extrusions, Mehala Machines India and Navalogam all went shopping for CRM in 2005.

There is a new trend in automotive verticals—OEMs are manufacturing more spare parts because of the booming new car/used car and two-wheeler markets. Dealers are playing a significant role in the spare parts business. This trend will compel automotive OEMs to look at CRM for dealer management solutions. Wang of Forrester says, “I believe the trend will be evident in three areas—field service and installations, sales order entry for trading partners, and call-centre revenue generation in the home market.”

According to Dharmasthira of Gartner, most markets in Asia Pacific have low penetration. In CRM, the growth of hosted solutions is becoming important, specifically for mature markets such as Australia, Singapore and Hong Kong. India is expected to catch up with the rest of the markets as vendors become aggressive with their offerings.

Says Mohamed Ali, President & CEO, CRM 24x7, which set up shop in India in December 2005: “Though CRM as a technology has not delivered, you cannot put the blame on it. Many CRM deployments have not taken place because of bad experiences with the products. After entering India we have closed as many as six deals, and there are two more in the pipeline this quarter.” He says that the single most important reason for the negative perception is the high cost of both licencing CRM products and implementing them. Hence companies are struggling to calculate a RoI, and those like Chloroplast and Nediyara Extrusions have deployed CRM on a Linux platform.

Supply chain challenges

There seems to be a disconnect between the concept of supply chain management and the daily business reality that most manufacturers experience. The new supply chain challenges that companies are facing include lack of enterprise-wide visibility. In recent years, manufacturing of all sizes has evolved into a truly global business with production facilities, outsourced capacities, warehouses, suppliers and customers scattered all over. Unfortunately, many manufacturers are not able to see beyond the four walls of their factories, and hence they cannot understand their enterprise-wide supply and demand needs.

New manufacturing strategies such as lean, flow, pull and just-in-time are turning tables. These place a premium on understanding what the customer wants and using it to drive downstream activities. Then there is the ‘managing constant’—companies not only have to deal with customers who change their mind about orders, but they must also deal with engineering changes to their products, new products introductions, late shipment from suppliers, and unexpected production-line failure leading to product stock-outs, bloated inventories and poor on-time performance.

Says Shanker, “The major players have already implemented a transaction-based system either in the form of an ERP or SCM solution. There is growing realisation that true supply chain efficiency can be obtained only by improving the efficiency of all players within the eco-system.” Hence there is a need for solutions in procurement/sub-contract management, primary & secondary sale distribution systems, and integrated track, trace and adjunct for inland and out-bound transportation. Parle, Medimix, Tagutec, Molex and ST Microelectronics are some examples in this regard.

Another interesting dimension involved is the documentation and transaction within the commercial banking institution. According to Shanker, commercial banks extend trade finance to their key corporate customers who in turn use the finance for procurement of goods and services from their vendors. The emergence of workflow-based business process management solutions to facilitate online redemption and discount of bills across the principal stakeholders—corporate customers, commercial banks and the vendor community— comprise an emerging opportunity.

Analytics means business

In the past, businesses have implemented core business application solutions at varying speeds leading to integration issues; the deployments have been restricted to the BFSI and telecom sectors which are using it strategically. Business intelligence has aided banks in managing risk, credit scoring, drawing from different sources and operational intelligence. It can help in planning for replenishment, derivation of relevant inferences, and using these patterns for managing operational costs.

Comments George Varghese, Director, Pharma, ITeS & Mid-Markets, SAS Institute (India), “Business intelligence has gained acceptance in India in matured transaction systems. Analytics has become a $43 million market in 2005, and is expected to grow to $55 million in 2006 (Source: IDC). We have seen businesses wherein BI begins at a strategic level and moves down to the tactile level and further down to the report level to get the enterprise-wide health of the organisation.”

Greater visibility sought

Enterprises are looking for greater visibility in their business operations. Corporate Performance Management (CPM) systems help decision-makers to slice-and-dice the ERP data to their requirements. Five years ago, people were doing tactical reporting to show what their enterprise applications were capable of, but today people are trying to make information work for them by using analytics to learn how their business really runs.

CPM systems combine past information with incoming data, letting the top management monitor organisational performance in near real-time. These systems also build upon the existing data analytic systems to create a single set of information that underlies financial planning, reporting and data analysis systems. The growing pressure to meet financial disclosure regulations and improve a company’s competitiveness is fuelling demand for CPM software.

Declares Kathuria: “CPM is the largest-growing segment within EAS.” The proof lies in the recent investments made by Channai Petroleum Corporation, Moser Baer, ICI Uniqema, IP Rings, Dr Reddy’s, Dabur India and Dishnet DSL.

Bhargava of SAP sums it up, “CPM helps an organisation in two ways. Firstly, it offers capabilities like business planning, simulation and management dashboards which help in holistically planning and monitoring results and progress on an ongoing basis. Secondly, it offers tools for complying with regulations such as corporate governance and compliance with Sarbanes-Oxley and BASEL II. It also provides tools such as a compliance calibrator, and risk management and audit control systems.”

akhtar@expresscomputeronline.com