The Singapore ERP Landscape: Observations from Three Decades of Change

Introduction

This article is the second part of a 3-part series discussing the history of ERP in Singapore. The goal is to provide valuable insights for ERP vendors and users to navigate and succeed in different stages of the ERP industry.

In my previous article, I delved into the history of ERP in Singapore starting from the 1990s, showcasing the evolution of the Singapore ERP industry through various economic cycles.

In this article, I will summarize my observations of the ERP industry in Singapore over the past 30 years. The final article, part 3, will focus on my recommendations and lessons learned.

This article consolidates my observations into the following sections:

1. Mergers and Acquisitions
2. ERP vendors Management
3. Performance Measurement of ERP Vendors
4. The Curse of Partner of the Year Award
5. Impact of Branding at Different Stages of ERP Life Cycle
6. Affordability of ERP
7. Changes in User Profile
8. Changes in Revenue Streams
9. The Unique Market Size Challenge to Singapore ERP Vendors
10. Falling Margin
11. New Challenges to Consulting Services
12. More Customizations
13. Tier-1 and Tier-2 ERP
14. Cloud ERPs are becoming the Only Choice
15. Technologies vs Business Process

Mergers and Acquisitions

The late 1990s to the early 2000s witnessed a surge in ERP mergers and acquisitions, with many companies engaging in these activities to elevate their share prices and others for strategic synergistic purposes.

The Consequences

After a merger or acquisition, companies often assure their customers that they will continue to support their existing ERP systems. However, the following typically occurs after the M&A:

1. Cost-cutting measures are implemented to realize economies of scale, including merging and reducing overhead costs in finance, HR, admin, and marketing. This often leads to reduced investment in R&D, resulting in less frequent major releases and cross-training consultants to handle multiple ERPs, which can lead to declined proficiency.
2. Companies may engage in cross-selling and marketing of multiple ERPs, resulting in confusing messaging and rebranding of ERP solutions. This can lead to confusion among salespersons and prospects, as well as experienced ERP users familiar with the original branding.
3. ERP vendors may try to convince existing customers to convert to their preferred ERP, but reimplementation is often seen as a painful and expensive exercise by users familiar with their existing ERP.
4. Vendors may offer incentives to encourage customers to migrate to their preferred ERP, as success in conversion reflects well on their new license sales revenue. Meanwhile, customers not ready to switch may face increased annual fees.
5. Some ERP vendors attempt to merge different ERPs into a new ERP with richer functionality, but this has proven challenging due to the complexity of ERP solutions and the difficulty in consolidating functionalities.

Ultimately, the benefits of M&A often fail to fully materialize after 10 to 15 years. Companies struggle to reduce the number of their ERPs, unless they sell them to other companies.

Traditional ERP vendors like SAP, which acquire complementary solutions such as CRM, tend to have better outcomes. Non-traditional ERP companies like Microsoft adopt a strategy of merging acquired ERPs into their core products, such as Office365 and CRM, to better serve their customers.

Newly Recreated ERPs

After selling their previous ERP business, some owners of the acquired ERPs used the proceeds to start new ERP companies with a cloud strategy. However, the ERP market was already saturated, making it less favorable for new ERP start-ups.

Developing comprehensive business logic in the new ERP is time-consuming compared to creating new cloud technology solutions. Coding these business processes requires a longer time to test and refine. The newly recreated ERP solutions lacked the comprehensive business logic of older ERPs. This may affect the long-term viability of these new ERP solutions, as cloud ERP is characterized by slower, lower, but longer cash inflow.

ERP Vendors Management

I have made some observations from my work experience in several large multinational ERP companies during my ERP career:

Corporate Culture: Telling only the Good News

I find it peculiar that as early as the 1990s, there was a culture of “Telling only the Good News.” Even when things were not progressing in the right direction, the management and staff were emphasizing their positive outlook and overlooking warning signs. They were setting unrealistic KPIs and making excuses when they couldn’t achieve these KPIs.

Management with Cross-Cultural Experience

Western MNCs often hire management with Western culture to handle their operations in Asia. Some of them had no prior exposure to Asian culture, while others may have had years of experience working in the Asian environment. However, even those with extensive experience in Asia have a limited understanding of Asian cultures, as Asia has very diverse cultures across different countries. Finding the right leadership in Asia is always the most challenging task for MNCs. I will share some of the more successful cases in my next article.

Performance Measurement of ERP Vendors

Characteristics of the ERP Industry – Long Cycle to Results

The typical sales cycle for an ERP system is about 6 months. It takes around 1 to 2 years to see the impact of marketing tools like Search Engine Optimization (SEO). The performance of a senior business unit manager usually becomes visible only after 2 to 3 years.

Due to these long cycles, it’s challenging to evaluate the performance of ERP managers and salespersons within a short period, as their impact may only become apparent 6 months to 3 years later.

As a result, it’s difficult to recruit and assess the performance of ERP SBU managers and salespersons quickly. SBU managers may initially present a grand vision, secure a large budget, and launch exciting marketing campaigns. However, they may also spend time building personal networks and increasing their visibility in the market. If things aren’t going well 2 to 3 years later, they may seek opportunities with other multinational companies that value individuals with experience in Asia.

In part 3 of this article series, I will propose methods for recruiting and evaluating ERP salespersons and SBU managers.

From Growing to Matured Markets

In a growing market, ERP companies will thrive if they are willing to take risks and adapt, rather than getting overwhelmed. In a mature market, shrinking profit margins will expose any flaws in business strategy and management. Strategies that were effective during the growth stage may not work in the mature stage. ERP companies in a growing market need to be mindful of the necessity to continually adjust and not rely solely on past accomplishments.

Impacts of Economic Crisis

Surprisingly, the economic crisis did not dampen the demand for most ERP vendors in Singapore. This is probably because:

1. Government Support – Singapore government offers increased incentivize SMEs in Singapore to adopt technology such as ERP during an economic crisis.
2. Healthy companies that plan for the long term take advantage of the slowdown to implement or upgrade their ERP as they lack the resources to do so during boom time.
3. Even during a severe economic crisis, some market segments were still doing well, or even booming, and needed a more efficient system to handle higher business activities.
4. Sometimes, economic crises create new opportunities. For example, COVID-19 created the need to work from home. It boosted ERP projects to enable existing ERP for remote access or migrate to cloud ERP.

Effects of Compensation by Revenue Contributions

Many ERP companies compensate their sales and marketing personnel based on revenue contributions, which was in line with how the financial market valued IT companies before the Dot-Com Bubble Burst in 2000. This focus on quarterly results directly impacted share prices, leading to pressure on ERP companies to offer large discounts to secure revenue numbers before month-end or quarter closing.

Some ERP companies only compensated their salespersons based on software revenue contributions, while service revenues were given to the services team.

The results of these compensation and recognition schemes are as follows:

1. When sales commission is based on revenue generated rather than margin, salespersons are more likely to offer significant discounts to close deals, potentially impacting the margin. For example, if the gross margin is 50%, offering a 10% extra discount reduces the gross margin by 20%. While generating revenue is essential for business activities, focusing solely on revenue may leave little profit in the end.
2. Dividing the Services KPI and software KPI compensation between the services and sales team can lead to conflict during sales negotiations, as each team seeks to protect their numbers.

The Curse of Partner of the Year Awards

The occurrence of an ERP vendor being awarded partner of the year and then declining significantly in performance just 2 to 3 years later is not uncommon. Despite what ERP vendors claim, these partner awards are usually driven by software revenue and have very little to do with the quality of project delivery.

To understand why this happens, we must acknowledge that it is unrealistic to be a consistent top performer in the ERP business every year. Achieving top-performer status typically involves the following:

1. Aggressively marketing and selling by closing projects with higher discounts.
2. Closing large ERP projects that bring in high license revenue.

Subsequently, the following usually happens:

1. The company became busy delivering projects and managing the sudden surge in resource requirements for project implementation, leading to less focus on marketing and sales.
2. This is often followed by aggressive recruitment, leading to higher hiring costs and lower quality of recruited resources.
3. In the pursuit of winning large projects, inexperienced or aggressive companies may underestimate the implementation costs and timeline, and over-promise to customers.
4. Large ERP projects are more complex and challenging with higher stakes, requiring the company to allocate more attention to project delivery.
5. When the company faces tight resource challenges, it becomes more selective in closing new projects, resulting in lower revenue in the following years.
6. Once the large projects are completed, the company typically ends up with redundancies of resources without sufficient new projects to utilize these resources.

Impact of Branding at Different Stages of ERP Life Cycle

Like any product life cycle, the ERP industry goes through different stages of the product life cycle. ERP vendors require different strategies at various stages as business users behave differently in the growing and maturing stages when selecting an ERP vendor.

ERP Product Life Cycle

Growing Stage

In the early stages of ERP implementation, when the market is expanding, users are drawn to ERPs with strong branding and marketing. At this point, ERP vendors primarily target larger companies that have the resources and expertise to implement ERP systems.

Maturing Stage

Users at the maturing stage are typically more mature, knowledgeable, and experienced. Many individuals seeking ERP solutions may have had negative experiences with ERP projects and are more focused on implementation rather than just the software. Branding will become a less critical factor in selecting an ERP.

Determining ERP Stages

How can you determine the stage of the ERP market in your country and understand buyer behavior? One method is to use Google Trend charts to compare the search volume for “Enterprise Resource Planning” with a benchmark ERP that has strong branding. In this case, I used SAP as a reference.

Google Trend Graph of ERP vs SAP (Vietnam)

Google Trend Graph of ERP vs SAP (Singapore)

Have you noticed the differences in the charts? Which market is growing and which one is maturing?

In the Singapore graph, there is less correlation between the search volume for “Enterprise Resource Planning” and the search volume for “SAP” compared to the Vietnam graph. This suggests that in a growing market like Vietnam when interest in “Enterprise Resource Planning” increases, users are more likely to search for the ERP with the strongest branding.

However, in a mature market like Singapore, branding has less of an effect on the interest in ERP. You will notice that the search volume for the strongly branded ERP remains relatively constant over the period.

Affordability of ERP

As the economy of a country transitions from a growing stage to a maturing stage, ERP systems become relatively more affordable compared to business revenue.

In a mature market such as Singapore, smaller companies can more easily afford ERP systems than SMEs in growing-stage countries. ERP is often seen as essential for company growth, particularly as labor costs rise and customer expectations increase. Mature companies are more willing to invest in these systems.

However, larger enterprises are more likely to purchase ERP systems than SMEs in a growing market. Therefore, the marketing strategy for ERP vendors needs to be adjusted accordingly.

Changing User Profile

In progressing from the growing to the maturing stage, users will become more educated about ERP. Many of their key managers are likely to have prior ERP experience or better knowledge of ERP.

Changes in Revenue Streams

There are three main revenue streams for ERP vendors: License, Professional Services, and Recurring Revenue streams, including Support and Software Maintenance.

Singapore has progressed from a growing to a maturing market in a relatively short time. Many of the ERP license prices are still at their original third-world country prices. In contrast, the rising labor costs make the costs of services more significant. Pressure on service prices will be stronger during negotiations.

Facing more educated and demanding ERP users, it’s important to be proficient and efficient in project delivery.

The Unique Market Size Challenge to Singapore ERP Vendors

In a maturing market, ERPs are becoming less differentiated. The common strategy for worldwide ERP vendors is to focus on selected vertical markets. For example, some may choose to specialize in the manufacturing industry and even build solutions for their selected vertical market. Unfortunately, ERP vendors in a small market such as Singapore lack a sufficient segment size to survive with narrow specialization.

Falling Margin

Like any maturing market, margins will continue to fall. Labor costs are increasing faster than consulting rates due to fierce competition. This leaves little room for mistakes and inefficiency during project delivery. Eventually, only the stronger will continue to thrive. The remaining ERP vendors are merely trying to stay afloat.

New Challenges to Consulting Services

In the challenging small Singapore market, ERP consultants need to be proficient in implementing solutions for multiple industries. The quality and training of ERP consultants have become even more critical as service revenues make up a larger portion of the total revenue.

ERP consulting has become more challenging due to the need for extensive knowledge paired with lower consulting rates. The lower consulting rates limit consultant remuneration, especially in Singapore’s tight labor market, where the government has imposed restrictions on the recruitment of foreign talent.

Unfortunately, some ERP vendors are not investing as much in training for their consultants due to cost-cutting measures driven by declining margins. Some ERP vendors are reducing project management to lower project prices. The irony is that when consultants are not proficient and there is a lack of project management, costly mistakes are more likely to occur during the project, further reducing the margin.

These factors continue to lower the quality of consulting services and project management in Singapore.

More Customizations

I’ve noticed a trend where a higher proportion of IT graduates are being recruited into ERP consulting compared to 20 years ago when more talents from finance, manufacturing, and logistics backgrounds were joining the ERP industry. It seems that consultants with an IT background are more inclined to adopt customization as the solution.

Tier-1 and Tier-2 ERP

The implementation of tier-1 ERPs was typically more complex, difficult, and costly. In a growing market where more small and medium-sized enterprises (SMEs) can afford ERP systems, tier-2 and tier-3 ERPs are expected to dominate the market. There are very few companies in Singapore that strictly qualify for tier-1 ERP based on the criteria of having revenue greater than USD 500 million.

Consultants of tier-1 ERPs usually have less new project implementation experience as they work on fewer new project implementation cycles than tier-2 and tier-3 ERP consultants. Many have little to no new project implementation experience after years of working as ERP consultants. They spent most of their careers on support, enhancement, and upgrading projects. The lack of experience adds risks to new project implementation.

Since there are fewer new projects, even well-known ERP vendors keep a minimum consultant headcount and engage outside contract consultants when there is a new project. The contract consultants are paid per man-day and the projects are often charged by man-days. This often results in project overruns as there is little incentive for contract consultants and vendors to complete the project early because they will lose their jobs and revenue once the project is completed.

Cloud ERPs are becoming the Only Choice

Cloud ERPs are becoming increasingly popular, not only because they benefit customers, but also because they have a positive impact on vendors’ share prices, recurring revenue, and provide a more predictable future revenue stream.

Customizing cloud ERPs is becoming more challenging, even with technologies such as extensions and plug-ins. ERP vendors who heavily rely on customization for higher profits will find it increasingly difficult to continue doing so.

The COVID-19 pandemic has driven companies to adopt cloud solutions to enable work-from-home arrangements, which will be beneficial during similar events in the future.

Technologies vs Business Process

Technologies such as integration with MS Office, AI, and e-commerce are making ERP systems more user-friendly. However, the execution of core business processes remains the most essential aspect of ERP, despite being less exciting.

Open-source ERPs can be challenging and ultimately costly to implement due to their reliance on customization.

Conclusion

The ERP industry in Singapore has undergone significant transformations over the past three decades, evolving through economic cycles, technological advancements, and changing market demands. From the early days of ERP mergers and acquisitions to the more recent focus on cloud-based solutions, the landscape has continuously shifted, forcing vendors and users to adapt.

As we move toward the future, ERP vendors in Singapore must be mindful of the unique challenges posed by a maturing market. Falling margins, increasing competition, and the need for specialized expertise will define the next phase of this industry. Vendors must rethink traditional strategies, especially around customization, consulting services, and user expectations, while balancing technological advancements like cloud ERP.

For ERP users, the key takeaway is clear: careful vendor selection, staying updated on evolving trends, and focusing on long-term efficiency are essential for navigating the complexities of ERP solutions in a rapidly changing business environment. As ERP systems become more affordable and accessible, especially for SMEs, it’s important to make well-informed decisions that align with both current needs and future growth.

There are many lessons for ERP vendors from developing countries to learn from the Singapore experience.

In the final part of this series, we will explore concrete recommendations and lessons learned from Singapore’s ERP journey—offering guidance for both vendors and users to thrive in this evolving market.

Author: Raymond Yap.

1st ERP Consulting offers consulting services and advice to help you “Optimize your business through better ERP Practices“.  Contact us today to schedule a discussion. We can help you strategize and optimize your ERP business, ensuring you are prepared for the challenges ahead.

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