SAP opens door to channel

Vendor set to launch offices in UAE and Saudi Arabia as it looks to build relationship with local channel partners after ending exclusive Middle East distribution agreement.

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By  Andrew Seymour Published  September 30, 2007

Enterprise software giant SAP AG has given its clearest indication yet that it will look to build relationships with multiple channel partners across the Middle East after ending its exclusive distribution agreement with long-term partner SAP Arabia.

SAP has purchased the license and maintenance customer contracts of SAP Arabia, as well as its trademarks, in a move that paves the way for it to begin its own channel development activities in the Middle East region.

The ERP software vendor has made a series of moves to strengthen its channel presence in the European SME market during recent years and now looks set to repeat that strategy in the Middle East.

"If you want to really develop SME, then it is very clear that one partner is not enough - you have to be able to invest into channels," conceded Ernie Gunst, president customer solutions operations EMEA at SAP. "I think this transaction gives us that possibility with all the freedom and all the possibilities to do this in whatever countries within the MENA region that we see fit and as we see are needed based upon the competitive pressures that we see."

Gunst describes SMEs with sales below US$500m as "almost 99% of the economic fabric" in the Middle East and North Africa, and admits the only way to reach such companies is by using an extensive partner model.

"SAP's business model is quite clearly geared towards our licence and maintenance revenues - this is an absolutely key element," he said. "Of course, service revenues in any country in the world are also part of our business model, but SAP's policy to leverage an ecosystem will also be applied in the MENA region. SAP Arabia - the new SAP Arabia, 100% owned by SAP - will typically see the same business model as in the other areas. This means that the most important part will of course be licence and maintenance revenues. Services will be there, but SAP quite typically would never take a share which is higher than 20%. We are by far not there in the MENA region, but 20% is the absolute maximum that we would be targeting in any country in the world," added Gunst.

The man tasked with driving SAP's strategy in the region is Sergio Marccotta, who was formerly the executive in charge of the SAP Arabia relationship.

News that SAP Arabia will no longer serve as SAP AG's sole Middle East partner ends one of the region's last major exclusive partnerships and a relationship that SAP CEO Henning Kaggermann has previously described as "not perfect".

Gunst insists the deal comes as SAP continues to look for "growth centres" that will help it maintain the double-digit expansion it has registered in the last two quarters.

"This is one reason why this transaction was at the right time - because growth is picking up, and let's face it, we are not the only ones interested in the Middle East," said Gunst. "We also have our competitors that are using a more direct model, and who are investing into the region."

One point that still remains unclear is how much SAP was forced to pay to end the exclusivity relationship with SAP Arabia. The Financial Times Germany cites senior SAP management sources as claiming it cost the vendor a staggering US$280m - more than six times the reported regional turnover of SAP Arabia.

Gunst, however, disputes the validity of that report, insisting that no official company sources would be prepared to comment on the value of the transaction.

Meanwhile, SAP Arabia has confirmed that it will re-brand its business and work with SAP as a ‘strategic partner' and non-exclusive VAR within the vendor's PartnerEdge programme, targeting a number of vertical sectors.

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