Europe-based RheinBrücke IT Consulting recently announced the launch of its India Development Centre in Chennai. Alongside the celebrations, it held a panel discussion on “How next generation ERP is transforming businesses to prepare for global efficiency,” and the panellists included Keith Deane, EVP & General Manager, International, at Epicor Software Corp, Ing. Jörg Pirron, Member of Board, RheinBrücke IT Consulting, Purushothaman K, Senior Director, NASSCOM and V Vijay Kumar, Chief Representative of the Netherlands Business Support Office in Chennai. Vetri Selvan, Managing Partner, RheinBrücke, moderated the discussion. The following are some edited excerpts from the discussion:
[Pictured above, left to right: V Vijay Kumar, Chief Representative of the Netherlands Business Support Office in Chennai, Ing. Jörg Pirron, Member of Board, RheinBrücke IT Consulting, Purushothaman K, Senior Director, NASSCOM, and Keith Deane, EVP & General Manager, International, Epicor Software Corp]
Question from Vetri: From your perspective, what is the role that SMEs in Europe and Germany in contributing to their economy?
Jörg: European companies, specifically German companies, are very strong at the moment on a global scale and this success is based on the strength and flexibility of our small and medium sized companies. Interestingly, these small and medium size companies are more than 99% of companies in Germany. They are responsible for 60 -70% of the economic output and create nearly 50-60% of jobs in Germany…Small and medium sized companies in Germany have recognized that the basis of success is innovation.
Keith: We have seen that SMEs are driving both growth and innovation. One of my favourite examples of an SME is from East London in 1919, about 100 years ago, when an entrepreneur started selling groceries from a market stall. On the first day he made £4 in sales and £1 in profit. So very very small beginnings. Fast forward to today, that same business is making more than £50 billion, employs 472,000 people around the world and makes a profit of £6000 per minute. And that company is Tesco. It started as a market stall and has become a global leader.
That is actually what we hope to see from small and medium businesses: the proportionate growth to come through and for them to become large corporations. In order to do that they need a supportive economy, they need capital, they need the right people both internally and in partnerships and they need access to processes and technology. Only a small percentage of SMEs grow into big giants but the SME market contributes significantly to the UK economy.
Question from Vetri: Can you share your perspective vis-a-vis Indian SMEs and how they can emulate the EU model?
Purushothaman: Almost 45% of India’s manufacturing output comes from SMEs and they employ almost 40% of our work force. A lot of SMEs have started recognizing technology as a key business driver, but adoption is still low as compared to other countries, particularly the EU.
This is because of various factors. Probably the SMEs did not understand the benefits of technology across end-to-end value chains and lack of guidance on the inherent abilities of technologies or how it can be used, integrated and institutionalized for their business, resistance to providing upfront investment for cost of implementing technology and the lack of skilled manpower. These are some of the problems we face in a large SME-driven economy like India. These were the findings from a study conducted by Frost & Sullivan.
However, for the last 14-15 months the scenario has been changing with a lot of focus on startups that are coming up in the innovation and technology space, and these will play a vital role in the SME sector in India.
Question from Vetri: You come from an interesting background, representing the business interest of the Netherlands in India. How do you see this trend from a Dutch-Indian perspective?
Vijay Kumar: SMEs no doubt drive the economy whether it is India or Germany or the Netherlands. A huge amount of the exports and a huge percentage of the GDP is because of the SMEs. I would like to make a distinction here. When you say SMEs I would like to take away the small as they are not really capable of growing in a big way or going global. It is the medium companies which have the capacity. In my experience we find that the small companies are still thinking small, whereas the medium sized companies are looking global and want to go global but are hesitant because their risk-taking capacity is low and resources are limited.
So let’s for a moment dwell on what would make these mid sized companies comfortable? In the case of technology adoption for example, it is not only about off-shoring but also near-shoring, the model that RheinBrücke follows. That gives the medium sized companies confidence. A medium sized company in the Netherlands or anywhere in Europe would feel more comfortable if there was a person nearby in case they run into any problems.
Question from Vetri. Can you talk about the challenges that SMEs face in Europe?
Keith: Here are some other interesting figures cited in the latest Business Barometer from the Department for Business, Innovation and Skills (BIS), which surveyed over 5000 SME owners in February this year. When asked what the obstacles were to the success of their businesses, in their response 33% of the respondents said that the number one issue was the economy. And the number two issue was the cash flow, and as we know in an economic downturn the money stops moving. The number three issue was obtaining finance, as in such times it is much more difficult to get access to funds for the business. So the first 3 issues are all related to the economy.
Jörg: In continental Europe, we cannot compete with low-cost economies in terms of production. So we need innovative products or new value added services for the customers. In the manufacturing industry for example, we are talking about the 4.0 concept in Germany. The background of this is the internet of things and services. All parts, components, machines, products and all services even, are in the future going to be connected via the internet. The products will have to be able to communicate with the world. For example a machine has to communicate its condition i.e. condition monitoring had to be done online not offline. Based on this you can offer new services to the customer – more uptime, better efficiency of machines etc. so you can generate benefits for the customer. So one challenge is that nowadays companies need new business models, need innovation to survive and be successful in the future.
The next challenge is how to cope with global processes. If you are a medium sized company you have to cope with a lot of different countries. If you want to go global it is not one subsidiary but chances are you have multiple subsidiaries in different countries. This is a very big challenge. Also based on this globalization you have to deliver processes which are reliable, high quality products, you have to be responsive, you have to be very fast with regard to your management and you have to be flexible because there are different requirements in different markets in the world and you cannot put German standard to all parts of the world.
Question by Vetri: Puru, do you think it’s a similar situation for SMEs in India or do they face different challenges?
Purushothaman: The situation is different here. We have to fight for power, water, roads and infrastructure. It really makes it uncompetitive for people who are passionate about doing business. We have 3.1 million people directly involved in IT business, we do 55% of work outsourcing from India and the IT industry contributed $108 billion in exports this year. But when it comes to SMEs, they do not contribute even 10% of that. For IT SMEs there is yet a long way to go.
For all entrepreneurs the challenges are very different. In terms of knowledge and in terms of capabilities they are good, but they need a lot of mentoring. There are a lot of free resources Like NASSCOM, but in terms of preparedness and understanding opportunities for SMEs, there is a gap. Yes, there are many challenges, but it is a great space to be in!
Question by Vetri: What is the state of technology adoption by SMEs in India. Where do you see the role of emerging technologies such as social, mobility, analytics and cloud (SMAC)?
Purushothaman: My perception, based on the interaction that we have with SMEs is that SMAC has become the order of the day, for at least over a year now. People are getting engaged and we see a lot of momentum and technology is the buzzword today for a lot of the startups and SMEs. And that is happening all over the country. We see rapidly increasing volumes of data that is being used. People are taking advantage of technologies like cloud. But it needs the support of all the stake holders. It is happening but it will take time. It will be a few years for us to see that these technologies have enabled the SMEs to the next level.
Question by Vetri: We see a noticeable trend of next generation ERP business systems being deployed as a solution to eliminate some of the challenges mentioned above – do you see this change happening of late and why?
Jörg: The next generation ERP system is needed, otherwise we cannot operate our own processes on a global scale. As I mentioned before we need different systems which are very flexible which can be implemented easily and used easily. I would say that we need an integrated project approach and not just systems. One the one hand you need the right technology, i.e. the new generation ERP systems, and on the other side, you need the right services which understand the business language. Because the best system does not do anything for you if it is not implemented in the right way.
Question by Vetri: So here’s my final question, how can ERP systems become more affordable for small businesses?
Keith: I think the key to making ERP more affordable is to making it less monolithic. Once upon a time you used to get ERP systems delivered on a truck and it was reconfigured and it was very complex and you had to fit your business to work on the ERP. It comes down to the next generation ERP that has brought back flexibility to define certain core business processes and also to enable you to build in flexibility so that you can change your ERP as per your business requirements. That was one of the challenges of the first generation systems, you installed it and then you ran the same processes for 15 years.
However, a business does not stand still for 15 years. The business is constantly evolving. I think we are looking for that agility in terms of the concepts and technology; we are also looking at deployment models as well. Earlier, you started ERP implementation in year one and finished in year seven. One of the things we are looking at now is how the customer can start getting the benefits in 60/90/120 days. And we also need to look at the delivery models. Rather than having an army of consultants tell you your business processes, we should look at how the ERP vendors can facilitate knowledge transfer. It’s about harnessing people and technology and taking this new approach and making it more user-friendly.
