The skyline’s the limit

The enterprise resource planning (ERP) market has undergone a period of robust growth, as organisations in the region begin to flex their financial muscles and vendors look to consolidate their position in the highly competitive industry sector

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By  Peter Branton Published  April 9, 2006

|~|Sheikh-Zayed-Road-4main.jpg|~|Dubai’s futuristic skyline, being replicated across the Middle East, is indicative of the huge strides being made by businesses — and the potential for further growth in the region.|~|These are testing times for buyers of enterprise resource planning (ERP) software suites. After all, these are big “bet-your-business” purchases: get it wrong and you may not only waste a lot of money on implementation, your company could lose millions more in lost sales and business as you try to fix the problems. And yet the ERP market has been in a state of upheaval for the past couple of years, with giant Oracle flexing its muscles with a number of high-profile acquisitions in this period. Its multi-billion dollar deal to capture PeopleSoft, which was completed at the end of 2004, topped the list, but it has also bought a number of smaller, specialist firms — as well of course as its US$5.8billion deal to capture customer relationship management (CRM) rival Siebel Systems last year (see IT Weekly, 17- 23 September 2005). While Oracle has been writing the biggest cheques on the acquisition front, it is hardly the only company to be doing so, with a number of other players merging, or disappearing off the landscape altogether. Consolidation means other vendors are appearing, or reappearing in a slightly different form. For instance, Sage finally tied up its merger with Accpac in the region earlier this year, with the launch of Sage Accpac Middle East announced in February (see IT Weekly 4- 10 March 2006). Not that this seems to be stopping businesses investing in these packages: the rate of growth for enterprise applications looks extremely healthy for the next few years at least. Worldwide, the enterprise applications market is set to rise at a compound annual rate of 6.3% over the next few years, with worldwide revenues rising to $64.8 billion in 2009, up from $47.8 billion in 2004, according to analysts at AMR Research. Here in the Middle East, ERP sales look even more robust, with all vendors claiming strong gains in the market, and international firms increasingly looking to maximise their revenues from the region. “We have tripled in size here in the last three to four years,” says Patrick Pando, vice president of Epicor EMEA. “The Middle East represents about 20% of our overall revenue in EMEA and so it is quite important because when you run a mature ERP product your revenue is quite predictable. I can predict about 97% what our revenue is going to be for the year except I can’t predict our growth and the Middle East is where the growth is,” he states. “Last year we grew at about 29% and if I want to grow that fast again I have to focus on the regi- ons that are growing and from the skyline here it’s self evident how important this region is if I’m focusing on growth,” he adds. Add to that mix the fact that we have seen some of the biggest names in the IT industry aggressively target the mid-market — which is where many Middle East organisations sit. The big guns of the ERP industry — Oracle and SAP — are both fighting intensely at global level, and both are pushing down into the mid-market. Microsoft has been steadily building up its own presence in the ERP market as well. Its Microsoft Dynamics division (formerly known as Microsoft Business Solutions) has built a solid customer base, forged from its acquisitions of Great Plains, Solomon Software and Navision. Local players say they are seeing massive activity here in the Middle East. “The ERP market in the UAE and the GCC in general is booming,” says Keith Katalia, ERP programme manager at integrator Mindscape. “Even the SMB sectors are now opening up to ERP sales so there is great potential here. The big corporates, yes they have done implementations but they are still looking at improving their business processes,” he continues. “The key business drivers are the value the ERP software brings to the enterprise in terms of addressing their current business requirements and providing a platform for improving business processes and addressing future business requirements,” he adds. ||**||Take advantage |~|ERPsecond-35207main.jpg|~|An ERP system can help organisations address their future goals.|~|With such demand in the market, it is no wonder that the vendors are fighting hard for the spoils. The past year or so has seen intense competition for customers, with vendors targeting each other’s installed base, and fighting hard for new customer wins. Regular readers of IT Weekly will have seen Oracle, SAP, and Microsoft all announce competitive wins against rivals, with other firms also active here in the region. Why are we seeing so much competition here in the Middle East? For one thing, the past year or so has seen increased activity from one of the worldwide leaders for ERP software, SAP, with both the vendor and its local partner, SAP Arabia, keen to step up their presence and customer base here. “We took an investment decision about 18 months ago to look at how we’re working in the region,” says Phil Blower, sales director, SAP Arabia. “We’ve doubled our team here in the past year and we’ll go up 50% again this year. In parallel with that SAP has restructured how it supports business partners around the world, so it has made it much easier to get support out of SAP,” he claims. Blower says the market drivers are clear to see: anyone driving around in Dubai for instance, can’t fail to notice the pace of construction, with a number of other countries in the area also looking at inward investment of the region’s oil-generated wealth. Also, he adds “its not that people haven’t been doing basic ERP like HR [human resources] and accounting functions. What they want to do now though, is look at the business processes that they operate and they are looking to put in place software that manages those processes. Businesses here are becoming more sophisticated and accordingly they need more sophisticated solutions,” he claims. Therefore, SAP Middle East and SAP Arabia have planned out a strategy to strike while the iron is hot and take advantage of this growth. At the high end, they are looking to try and break Oracle and Microsoft’s dominance in the public and financial services sectors; for the mid-market they are focusing on vertical solutions driven by an enlarged partner eco-system; and for existing customers, it sees new features such as expanded analytics and planned integration with Microsoft Office — SAP’s Mendocino project — as the means of helping them derive extra value from their SAP deployments. “The public sector is going to be a huge focus for us,” says Blower. “SAP has had major achievements in this sector globally, but not here in the region. This is partly due to the fact that the public sector hasn’t done that much implementing yet. It’s done some basic things and we think we can bring more advanced offerings to this market,” he goes on to add. Another sector that SAP and SAP Arabia are keen to target here is the financial sector, where it recently scored a high-profile win against Oracle with the capture of Islamic Development Bank (IDB), which had previously deployed Oracle Financials software (see IT Weekly 18 - 24 February 2006). IDB has embarked on a massive project to replace its existing banking systems with a multi-million dollar implementation of SAP’s Core Banking solution and Business Suite solutions, to streamline its operations and reduce costs. Blower says that SAP Arabia is keen to build on this and other successes in the region’s financial services arena.“We see a large opportunity in that area, but again for more specific solutions such as contact centre CRM, Basel II compliance, and analytics,” he claims. “We’re not looking so much at core ERP here, because for a bank the general ledger is not a big issue. What they want is something that answers their questions: how do I get to my customers? How do I manage my risk? So the business opportunity for us is helping banks address these areas,” he says. SAP Arabia claimed 20 new customer wins last year, including five customer win-backs. For the first quarter of this year, Blower says it has already landed a dozen deals, with eight of these being competitive win-backs. “In almost every case, we’ve won back against Oracle or against one of the firms it has recently acquired,” he claims. Blower says these successes will be reflected in increased market share for SAP in the region’s ERP market. The vendor has cited figures from research firm IDC, which indicate that it has market share of above 30% in the Middle East and Africa region. However, while SAP can claim to have some of the region’s largest ERP implementations — such as its massive deal with Saudi oil giant Aramco — rival Oracle still definitely has the largest number of customers in the region, with around 750 organisations using its business applications in the Middle East. That figure does of course include the former PeopleSoft and JD Edwards customers that have now been absorbed by Oracle. High-profile customer wins for Oracle in the past year or so include Qatar Steel, Tadawil and Aldar. The vendor also announced earlier this year that it has signed a deal with The Corporate Office (TCO) of the Government of Dubai to link the organisation’s various business units more closely together (see IT Weekly 25 February - 3 March 2006). The multi-million dollar project, which covers financial management, property management, project development and human resources management, was described by Husam Dejani, Oracle’s vice president for the MEA region, as a “showcase” deal for the firm. Oracle also has very strong relationships with governments in the region — it works closely with many government departments in Dubai, for instance. Sergio Giacoletto, executive vice president for Oracle’s European, Middle East and African operations, makes it plain the company will not relinquish its pole position lightly. “We have enjoyed a leadership position in the region in terms of both applications and technology because we have invested in it very early, with the Arabised products, support for local languages and so on,” he states. “We now employ over 500 people in the region, and we have literally thousands of staff available [through partners]. So I think clearly we will continue to compete by providing the most ost-effective solutions that we do today,” he claims. "I think it is also very important of course for the customers to have references they can see. We have quite a number of successful references in the region, and we have good partners — never enough, we have to have more — but good partners to provide the support,” he adds. “I think we have a good opportunity to continue to grow, so I think it is more of the same. Frankly, I don’t see any need to change: I think we can continue with the same strategy, which has worked so far,” he contends. “We just have to continue to do our work, continue to hire people - we are continuously hiring people. We have to continue investing in training our partners so that there is a big enough eco-system to encourage our customers to buy.” In terms of just what those customers will buy, Oracle is looking to move its own product line and the product lineups it acquired through the PeopleSoft and JD Edwards mergers, to a single product lineup, Fusion. The first products in this new lineup are scheduled to ship in 2008. However, the company says this should not cause confusion amongst its customer base. “As you know, the acquisitions of Siebel and PeopleSoft are part of the market consolidation,” says Giacoletto. “Customers are asking us to integrate those products and provide them with the next generation of integrated products. The large numbers of customers we have in the Middle East who have the E-Business Suite have already achieved that kind of integration, therefore we will continue to support it and enhance it,” he adds. ||**||The mid-market |~|HARI_CorridorShot1main.jpg|~|Hari Padmanabhan, deputy managing director and president at 3i Infotech.|~|While Oracle and SAP are both targeting the region, there are a number of other players in the ERP space who are also active here. Indeed, one vendor, Indian software firm 3i Infotech, can even claim to have originated some of its technology locally, with the firm having acquired its Orion product line from a Dubai-based company, Insyst, when it bought the latter in 2001. Hari Padmanabhan, deputy managing director and president at 3i Infotech, was the managing director at Insyst, and as such has a very good understanding of the region’s ERP market. “We think that if you look at the ERP segment the mid-market is where the most potential is,” he says. “The mid-market space wants solutions with the same capabilities as those used by the larger organisations but they want to pay less money and get the job done in a quicker time,” Padmanabhan continues. “They don’t want to really pay huge amounts for consultants to come and tell them what is required to be done. They want something where the business processes and best practices are built in,” he adds. While he acknowledges that the market is becoming increasingly open to the global players, Padmanabhan insists that Oracle and SAP are “not a threat” claiming that “Businesses now are looking to invest with partners they know will be with them in the long term. We have customers here who have been with us for 15 to 20 years, which is a major bonus,” he says. “They started with the first version of our product and now they have the current version. We have given them a growth path — a path where they can stay with us for a long period of time. And this is fundamentally important today,” he goes on to add. Other vendors however warn that there is a lot more volatility to come in the ERP market here. “Worldwide it is a market where there is lot of replacement being done but here there are a lot of companies that don’t have systems in place, so it is still a big opportunity here,” says Mark Van der Ven, managing director of the recently-formed Sage Accpacc Middle East. “But worldwide there is a lot of pricing pressure on the ERP market. That is coming here as well because you have a lot of low-price companies coming into the market,” he says. According to research recently commissioned by Sage Accpac, almost three quarters of senior business managers in the GCC are not satisfied with their enterprise resource planning (ERP) systems, with 71% of 342 senior business managers at medium to large organisations in the GCC contacted by polling firm YouGov admitting to being “not entirely satisfied” with their ERP systems. Van der Ven believes this level of market dissatisfaction means that there is still a lot to play for here in the Middle East, with the company confident of scoring regional wins. “In the aggressively competitive business market of the Gulf, and free trade becoming an inevitability, companies are being urged to transform their ERP systems into decision making weapons,” he says. Clearly, there will be a lot more attention paid to the region’s ERP market over the course of this year — watch this space would seem to be the message from the vendors. ||**||

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