ERP Adoption amongst Indian SMEs
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Transcript of ERP Adoption amongst Indian SMEs

CONFIANZYSCONSULTINGPVT.LTD.
ERPAdoptionamongIndianSMEs
StatusQuo&ChallengesintheIndianMarket:
ASectoralAnalysis

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CompanyConfidential:ConfianzysConsultingPvt.Ltd August2010
www.confianzys.com Email:[email protected]
Contents
1. TheIndianERPMarket..................................................................................................................... 3
2. StudyBackground ............................................................................................................................ 4
Glossary ............................................................................................................................................... 5
3. ERPfortheTextiles&ApparelIndustry........................................................................................... 6
ResearchFindings ................................................................................................................................ 7
Inferences ............................................................................................................................................ 8
4. ERPfortheRealEstate&ConstructionIndustry ............................................................................. 9
ResearchFindings .............................................................................................................................. 10
Inferences .......................................................................................................................................... 11
5. ERPforthePackagingIndustry ...................................................................................................... 12
ResearchFindings .............................................................................................................................. 13
Inferences .......................................................................................................................................... 15
6. ERPfortheLogisticsIndustry......................................................................................................... 15
ResearchFindings .............................................................................................................................. 16
Inferences .......................................................................................................................................... 17
7. ERPfortheHeavyMachinery&ToolsIndustry ............................................................................. 18
ResearchFindings .............................................................................................................................. 19
Inferences .......................................................................................................................................... 20
8. InSummary .................................................................................................................................... 21

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1. TheIndianERPMarket
EnterpriseResourcePlanning(ERP)canbedefinedastheuseofanintegratedsoftwarepackage
to bring together various business departments such as Manufacturing, Finance, Human
Resources, Payroll and Sales. In practice, companies may choose to integrate specific
departmentswhere integratedworkingandvisibility isseenascritical tocostoptimizationas
wellasprofitability.
ERPisnotnewtotheIndianmarket;yet,ascomparedtodevelopedmarkets,theIndianmarket
for ERP is highly fragmented. IDC’s report on the India Packaged SoftwareMarket (2009‐13)
estimatedthedomesticmarketforERPin2008at$263.3million.
ThethreelargestplayersinthemarketareSAPAG(thegloballeader),OracleCorp(whichhas
acquiredotherERPvendorssuchasPeopleSoftandSiebel)andMicrosoftCorp.,arelativelylate
entrantandsmallerplayer.
The presence of these big guns has not prevented other smaller players from attacking the
market, with many of them building entirely customized solutions and thus, not strictly
adheringtothedefinitionofanERPsystem.
AtConfianzys,webelievethatpostthedownturnof2008‐09,2010‐11arepoisedtobeexciting
andchallengingyearsforERPvendorsandimplementationpartners.Thisreport,basedonour
in‐depthresearchconductedwithERPusersandpotentialusersacross5keyindustrysectors,is
aimedathelpingthoseintheERPindustrybetterunderstandthemarketdynamicsaswellas

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outlook. It covers the status quo of ERP implementation in these sectors as well as the
underlyingfactorsdrivingcurrentandfutureimplementation.
2. StudyBackground
The study was conducted among 5 sectors (mentioned above), with respondent companies
situated across India. The target companies approachedwere all in the small andmid‐sized
enterprises(SME)bracketwithturnoverintheRs.30to100crores($6to22mio)range.The
respondent actually interviewed was the IT Manager or Finance Manager. Interviews were
conductedtelephonically.
Thetotalsamplesizeforthestudywas228.
LearningOutcomesExpectedfromthisReport
(Across5sectors:Textiles&Apparel,RealEstate&Construction,Packaging,Logistics&
Transportation,andTools&HeavyMachinery)
• CurrentStateofERPImplementation
• ERPVendorShare
• Drivers/BarrierstoERPAdoption

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Asector‐wisebreak‐upisgivenbelow.
Fig2.1Respondentsinterviewed,bysector(Numberand%)
Glossary
Someofthetermsusedforpurposesofthisstudyareexplainedbelow:
• GlobalPlayers:Marketparticipantswhoseoriginmaybefromanycountry(includingIndia),
butwhose currentoperationsextendacross geographical borders. Examples includeSAP,
Oracle,Quadra,Tallyetc.
• LocalPlayers:MarketparticipantswhoseoriginaswellasareaofoperationissolelyIndian.
• In‐houseERP:ERPprojectsthathavebeenimplementedbythecompany’sin‐housestaff.
• UnbrandedERP:ERPproductsfromextremelysmallandregionalplayers,wherefrequently,
theclientisunabletorecallabrandname;theseplayerstendtobelocal.

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• Others: Branded ERP products, which individually account for a very small proportion of
thatmarket,andhavethereforebeengroupedtogether; thesecouldbeglobalor local in
origin.
3. ERPfortheTextiles&ApparelIndustry
ThetextilesandapparelindustryinIndiaprecedesliberalizationbymanydecadesandhasbeen
anindustryofsomeimportanceduetoitsemploymentgeneration.However,traditionally,the
industryhasbeenhighlyfragmentedandaslowadopteroftechnology.Postliberalization,the
industryhasgeareduptocompeteintheglobalmarketwhereitfacesimmensepressurefrom
other low‐cost producers such as Bangladesh, Vietnam and Sri Lanka besides China, which
operatesonagiganticscaleofitsown.
The need for higher productivity and business efficiency has been the driving factor for ERP
implementation.However,whiletherearesome“full‐service”manufacturers,mosttextileand
apparel industry players still work in a specific area of the value chain, such as spinning,
weaving, dyeing, finishes or garment production. One of the challenges for the industry is
thereforemore affordablepackages that canworkon limited resources anddealwith fewer
departmentsandprocesses.
Someofthekeydriversthathavemotivatedtheindustrytomodernizeandadopttechnology,
includingERPare:
• Wideningcustomerandsupplierbaseinaglobaleconomy

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• Shorterlead‐timesandincreasingdemandforjust‐in‐timesupply
• Backwardandforwardintegration,inordertocapturealargershareofthevaluechain
ResearchFindings
Ourstudyfindingsrevealthat58%ofthetargetrespondentshadanERPsystemofsomekind.
Ofthese,45%hadacompleteERPsolutionandanother34%hadapartialsolution,while21%
ofrespondentswereunabletoordidnotprovidearesponsetothisquestion.
Fig3.1WhetherERPImplemented Fig3.2StateofERPImplementation
As for choiceofproduct, SAPERPhadbeenused inonly14%of cases.A large chunkof the
companies surveyed had opted to use either an in‐house ERP solution or an unbranded
product.Tallyaccountedforasmaller7%ofcases.
It is interesting to look at a break‐up of the partial implementation cases, in terms of the
productapplied. In60%ofcaseswhere therehadbeenpartial implementation, the in‐house

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ERPwasused,whichimplieseitherlimitedobjectivestobeginwithoraninabilitytodealwith
theintegrationofcomplexanddisparateprocesses.
Fig3.3ShareofPlayers Fig3.4ShareofPlayers(PartialImplementation)
Inferences
Considering the relatively low usage of SAP ERP in this segment and the preponderance of
unbranded and in‐house ERP, it is evident that there is a felt need for ERPwhich organized
playershavenotbeenabletocapitalizeupon.Whilecostcouldbeaconsideration,unbranded
players could also bemaking inroads because of a higher level of familiaritywith the Indian
apparel industryanditsspecificrequirements.Requirementsanalysiswillthereforebecritical
for key ERP vendors hoping topenetrate thismarket, in order to identify better the level of
customizationactuallyneeded.

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While a 58% rate of adoption in the SME textile and apparel sector points to a reasonably
maturemarket,therelativelyhighpercentageofpartialimplementation(especiallyaccounted
forby in‐houseERP)alsopointstohiccupswith integratingdifferentprocesses.Thiscouldbe
becausein‐houseteamsmaynothavethecapabilitiesneededtointegratecomplexprocesses
intherequiredtime.Thetotalcostofprojectownershipratherthansolelytheproductlicense
purchasecostisthereforeafactorthatorganizedERPvendorscouldemphasizetothemarket.
4. ERPfortheRealEstate&ConstructionIndustry
The realestate industry in India faceda temporary slump in2009due to cautious consumer
and business sentiment. Infrastructure construction however has been growing due to large
governmentalprojects,andcommercialaswellasresidentialconstructionissoonexpectedto
pickuppace.Theindustryishighlyfragmentedwithahandfuloflargeplayerswhohaverisen
toprominenceinthelastdecade.
Theindustryhasfacedachallengewithhiringandtrainingthehigh‐skilledmanagersneededto
complete large projects on time. Another challenge is efficient cash flow management and
accesstofinance,sinceprojecttimeover‐runsarecommon,onbothpublicandprivatesector
projects. Other challenges include logistics andmaterialsmanagement (since vendors in this
industry tend to range from large, organized players to many smaller players from the
unorganized sector) andgrowingawarenessof regulatoryand safety issues, and theneed to
maintainproperdocumentationonthese.

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Someofthekeydriversthathavemotivatedtheindustrytomodernizeandadopttechnology,
includingERPare:
• Need for collaborative informationmanagementamong the largenumberof internaland
externalteamsinvolvedinconstructionprojects
• Highratesofattritionleadingto“knowledgeloss”andthereforerealizationoftheneedfor
amoreprocess‐driventhanperson‐dependantapproach
• Growing to amore professional work style that includes attention to hitherto neglected
areassuchasriskmanagement,performancemanagementandsafetymanagement.
ResearchFindings
Our study findings reveal that only 38%of the target respondents in this sector had an ERP
system.Ofthese,68%hadacompleteERPsolutionwhile32%hadapartialsolution.
Fig4.1WhetherERPImplemented Fig4.2StateofERPImplementation

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As for choice of product (within the small sample where ERP was implemented), Tally
accountedfor21%ofcases.ThiswasfollowedbySAPandQuadraat16%each.Thesewerethe
top 3 players in the market, although other organized players too seem to have got small
footholds.
Fig4.3ShareofPlayers
Inferences
ThelowrateofERPadoption inthismarket likelyreflectsthemarketmaturity intermsof its
movement from an unorganized industry characterized by informal working and financial
arrangementstoamoreprofessionalone.IntheSMEsector,itislikelythatthisprocessisstill
underwayandataslowpace.The lowrelianceon in‐houseERPcanbeattributedtothefact
that fewmid‐sized companies in this sector have large internal IT departments, thus forcing
themtolooktowardsestablishedfirms.Italsopointstothefactthatin‐housemanagement

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capabilitiesfortakingforwardERPimplementationarelikelytobelow–thisisasectorthatwill
needextensivepost‐implementationsupportandtrainingfromvendors.
5. ERPforthePackagingIndustry
The packaging industry in India spans a wide range of materials such as glass, plastic,
aluminium,tin,paperandboardaswellaspackagingtechnologiesrangingfromthesimplestto
themosttechnologicallyadvanced.Inthelast2decades,theindustryhasundergonesignificant
automation, although labour‐intensive manual packaging continues to be used by some
productsectors.Duetothewiderangeofmaterialsandtechnologies,theindustryishometoa
verylargenumberofplayers,fromsmall‐scaleenterprisestoindustrialbehemothssuchasITC
LimitedandHindalco.
Sincepackagingisprimarilya“feeder”industry, ithasfacedenormouspricingpressuresfrom
itsend‐usersacross sectors suchashouseholdproducts, food&beverages,electronicgoods,
pharmaceuticalsetc,mostofwhomhavebeenreluctanttopassonhigherpricestoconsumers
in the recent past. The growing export orientation in some sectors has also meant higher
regulatorycompliancedemandsonpackagingmanufacturersintheorganizedsector.
Someofthekeydriversthathavemotivatedtheindustrytomodernizeandadopttechnology,
includingERPare:

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• Greaterneedforcostvisibility,withrisinginputpricesanddownwardpricepressuresfrom
buyers
• Movement frommanual to semi‐automatic to fully automatedmanufacturing processes,
withautomatedproductionfreeingupproductionmanagementresourcesforvalue‐added
roles
• Closer integration with buyers’ manufacturing, leading to shorter supply chain and lead
times
• Larger role for demand forecasting led production, and greater interest in maintaining
lowerinventories
• Demandfrombuyersthatpackagingsuppliersfocusbeyondbasicqualityanddeliveriesto
includehighervalueonpackaginginnovationanddesign
ResearchFindings
Ourstudyfindingsrevealthat46%ofthetargetrespondentsinthissectorhadanERPsystem.
Of these, 32%had a complete ERP solutionwhile 36%had a partial solution. (Datawas not
availableintheother32%ofcases).
Fig5.1WhetherERPImplemented Fig5.2StateofERPImplementation

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The data reveals that in the target segment, there are many competing players with small
shares of themarket. Tally is the only playerwith a significant share (32%)withmost other
globalplayershavingsmallersharesrangingfrom5to15%.Localplayersaccountforanother
27%ofthemarket.Sinceglobalplayershavethelargershareofthemarket(andthereisvery‐
little in‐houseERP), theanalysisofpartial andcomplete implementationsbyplayerdoesnot
revealmuch.
Fig5.3ShareofPlayers

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Inferences
46%isafairlygoodrateofimplementationandreflectsthematurityoftheindustryintermsof
adoptingtechnology.Thissectorseemstobecharacterizedby intensecompetitionamongall
theglobalplayers,withunbrandedplayerstoovyingforashareofthepie.Themeagershareof
in‐houseERPreflectsthatthisisacompetitivebutpromisingsectorforERPvendors,sinceitisa
sectorwheretheneedforprofessionallyimplementedERPisalreadybeingrecognized.
6. ERPfortheLogisticsIndustry
The logistics industry as covered in this study includes courier and logistics, as well as
warehousingandtransportation.ThelogisticsindustryinIndiaisstillatanascentstagewhenit

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comes to organization and professional management. The bulk of the industry consists of
extremely small players, suchas trucking companieswith a few trucks, individualwarehouse
owners, small Cost & Freight agencies etc. The exception perhaps is the courier and cargo
industry,whichhasgrownrapidlyandincludeslarge,organizedIndianaswellasmulti‐national
companies. The industry, althoughgrowing rapidly, facesmany challenges suchaspoor road
andportinfrastructure,complexandnon‐uniformtaxstructuresandpoorqualityofmanpower
atthemanageriallevel.
Sincethemajorityoftheindustryisintheunorganizedsector,thedeploymentofIT,including
ERPhasbeenslowinthisindustry.
ResearchFindings
Our study findings reveal that only 12%of the target respondents in this sector had an ERP
system. This extremely lownumber reflects the nature of businesses in this industry, fewof
which areprofessionallymanagedor large‐scale.Of the small number that did have an ERP,
only33%,(correspondingto1respondent)hadacompletesolution.

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Fig6.1WhetherERPImplemented Fig6.2StateofERPImplementation
AmongthosewhodidhaveanERP(3cases),SAPaccountedfor1,whiletheothertwoaredone
in‐house,thusnotbeingstrictlyofftheshelfERPsolutions.
Inferences
The numbers reveal that at least among the SMEs in this sector, there is still very little
awarenessofthebenefitsthatanERPsolutioncouldconfer.Perhapsthescaleofoperationand
the nature of management too do not make ERP implementation imperative. Our findings
reveal that theSMEportionof the logistics sector isnot likely tobeeasy to convert forERP
vendors,atleastintheshortterm.Consideringthehigherlevelsofawarenessandreadinessin
othersectors,thissectormaynotthereforebeapriorityforERPvendors,exceptforitssmall
organizedcomponent.

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7. ERPfortheHeavyMachinery&ToolsIndustry
Boostedbyrisingdemandfromvarious industriessuchas infrastructure,power, iron&steel,
railways,miningetc,theheavymachineryandtoolsindustryinIndiahasseenrapidgrowthin
the last decade. This sector includes diverse categories such as industrial machinery, earth‐
movingequipment,machinetoolsandelectricalequipments.Beingcapitalintensive,itincludes
manylargeandmid‐sizedorganizedplayerswithahighlevelofprofessionalcompetenceand
managementbasedonbestpractices.SomegiantssuchasLarsen&ToubroandHMTcatertoa
widerangeof industrieswhileothersspecialize inmachineryandtoolsforselectedend‐users
suchastextilesorthedairyindustry.
Insomesectors,the industry ishamperedby legacyequipmentandprocessesthathavekept
productivitylowwhencomparedtoglobalstandards.Althoughcompetitiveinlabourterms,the
Indianmarketalso suffersdue to the lackof indigenous research intoemergingandbest‐of‐
breedtechnologiesovertheyearsofthelicense‐permiterabeforeliberalization.Duetothese
factors, the industry has not been able to compete globally, but remains dependent on the
domesticmarket,whichisneverthelessavibrantone.
Someofthekeydriversthathavemotivatedtheindustrytomodernizeandadopttechnology,
includingERPare:
• TogainbestresultsfromcoremanufacturingimprovementinitiativessuchasSixSigmaor
Kaizen
• Forbettercostcontrolandvisibilityintocosts

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• Toimprovecollaborationbetweendesignandmanufacturingandreducetimetomarketin
acompetitiveenvironment
• Greaterexposuretointernationalmarketsleadingtoexportpossibilities
ResearchFindings
Ourstudyfindingsrevealthat60%ofthetargetrespondentsinthissectorhadanERPsystem.
Of these, 33%had a complete ERP solutionwhile 37%had a partial solution. (Datawas not
availableintheother30%ofcases).
Fig6.1WhetherERPImplemented Fig6.2StateofERPImplementation
Thechoiceofproductdatathrowsupsomesurprises:whileSAPisthesinglelargestcommercial
playeraccountingfor23%ofcases,in‐houseERPisevenlarger,accountingfor27%ofERP
installations. This perhaps indicates that considering the capital‐intensive nature of this
industry,ERPisseenasasignificantinvestment–usingin‐houseresourcestodevelopanERP

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system could be an attempt to trim project costs or cope with very long‐drawn out
implementationsandtheconsequenthand‐holdingrequired.Globalfirms(asawhole)account
for the majority of all installations and the same goes for both complete and partial
installations.
Fig6.3ShareofPlayers
Inferences
TherelativelyhighlevelofrespondentswithERPsystems(60%)reflectsonthematurityofthe
industry and its high level ofwillingness to adopt technology to improvebusinessprocesses.
However,in‐houseERPandunbrandedERPtogetherformagood37%ofERPinstallations,
indicatingthatmanyofthesearenotERPinthestrictestsenseoftheterm,but instead,fully
customizedsolutionsthatmayormaynotfollowacceptedbestpractices.Thereasonforthese

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couldbetwofold–eithercostconsiderationsorafeelingthatestablishedERPpackagesdonot
meet the unique needs of heavy machinery firms in India. Branded ERP manufacturers
thereforehavesomewaytogoinaddressingthesebarrierstoadoption.
8. InSummary
Itisevidentthatatleastinsomesectorssuchaspackaging,heavymachineryandtextiles,there
isconsiderableinterestamongSMEsinimplementingERPsolutionsandimprovingproductivity.
There isscopethereforefor industryspecificsolutions,giventhedistinctrequirementsofthe
Indianmarket.
EveninthecaseofcompanieswherethereisreluctancetogoinforERP,partofitisdefinitely
attributable to the fear of investing large amounts in a solution that they are not entirely
confidentabout.Forsuchcompaniesthatdohavesome interest inputting insuchprocesses
butare fearfulof thecosts, SoftwareasaService (SaaS)modelsmayprovemore successful.
The lower front‐up costs of SaaS ERP and CRMmodels maymake themmore attractive to
SMEs,besides theability theyoffer toevaluate resultsonapay‐as‐you‐gobasis. Italso frees
themfromthefearofbeingcaughtinlonglock‐inarrangements.
Thereisofcourseathirdsegmentofcompanies(fore.g.inthelogisticsindustry),wherethere
is low interest in ERP, not just because of costs, but also because of senior management’s
discomfortwithnewtechnologyandprocesses.WithsuchSMEs,ERPproviderswillfinditless
easytomakeinroads,regardlessofthesalesmodelused.

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Whilesuccessstoriesarepresent,theIndianSMEmarketisstillrelativelyslowontheroadto
adoptionofsuchtechnology,andERPsolutionswillneedtotakeintoaccountitspeculiarities
andpredilections.
AboutConfianzysConsulting:
Incorporated in 2008, Confianzys Consulting is a first‐of‐its‐kind consulting entity in India,
focused on helping technology product companies by providing consulting, training and
coaching interventions in Product Management, Customer Management and Marketing
Managementareas.
Formoreinformation,pleasevisithttp://www.confianzys.com.