SAP takes centre stage with HCL, Infosys' bid for Axon

With India’s two leading IT outsourcing companies, Infosys and HCL Technologies, vying to acquire the UK-based consulting firm Axon, SAP implementation is back in focus. HCL last week launched an all-cash offer for SAP implementation consultancy Axon. The offer trumped an earlier bid by Infosys. The all-cash offer at 650 pence a share was 8.3 per cent more than the 600-pence offer by Infosys, which promised a further announcement ‘in due course’.

Analysts predict that application software is the fastest growing area. So while 40 per cent of revenues comes from the banking, financial services and insurance (BFSI) sector, over 30 per cent of revenues comes from verticals like manufacturing, retail, construction and utilities (includes oil and gas), airlines and transportation, among others, which are large users of SAP applications.

SAP is important since the implementation integrates the database that an enterprise has, which is otherwise in different silos and provides a single window view.

SAP allows integration of applications like financial accounting, controlling, production planning, sales and distribution among others. Once these are automated, firms can then go on to the next level of automation.

The demand for SAP implementation and consultation is ever increasing due to upgrades, growing businesses and other SAP- related delivery services, say analysts. If an Indian player has access to a the customer base of one of the largest SAP implementer in the world, it can then bring in the offshoring services and provide major cost reduction for firms in US and Europe.

“For the next three to four years SAP will be a hot property in terms of application implementation. Reasons being, firms are ramping up their SAP applications and are looking at it as a business transformation tool,” says Sudin Apte, senior analyst, Forrester India. He points out that currently 60-70 per cent of work that Indian IT firms do are implementation and support of SAP from remote locations. But clients are now asking for business transformation tools and consulting.

The other reason is the growing demand for application software. Although a relatively smaller category compared to IT services and BPO, software is rapidly gaining mindshare amongst the users. Application software is the largest segment of this market worldwide, accounting for over 47 per cent, says Nasscom Strategic Review 2008. SAP implementation will be a part of the overall application software segment.

Nasscom pegs the application software market at a $118-billion opportunity globally in 2007 and is expected to be $154 billion by 2011. SAP as an application adoption is rapidly growing in India as well. According to Frost and Sullivan SAP has 42.5 per cent market share of the total enterprise application software in India and has a market share of 36.5 per cent in enterprise resource planning (ERP).

“SAP’s decade long lead in the enterprise software space and its formidable partner ecosystem has created a wider turf that will continue to grow in the future,” says Alok Shende, principal analyst, Accendia Consulting.

Another case in point is the growth of SAP in India. The firm with 75,000 customers globally and having presence in 120 countries, has seen its India revenues grow by 68 per cent year-on-year and new license revenue grew by 100 per cent. SAP India has a customer base of 3,024 by the end of December 2007.