World-leading enterprise management software maker Germany-based SAP expects that the small and medium businesses (SMB) users will contribute an increasing share to its China business, generating one-third of revenues by the end of 2008.

"Currently SMB takes up only 10 percent of our business revenues in China, but we expect it to grow steadily and contribute as much as 30 percent by the end of 2008,'' said Daniel Huang, director of SAP China's SMB Department, last week.

According to Huang, more than 90 percent of Chinese companies fall into the SMB category, businesses with an annual sales revenue of less than 500 million yuan (US$60.24 million).

"SMB market is definitely one of the major pillars for our global strategy... and China is one of the most important markets,'' said Hans-Jurgen Uhink, senior vice-president of SAP's SMB Department.

Although high-end users, in other words, large enterprises in finance, telecoms, transportation and energy, still command 90 percent of SAP's revenues in China, the proportion is going to change as the company invests heavily in the SMB market, said Huang.

"We pour millions of euros each year into our Chinese partners, for training and marketing... and so far we are quite successful in the SMB market,'' said Uhink.

SAP launched the first SMB solutions, namely mySAP All-in-One and mySAP Business One, last year in China, targeting medium and small business users respectively.

"The key to our business is that we are individual in our product offering... thanks to partnership with local vendors who are familiar with the specific needs of an industry,'' said Uhink.

Yet SAP has felt the challenges from the increasingly fierce competition in the SMB software market, said Uhink, commenting on Oracle's altered strategy on the SMB market.

Oracle, the world's largest enterprise software maker, has shifted a business focus in China from SMB market to key sectors including finance and telecoms early this year.

"But Oracle... is not our competitor,'' said Uhink.

"Indeed Oracle has successful marketing strategies, but in manufacturing sectors, we have successful user lists, which they have not yet seen.''

SAP China focuses its SMB business on manufacturing, retailing, foreign trade and service sectors, according to Huang.

These SMB users have more diversified needs as they cover a wider scope of sectors. Moreover, they are much more price-sensitive than large corporate users, Uhink said, commenting on the dominant share held by Chinese software vendors in SMB markets.

According to the latest report by CCW Research, a domestic leading market research house, Chinese software vendors last year grabbed 79 percent of the domestic enterprise resources planning (ERP) market. And most of the users are SMBs, thanks to the Chinese firms' better understanding of the local market, rapid implementation and relatively lower cost.

ERP is the most commonly-adopted enterprise management software. It accounted for 46.4 percent of China's enterprise software market in terms of revenues during the first quarter, according to domestic leading market research house CCID.

According to Huang, SAP will react to price levels in the China market, but certainly not participate in price wars waged by domestic players.

SAP was quoted as saying in March that 20 to 25 percent of its global revenues will be generated by the SMB market. The company has more than 5,000 medium business users and 3,000 small business users worldwide.

The recent tie-up with Chinese Linux software firm Red Flag Software Co Ltd and computer server-maker Langchao Group will help SAP reduce costs and expand in China's SMB enterprise software market, according to Huang.

Linux, an operating system based on open source code, costs only about half of that of Microsoft Windows in terms of purchasing and maintenance. And Red Flag is SAP's first Linux partner in China.

The sales revenues of China's enterprise software market last year was estimated at 3.96 billion yuan (US$477.1 million), up 19.7 percent from 2002. And the market is expected to increase by larger margins from next year, propelled by more SMB users, according to CCW Research.

Statistics indicate that less than 5 percent of Chinese companies adopt enterprise software solutions, a sharp contrast to the 68-percent proportion in Europe.

(China Business Weekly July 12, 2004)