Middle East/Africa

The Enterprise Resource Planning (ERP) market has been viewed as mature for some time, but there is still plenty of room for innovation.  Driving ERP market growth over the next 5 years will be acquisitions, emerging markets like China, penetration of new industries, increasing maintenance revenues, and exchange rate movements.

Enterprise Application suppliers are defined as those companies offering ERP, plus one or more of the following best of breed applications:  Supply Chain Management (SCM), Customer Relationship Management (CRM), Supplier Relationship Management (SRM), or Product Lifecycle Management (PLM).  The worldwide market for Enterprise Applications is expected to grow to $43 billion by 2011, a compounded annual growth rate (CAGR) of 8.3% over the next five years.  The ERP market is currently worth $18 billion, and is expected to grow at a CAGR of 6.7%, to reach $25 billion by 2011.

Traditionally, the ERP market comprised entrepreneurial suppliers, where the founder/owner exerted a strong influence on their company’s direction.  Most of these companies have been acquired.  These days, SAP is the only large company that has grown organically, with the remaining companies adopting three types of strategies to beat SAP, according to European Research Director, Simon Bragg, the principal author of ARC Advisory Group’s Enterprise Resource Planning Worldwide Outlook study.   “SAP is the only large company that has grown organically, the founders still possess a major shareholding, and whose solution comprises a single code base, which sells globally into all industries.”

 One common growth strategy is acquisition of multiple ERP and best of breed application suppliers. The major realization driving recent acquisitions is that maintenance revenues are a stable revenue source.  Most ERP suppliers achieve maintenance renewal rates greater than 90%.  In fact, maintenance revenue growth is expected to account for about half of the total ERP market growth.  Since maintenance revenues are profitable and stable, these revenues can be used to pay the interest on relatively low cost debt.  Thus, a key measure of ERP supplier profitability is no longer earnings per share, but earnings before interest, tax, depreciation and amortization, a rough measure of the cash generated by the company, and an indication of what interest payments the company could support if acquired.  In effect, the stock market, which tends to focus on new license revenues and earnings per share, under-values the acquired companies.   

In the 1990s, software acquisitions were often unsuccessful because it was difficult to integrate the two solutions.  However, the technological developments of service oriented architectures (SOAs) have, as one of its benefits, simplified and lowered the cost of integration between different applications.  Most ERP suppliers have announced an SOA strategy which enables functionality from one code base to be integrated with, and sold to, customers using another code base.  In addition, SOA platforms enable a variety of partnership strategies, so far best exploited by SAP.

Economic growth and the new locations for low cost manufacturing operations are major drivers for ERP investment. Hence, Latin America and China are expected to achieve the highest growth rates, with EMEA (Europe, Middle East, Africa) achieving average growth over the forecast period.  However, growth will be patchy across EMEA, for instance, relatively low rates of growth are expected in France and Southern Europe.  The EU accession countries, although relatively small markets, will achieve good rates of growth.   Growth in the North American region is expected to lag the other regions.

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