ERP Adoption amongst Indian SMEs

CONFIANZYS CONSULTING PVT. LTD.
ERP Adoption among
Indian SMEs
Status Quo & Challenges in the Indian Market:
A Sectoral Analysis

Contents
1. The Indian ERP Market..................................................................................................................... 3
2. Study Background ............................................................................................................................ 4
Glossary ............................................................................................................................................... 5
3. ERP for the Textiles & Apparel Industry........................................................................................... 6
Research Findings ................................................................................................................................ 7
Inferences ............................................................................................................................................ 8
4. ERP for the Real Estate & Construction Industry ............................................................................. 9
Research Findings .............................................................................................................................. 10
Inferences .......................................................................................................................................... 11
5. ERP for the Packaging Industry ...................................................................................................... 12
Inferences .......................................................................................................................................... 15
6. ERP for the Logistics Industry......................................................................................................... 15
Inferences .......................................................................................................................................... 17
7. ERP for the Heavy Machinery & Tools Industry ............................................................................. 18
Inferences .......................................................................................................................................... 20
8. In Summary.................................................................................................................................... 21
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Company Confidential: Confianzys Consulting Pvt. Ltd August 2010
www.confianzys.com Email: engage@confianzys.com

Enterprise Resource Planning (ERP) can be defined as the use of an integrated software package
to bring together various business departments such as Manufacturing, Finance, Human
Resources, Payroll and Sales. In practice, companies may choose to integrate specific
departments where integrated working and visibility is seen as critical to cost optimization as
well as profitability.
ERP is not new to the Indian market; yet, as compared to developed markets, the Indian market
for ERP is highly fragmented. IDC’s report on the India Packaged Software Market (2009‐13)
estimated the domestic market for ERP in 2008 at $263.3 million.
The three largest players in the market are SAP AG (the global leader), Oracle Corp (which has
acquired other ERP vendors such as PeopleSoft and Siebel) and Microsoft Corp., a relatively late
entrant and smaller player.
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
adhering to the definition of an ERP system.
At Confianzys, we believe that post the downturn of 2008‐09, 2010‐11 are poised to be exciting
and challenging years for ERP vendors and implementation partners. This report, based on our
in‐depth research conducted with ERP users and potential users across 5 key industry sectors, is
aimed at helping those in the ERP industry better understand the market dynamics as well as
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1. The Indian ERP Market

outlook. It covers the status quo of ERP implementation in these sectors as well as the
underlying factors driving current and future implementation.
Learning Outcomes Expected from this Report
(Across 5 sectors: Textiles & Apparel, Real Estate & Construction, Packaging, Logistics &
Transportation, and Tools & Heavy Machinery)
• Current State of ERP Implementation
• ERP Vendor Share
• Drivers/Barriers to ERP Adoption
2. Study Background
The study was conducted among 5 sectors (mentioned above), with respondent companies
situated across India. The target companies approached were all in the small and mid‐sized
enterprises (SME) bracket with turnover in the Rs. 30 to 100 crores ($6 to 22 mio) range. The
respondent actually interviewed was the IT Manager or Finance Manager. Interviews were
conducted telephonically.
The total sample size for the study was 228.
4

• Global Players: Market participants whose origin may be from any country (including India),
but whose current operations extend across geographical borders. Examples include SAP,
Oracle, Quadra, Tally etc.
• Unbranded ERP: ERP products from extremely small and regional players, where frequently,
5
A sector‐wise break‐up is given below.
Fig 2.1 Respondents interviewed, by sector (Number and %)
Glossary
Some of the terms used for purposes of this study are explained below:
• Local Players: Market participants whose origin as well as area of operation is solely Indian.
• In‐house ERP: ERP projects that have been implemented by the company’s in‐house staff.
the client is unable to recall a brand name; these players tend to be local.

• Others: Branded ERP products, which individually account for a very small proportion of
that market, and have therefore been grouped together; these could be global or local in
origin.
The textiles and apparel industry in India precedes liberalization by many decades and has been
an industry of some importance due to its employment generation. However, traditionally, the
industry has been highly fragmented and a slow adopter of technology. Post liberalization, the
industry has geared up to compete in the global market where it faces immense pressure from
other low‐cost producers such as Bangladesh, Vietnam and Sri Lanka besides China, which
operates on a gigantic scale of its own.
The need for higher productivity and business efficiency has been the driving factor for ERP
implementation. However, while there are some “full‐service” manufacturers, most textile and
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
therefore more affordable packages that can work on limited resources and deal with fewer
departments and processes.
Some of the key drivers that have motivated the industry to modernize and adopt technology,
including ERP are:
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3. ERP for the Textiles & Apparel Industry
• Widening customer and supplier base in a global economy

Research Findings
Our study findings reveal that 58% of the target respondents had an ERP system of some kind.
Of these, 45% had a complete ERP solution and another 34% had a partial solution, while 21%
of respondents were unable to or did not provide a response to this question.
As for choice of product, SAP ERP had been used in only 14% of cases. A large chunk of the
companies surveyed had opted to use either an in‐house ERP solution or an unbranded
product. Tally accounted for a smaller 7% of cases.
It is interesting to look at a break‐up of the partial implementation cases, in terms of the
product applied. In 60% of cases where there had been partial implementation, the in‐house
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• Shorter lead‐times and increasing demand for just‐in‐time supply
• Backward and forward integration, in order to capture a larger share of the value chain
Fig 3.1 Whether ERP Implemented Fig 3.2 State of ERP Implementation

ERP was used, which implies either limited objectives to begin with or an inability to deal with
the integration of complex and disparate processes.
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 ERP which organized
players have not been able to capitalize upon. While cost could be a consideration, unbranded
players could also be making inroads because of a higher level of familiarity with the Indian
apparel industry and its specific requirements. Requirements analysis will therefore be critical
for key ERP vendors hoping to penetrate this market, in order to identify better the level of
customization actually needed.
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Fig 3.3 Share of Players Fig 3.4 Share of Players (Partial Implementation)

While a 58% rate of adoption in the SME textile and apparel sector points to a reasonably
mature market, the relatively high percentage of partial implementation (especially accounted
for by in‐house ERP) also points to hiccups with integrating different processes. This could be
because in‐house teams may not have the capabilities needed to integrate complex processes
in the required time. The total cost of project ownership rather than solely the product license
purchase cost is therefore a factor that organized ERP vendors could emphasize to the market.
The real estate industry in India faced a temporary slump in 2009 due to cautious consumer
and business sentiment. Infrastructure construction however has been growing due to large
governmental projects, and commercial as well as residential construction is soon expected to
pick up pace. The industry is highly fragmented with a handful of large players who have risen
to prominence in the last decade.
The industry has faced a challenge with hiring and training the high‐skilled managers needed to
complete large projects on time. Another challenge is efficient cash flow management and
access to finance, since project time over‐runs are common, on both public and private sector
projects. Other challenges include logistics and materials management (since vendors in this
industry tend to range from large, organized players to many smaller players from the
unorganized sector) and growing awareness of regulatory and safety issues, and the need to
maintain proper documentation on these.
9
4. ERP for the Real Estate & Construction Industry

including ERP are:
• Need for collaborative information management among the large number of internal and
• High rates of attrition leading to “knowledge loss” and therefore realization of the need for
• Growing to a more professional work style that includes attention to hitherto neglected
Research Findings
Our study findings reveal that only 38% of the target respondents in this sector had an ERP
system. Of these, 68% had a complete ERP solution while 32% had a partial solution.
10
external teams involved in construction projects
a more process‐driven than person‐dependant approach
areas such as risk management, performance management and safety management.

As for choice of product (within the small sample where ERP was implemented), Tally
accounted for 21% of cases. This was followed by SAP and Quadra at 16% each. These were the
top 3 players in the market, although other organized players too seem to have got small
footholds.
Inferences
The low rate of ERP adoption in this market likely reflects the market maturity in terms of its
movement from an unorganized industry characterized by informal working and financial
arrangements to a more professional one. In the SME sector, it is likely that this process is still
underway and at a slow pace. The low reliance on in‐house ERP can be attributed to the fact
that few mid‐sized companies in this sector have large internal IT departments, thus forcing
them to look towards established firms. It also points to the fact that in‐house management
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Fig 4.3 Share of Players

capabilities for taking forward ERP implementation are likely to be low – this is a sector that will
need extensive post‐implementation support and training from vendors.
The packaging industry in India spans a wide range of materials such as glass, plastic,
aluminium, tin, paper and board as well as packaging technologies ranging from the simplest to
the most technologically advanced. In the last 2 decades, the industry has undergone significant
automation, although labour‐intensive manual packaging continues to be used by some
product sectors. Due to the wide range of materials and technologies, the industry is home to a
very large number of players, from small‐scale enterprises to industrial behemoths such as ITC
Limited and Hindalco.
Since packaging is primarily a “feeder” industry, it has faced enormous pricing pressures from
its end‐users across sectors such as household products, food & beverages, electronic goods,
pharmaceuticals etc, most of whom have been reluctant to pass on higher prices to consumers
in the recent past. The growing export orientation in some sectors has also meant higher
regulatory compliance demands on packaging manufacturers in the organized sector.
including ERP are:
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5. ERP for the Packaging Industry

• Greater need for cost visibility, with rising input prices and downward price pressures from
• Movement from manual to semi‐automatic to fully automated manufacturing processes,
with automated production freeing up production management resources for value‐added
roles
• Closer integration with buyers’ manufacturing, leading to shorter supply chain and lead
• Larger role for demand forecasting led production, and greater interest in maintaining
• Demand from buyers that packaging suppliers focus beyond basic quality and deliveries to
Research Findings
Our study findings reveal that 46% of the target respondents in this sector had an ERP system.
Of these, 32% had a complete ERP solution while 36% had a partial solution. (Data was not
available in the other 32% of cases).
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buyers
times
lower inventories
include higher value on packaging innovation and design

The data reveals that in the target segment, there are many competing players with small
shares of the market. Tally is the only player with a significant share (32%) with most other
global players having smaller shares ranging from 5 to 15%. Local players account for another
27% of the market. Since global players have the larger share of the market (and there is very‐little
in‐house ERP), the analysis of partial and complete implementations by player does not
14
reveal much.

Inferences
46% is a fairly good rate of implementation and reflects the maturity of the industry in terms of
adopting technology. This sector seems to be characterized by intense competition among all
the global players, with unbranded players too vying for a share of the pie. The meager share of
in‐house ERP reflects that this is a competitive but promising sector for ERP vendors, since it is a
sector where the need for professionally implemented ERP is already being recognized.
The logistics industry as covered in this study includes courier and logistics, as well as
warehousing and transportation. The logistics industry in India is still at a nascent stage when it
15
6. ERP for the Logistics Industry

comes to organization and professional management. The bulk of the industry consists of
extremely small players, such as trucking companies with a few trucks, individual warehouse
owners, small Cost & Freight agencies etc. The exception perhaps is the courier and cargo
industry, which has grown rapidly and includes large, organized Indian as well as multi‐national
companies. The industry, although growing rapidly, faces many challenges such as poor road
and port infrastructure, complex and non‐uniform tax structures and poor quality of manpower
at the managerial level.
Since the majority of the industry is in the unorganized sector, the deployment of IT, including
ERP has been slow in this industry.
Research Findings
Our study findings reveal that only 12% of the target respondents in this sector had an ERP
system. This extremely low number reflects the nature of businesses in this industry, few of
which are professionally managed or large‐scale. Of the small number that did have an ERP,
only 33%, (corresponding to 1 respondent) had a complete solution.
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Among those who did have an ERP (3 cases), SAP accounted for 1, while the other two are done
in‐house, thus not being strictly off the shelf ERP solutions.
Inferences
The numbers reveal that at least among the SMEs in this sector, there is still very little
awareness of the benefits that an ERP solution could confer. Perhaps the scale of operation and
the nature of management too do not make ERP implementation imperative. Our findings
reveal that the SME portion of the logistics sector is not likely to be easy to convert for ERP
vendors, at least in the short term. Considering the higher levels of awareness and readiness in
other sectors, this sector may not therefore be a priority for ERP vendors, except for its small
organized component.
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Boosted by rising demand from various industries such as infrastructure, power, iron & steel,
railways, mining etc, the heavy machinery and tools industry in India has seen rapid growth in
the last decade. This sector includes diverse categories such as industrial machinery, earth‐moving
equipment, machine tools and electrical equipments. Being capital intensive, it includes
many large and mid‐sized organized players with a high level of professional competence and
management based on best practices. Some giants such as Larsen & Toubro and HMT cater to a
wide range of industries while others specialize in machinery and tools for selected end‐users
such as textiles or the dairy industry.
In some sectors, the industry is hampered by legacy equipment and processes that have kept
productivity low when compared to global standards. Although competitive in labour terms, the
Indian market also suffers due to the lack of indigenous research into emerging and best‐of‐breed
technologies over the years of the license‐permit era before liberalization. Due to these
factors, the industry has not been able to compete globally, but remains dependent on the
domestic market, which is nevertheless a vibrant one.
including ERP are:
• To gain best results from core manufacturing improvement initiatives such as Six Sigma or
18
7. ERP for the Heavy Machinery & Tools Industry
Kaizen
• For better cost control and visibility into costs

• To improve collaboration between design and manufacturing and reduce time to market in
Research Findings
Our study findings reveal that 60% of the target respondents in this sector had an ERP system.
Of these, 33% had a complete ERP solution while 37% had a partial solution. (Data was not
available in the other 30% of cases).
The choice of product data throws up some surprises: while SAP is the single largest commercial
player accounting for 23% of cases, in‐house ERP is even larger, accounting for 27% of ERP
installations. This perhaps indicates that considering the capital‐intensive nature of this
industry, ERP is seen as a significant investment – using in‐house resources to develop an ERP
19
a competitive environment
• Greater exposure to international markets leading to export possibilities

system could be an attempt to trim project costs or cope with very long‐drawn out
implementations and the consequent hand‐holding required. Global firms (as a whole) account
for the majority of all installations and the same goes for both complete and partial
installations.
Inferences
The relatively high level of respondents with ERP systems (60%) reflects on the maturity of the
industry and its high level of willingness to adopt technology to improve business processes.
However, in‐house ERP and unbranded ERP together form a good 37% of ERP installations,
indicating that many of these are not ERP in the strictest sense of the term, but instead, fully
customized solutions that may or may not follow accepted best practices. The reason for these
20

could be two fold – either cost considerations or a feeling that established ERP packages do not
meet the unique needs of heavy machinery firms in India. Branded ERP manufacturers
therefore have some way to go in addressing these barriers to adoption.
It is evident that at least in some sectors such as packaging, heavy machinery and textiles, there
is considerable interest among SMEs in implementing ERP solutions and improving productivity.
There is scope therefore for industry specific solutions, given the distinct requirements of the
Indian market.
Even in the case of companies where there is reluctance to go in for ERP, part of it is definitely
attributable to the fear of investing large amounts in a solution that they are not entirely
confident about. For such companies that do have some interest in putting in such processes
but are fearful of the costs, Software as a Service (SaaS) models may prove more successful.
The lower front‐up costs of SaaS ERP and CRM models may make them more attractive to
SMEs, besides the ability they offer to evaluate results on a pay‐as‐you‐go basis. It also frees
them from the fear of being caught in long lock‐in arrangements.
There is of course a third segment of companies (for e.g. in the logistics industry), where there
is low interest in ERP, not just because of costs, but also because of senior management’s
discomfort with new technology and processes. With such SMEs, ERP providers will find it less
easy to make inroads, regardless of the sales model used.
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8. In Summary

While success stories are present, the Indian SME market is still relatively slow on the road to
adoption of such technology, and ERP solutions will need to take into account its peculiarities
and predilections.
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
Management areas.
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About Confianzys Consulting:
For more information, please visit http://www.confianzys.com.

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