They do it like that in the Balkans -- Select and deploy ERP, I mean (Part I)

The launch of TEC’s blog has somewhat coincided with my visit to Belgrade, Serbia (what used to be Yugoslavia and then Serbia & Montenegro) for personal reasons. Those several days spent in my homeland in late October/early November (whereby I missed my beloved Boston Red Sox’ winning the MLB World Series ’07 Championship, darn it!) I at least used this time to also learn about the enterprise applications market in that region, and maybe even in the entire Balkan region. I have never seen any such market report from any other analyst house about this (possibly obscure) region, and I thought this topic might be of interest to our (curious) readers as well as to me. To be fair, I've seen other similar trip reports, such as this recent one about the Australian enterprise applications market.

Well, it appears that in Serbia (and in all other countries from the former Yugoslavia), there is today still not a mature enterprise applications market per se, as opposed to in the developed Western world. On one hand, the variety of offerings is far from being sufficient, while on the other hand, the prospective buyers’ awareness and education about what and why they really need is not developed either. Consequently, most purchased and deployed enterprise resource planning (ERP)/accounting systems are those products that have somehow already become a brand name in the market (the so-called Coca-Cola phenomenon). Alternatively, prospective user firms simply buy the cheapest option, regardless of the (mis)fit and possible ramifications. Such a situation seems to be in all spheres of information technology (IT) – hardware, software, telecommunications, etc. (if not even in virtually all spheres of business and life). But I digress...

One should, however, note that the former Yugoslavian market, never having been behind the Iron Curtain, had an enviable tradition of both local entrepreneurs and state-owned enterprises developing their own software applications from scratch, even at a time when the term ERP had not even been coined yet. Thus in the late 1980s and early 1990s, the market was dominated by the software products of many domestic companies, such as former (now defunct) SDC-CIP’s Mozaikus (a.k.a. Comand 2000) product, former Digit’s Hefis product, meanwhile renamed into FIS (Financial & Industrial Systems) and arguably SAGA’s Avizo product. These firms and their respective products held at the time about 80 percent of the market, while many new companies emerged later like M&I Systems , Breza Software Engineering , Spinaker, ABsoft, Mihajlovic Soft , etc.

Some of these companies are apparently no longer in business, while the others have meanwhile diversified their offerings to become reseller partners for Microsoft, Fujitsu, Oracle and so on. One ERP product that deserves due mention here is Apollo, not only for weathering all the storms of the 1990s to survive today, but also for keeping abreast of modern developments. Namely, its fourth generation product, dubbed ApolloG4, boasts a multi-tenant software as a service (SaaS) architecture for on-demand deployments, in addition to solid multi-national capabilities. But I digress again, and Apollo will get an in-depth coverage in a separate blog post or in a research article on our web site/newsletter...

Going back to the era of late 80’s & early 90’s, Oracle was the main provider of underlying relational database management systems (RDBMS) and development tools, whereas IBM DB2 also played a part (albeit to a much lesser degree). Much later, software developers started using Microsoft SQL Server and related cheaper integrated development environment (IDE) tools (or, until recently, one could use even “alternative channels of supply”, i.e., piracy). The protracted crises (the regional wars and the United Nations [UN]’s sanctions throughout most of the 1990s) have tremendously weakened (if not even put out of business) many domestic ERP vendors.

Given that at the time one could count on the fingers of one hand the number of successful manufacturing companies, demand for business software was extremely thin, so that only some privileged enterprises (under the patronage of the government, so called „government budget enterprises“) would purchase an ERP solution. These were Naftna Industrija Srbije (NIS) or the Serbian Oil Corporation, Elektroprivreda Srbije (EPS) or the Serbian Electrical Utilities, the Serbian Government and its umpteen ministries , as well as some government agencies and institutions. Certainly as a separate lucrative segment, there were banks and insurance firms, which, beside telecommunications, such as government-owned Telekom Serbia and former Mobtel (now Telenor), were the only enterprises able to afford the modern IT systems and services.

A particular blow for many avant-garde domestic ERP providers in the 1990s was the closing of Oracle’s office in Belgrade. Amid UN sanctions and NATO bombing, some resilient ERP entrepreneurs were left to their own scarce means to continue developing and supporting their applications. However, the positive political and economic changes that took place after October 5, 2000 (when the Serbian velvet revolution took place) have resulted in the emergence and penetration of foreign packaged software systems into the Serbian market.

Interestingly enough, before Oracle returned Microsoft was one of the first to arrive (in great part due to a deal with the new Serbian Government to provide the standard IT infrastructure solution for all government agencies). But, beside its common infrastructure and desktop products, Microsoft then brought something new – the Microsoft Dynamics NAV ERP product (at the time known as Navision). Soon after, the Serbian market witnessed Baan (then part of Invensys, today known as Infor ERP LN) via its value added reseller (VAR), followed by Oracle, who initially only offered its infrastructure and middleware, but not necessarily Oracle e-Business Suite (EBS). Former PeopleSoft/JD Edwards (well before being acquired by Oracle) and, of course, SAP also followed suit.

Certainly, there were still a number of lower-end accounting products that had meanwhile been developed in Serbia even if under adverse conditions. These products came out of the needs of smaller enterprises, which were not ready to pay more than a few hundred German Marks (later Euros) per month (the price entailing both the software license fees and implementation costs) for their accounting needs (i.e., regulatory compliance imposed by the state).

In any case, in 2001 and later the Serbian ERP market became a hodgepodge of available products, to a such degree that at some tenders (selections) one could witness up to 30 contesting vendors offering their products in the range of contract prices from Euro 150 to Euro 2 million (?!). One could then imagine the ludicrous task of a selection committee to select the best solution if the main selection criterion was the price. For that reason some tenders would be repeated several times in order to set criteria that would eliminate unsuitable solutions to enter the contest. That was also the time when certain consulting houses entered the picture. For the price of an arm and a leg, they offered their selection services, which would include some criteria and contract terms that could easily render some vendors as favorites.

During last seven years or so, the situation has become much clearer, and the market has been stratified into the following three segments/tiers:

  1. The buyers of the most expensive, top-of-the-range Tier 1 ERP solutions,

  2. The buyers of moderately expensive, middle-of-the-range Tier 2 ERP solutions, and

  3. The buyers of the least expensive, Tier 3 ERP solutions.

When one attempts to segment the enterprises in Serbia, it is most natural to divide them into the large, mid-size and small ones, as well into privately or state-owned, and also by the industry vertical. Certainly, from the buyers’ angle and their possible needs, one could think of other segmentations, but the above tiering of Serbian ERP market should be sufficient here. Given that every market consists of demand and supply, let me try to describe each segment/tier in terms of buyers and vendors.

Tier 1 – the potential buyers here are the abovementioned public and government-owned enterprises: the Serbian Government and its institutions, and large manufacturing, retail and export/import trading enterprises that have meanwhile become privatized (as it is so popular and politically correct to say in Serbia these days “they have completed the transition”). As we will shortly see, most of such privatized companies have been sold to multinational companies who then often brought in their own already implemented enterprise solutions. The estimated number of such enterprises, and thus potential users of Tier 1 ERP systems would be between 100 and 150, but it is not unrealistic to expect as many more in a couple years or so.

This market segment already seems to be largely captured by SAP. According to data from SAP West Balkans , which covers Serbia and a few other countries from former Yugoslavia, SAP ERP has nearly 50 corporate customers in the region. For many privatized enterprises, given that the parent company in Europe has SAP as a corporate-wide ERP standard, recently acquired plants or divisions in Serbia were given the mandate from the HQ office to roll-out SAP. Enterprises like ZDRAVLJE "Actavis" Company (a drug manufacturer in Leskovac), Tetra Pak Balkans, or Duvanska Industrija Nis (DIN), a cigarettes manufacturer and part of Philip Morris International, would represent well SAP's client roster. Certainly, SAP’s brand recognition and leadership position worldwide have played a part in the decision-making of other customers, which are not necessarily owned by a SAP-using foreign entity.

Inevitably, the fiercest competitor to SAP Business Suite is Oracle EBS, albeit with only a handful of installations in Serbia, mainly owing to its apathetic regional marketing effort for its ERP solutions. The most notable Oracle EBS users are Narodna Banka Srbije (NBS) or the National bank of Serbia, “Vojvodjanske Toplane” Novi Sad (a public heating utility in the city of Novi Sad) and Aerodrom Nikola Tesla u Beogradu or the Belgrade Nikola Tesla Airport. Oracle has some additional presence, because one investment fund (Salford) has bought a majority of dairies and some food and mineral water plants in Serbia (thereby establishing the Danube Food Group in Serbia). The corporation has been trying for years to implement JD Edwards (first acquired by PeopleSoft, and now part of Oracle) as its ERP standard. There are also a few notable companies with instances of Baan due to its distributor’s timely entrance in the market in the early 2000s.

But, in a nutshell, SAP currently has a very little competition in this market segment due to Oracle’s tepid marketing approach and because the former Baan distributor company, ITS Intertrade Sistemi was acquired in 2004 by the SAP reseller, Austria-based S&T Group. There are simply no other viable upper-market and/or specialized solutions in the market, such as Lawson M3, Infor (a plethora of possible offerings), Epicor iScala, QAD Enterprise Applications or IFS Applications. The reasons for the lack of competition might be multiple – from these ERP vendors’ estimates that the Serbian market is too small and not worth the investment, to the possible political instability and the fate of ongoing reforms in the region, and so on – but the Tier 1 ERP supply situation is so.

Part II of this blog topic will continue with analyzing the rest of the Serbian ERP market segments. In the meantime, please send us your comments and feedback, especially whether you recognize any above attitudes and practices in your regional market too.
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