German business software firm expands PHL operations

German software company SAP said it is keen on penetrating the small and medium enterprise (SME) market in the Philippines, which accounts for more than 90 percent of the total number of businesses operating in the country. During a press conference at the annual SAP SME Summit on Wednesday, Patrick Tan, director for small and medium enterprises of SAP Philippines, said that the company wants to grow beyond its core business as an enterprise resource planning (ERP) software provider for large enterprises. ERP software are computer applications that automate the accounting and financial management functions of a business. "Our challenge right now is to address the need of businesses who want to have an ERP system now but don't have enough money for it," Tan told GMA News Online. The SAP executive said that SMEs, who often have tight budgets and a limited number of personnel, often find SAP solutions expensive and complicated. But that the perception is quickly fading given the types of solutions they have introduced to the market. He cited the case of the company's newly launched SAP Business One Starter Pack, a pared-down version of its SAP Business One application, which has significantly lowered the barrier of entry for SMEs at its upfront cost of about P299,000. "Typically, Business One contracts could run up between P800,000 to more than one million pesos," Tan explained. "Now, we have an offer that is worth P299,000, which used to be unheard of. I do not see any reason why [businesses] would not start to use this." The Starter Pack is targeted at very small companies, Tan said, and can be used by up to five users only. These users would typically be the owner, two people from accounting, and two people from operations, he added. Subscription-based ERP SMEs are a peculiar animal altogether who usually go by a minimal number of staff and a small amount of resources for day-to-day operations, the company observed. For these types of businesses, Tan said they would want to offer a subscription-based system of their SME portfolio, so users wouldn't have to fork huge amounts of money and maintain servers on their own to keep the system running. "We have a lot of customers right now with no IT personnel, and subscription-based Hosting (SBH) of SAP software gives them worry-free access to our system, without having to maintain servers," Tan stressed. With the SBH setup, the hosting, maintenance and implementation of the ERP systems are managed by a third-party channel partner and hosting provider, which turns what used to be a capex burden into an opex solution. "These removes inhibitions now in terms of cost of implementation. The subscription cost for the system is even lower than the rent and cellphone costs of companies," Tan added. Subscription-based SAP systems would typically cost around P30,000 a month, he said. Tom Kindermans, senior vice president for ecosystem and channels of SAP Asia Pacific and Japan, said the firm's strategic intent for these entry-level solutions is to get customers at their earliest stage of growth. "Every big company was once a small company. The earlier for us to sign these small companies on, the better," he said. SME targets Kindermans said that typically, the business drivers for adoption of subscription-based services is flexibility, because it allows the company to scale when needed. "But we found that in emerging markets (such as the Philippines), the primary business driver is cost. The interest of doing opex instead of capex is much, much bigger," he said. It is this financially driven mentality, especially of SMEs, that Tan said SAP hopes to bank on. Today, Tan said their SME business contibutes about 30 percent to 35 percent of revenue share to the entire company, "but is still projected to grow in the coming years." He added that the local customer base for SMEs has substantially grown since last year, at a rate of about 100 to 150 new customers a year. Kindermans said that by 2015, SAP wants to be a 20 billion company by improving its margins from 30 percent today to 35 percent by that period. "We want to have 1 billion people using our software, and we want to do 40% of our business through our partners," he added. In 2010, Kindermans said that their market capitalization went up from 50 billion to 72 billion. "It proves that we're on the right track," he stressed. — TJD, GMA News