ERP vendors drop prices by fifty per cent

Small and medium enterprises in India are on track to spend $37 million on ERP solutions.

Small and medium enterprises in India are on track to spend $37 million this year on enterprise resource planning (ERP) solutions, a growth of 21 per cent over last year. Much of the impetus for this growth will come from small businesses.

According to a recent report by AMI Partners, the forecast for 21 per cent growth in small business ERP spending this year is due to more than 50 per cent reduction in prices by large branded ERP vendors.

According to Partha Sarathi Sengupta, senior analyst at AMI, "Earlier, a 10-seat ERP license and its installation would cost around Rs 10-15 lakh. Now, ERP vendors like SAP, Oracle, Microsoft, and others, have reduced prices to Rs 2.5-5 lakh for similar products and offerings."

As a result, SMEs, especially price-conscious small businesses, who can now afford branded ERP solutions, are benefiting from this price war in the ERP space in India.

With the reduction in prices, the growth has been mainly in volume terms, as SMEs find branded ERP solutions more affordable now.

However, this may have proved to be a disadvantage for the local ERP vendors, who earlier used to be the preferred choice of SMEs because they offered similar products at lower prices.

Although local ERP vendors understand the special requirements of Indian SMEs, it is difficult for them to evolve their products quickly enough compared to the rapidly changing technology and business environment. Larger ERP vendors, like Microsoft, Oracle and SAP, are cashing in on this shortcoming by lowering end-user prices.

As it stands now, the ERP market in the large enterprises space in India is stagnating because of saturation over the last few years. This, automatically, made ERP vendors focus more on nascent markets for ERP solutions like the SMEs.

Moreover, India's ERP space for SMEs was once dominated by a multitude of small ERP vendors. That is also being challenged now by giants like SAP, Microsoft, Oracle, and others.

"The large ERP vendors are now interested in volume business and have tailored their strategies for the special needs of the SME market," Sengupta said.

The top five factors that influence the buying decision of Indian SMEs for ERP solutions are purchase and installation price, ease in implementation, return on investment, product flexibility and scalability, the functional fit with the SME's business process and long-term support.

Larger ERP vendors, having more than halved the prices, are now cashing in on this opportunity.

"Customising a horizontal application to suit Indian SMEs requirements extends implementation time and puts an additional burden on budgets," Sengupta said.

"SMEs require solutions that give them as much out-of-box functionality as possible so that they can reduce implementation time and costs," Sengupta added.

The low-cost ERP solutions are by no means the pared down versions of ERP. This gives an opportunity for SMEs to evaluate logically which of the large ERP vendors best fit their specific operations.