Since Henning Kagermann took the post of SAP's
leader over a year ago he has led the company through a tough
business environment in 2003 and has reported solid first-quarter
results on the back of strong growth in sales of its enterprise
resource planning software products in the US.
Kagermann and Dell chairman and chief executive officer Michael
Dell have highlighted an expanded partnership between the two
companies.
Kagermann and Dell will embrace the "scale-out" strategy of
enterprise computing, where more nimble and less expensive two-way
and four-way servers take the place of the larger SMP (symmetric
multiprocessing) servers which dominated datacentres over the past
decade.
Kagermann discussed the expanded relationship between Dell and
SAP as well as the general state of the economic recovery in Europe
and the expansion of the European Union from the perspective of the
German software supplier.
What does today's announcement mean for your
company?
This was more to highlight what the partnership in place already
has achieved. It is important to show sometimes what it has been
like.
This is for me more the proof point that the [scale-out]
strategies work. You’ve seen the customers, you’ve seen the proof
points in TCO [total cost of ownership] reduction in the migration
results, and you've seen the proof points in that it works even in
an environment in which the customers didn’t think it would
work.
That's what this was about, to show to the market that these are
not ideas; it works. This confirms our strategies for the workforce
to scale out, it confirms our strategy that there is TCO savings.
This is normally the way partnerships should work.
Are you drawn more to Dell as a hardware partner because
it doesn't have its own application business?
No, I would say the speed to focus on this specific topic was
very high at Dell because it was one of their key focuses. So we
were talking to the others are as well, but he [Michael Dell] was
very focused on this so we could make this announcement very
early.
That doesn't mean that others will not do similar things.
What is the state of the technology market in
Europe?
Fundamentally, it's true that Europe is lagging, there's no
doubt. If you look to SAP and SAP results, there is distortion.
People look to 65% increase on a constant currency basis on
software ([revenue] in the US, and then the 2% to 3% down in
Europe. This is too big [a discrepancy].
Our execution in the US is now after the last year much better
than it was two or three years ago. So therefore, I think here we
are in a catch-up mode. Europe was very strong [when looking at]
market share.
If you look to the market, it's true that the US companies are
more open for investment than in Europe. They are more
enthusiastic, and that’s not a surprise. We indicated at the
beginning of the year that would happen, we saw Europe was lagging
two quarters behind. We expect licence growth in Europe this year.
But we definitely see the US as driving that growth.
That seems to be the case, historically, when looking at
past recoveries.
This is not the first time. I remember we had years where the US
went up, and then everybody said in the investment community that
Europe has to catch up, and Europe didn't.
We at SAP had quite a stable business in Europe, but Europe was
not catching up. So now everybody is waiting, and the US economy is
picking up again. You see people were more optimistic here, and
Europe follows. That’s a pity, but that's always how it goes.
Do you think it's different this time around in that the
European Union has been formed?
That’s true, it’s a little more homogenous. But still, the
environment in the countries is different. I would still view
Europe as a bunch of 30 countries. You can see there are countries
that are doing quite well and others that are not doing well.
The time until you can really view Europe as one entity is 10 to
20 years [away]. Europe has to invest a lot in Europe to make it
happen first, that’s my theory.
One of the reasons why Europe is still struggling in economic
terms, and we see it in Germany, is that we have had a big
unification [effort] for over 10 years. You look to the issues
Germany has, and I think it's partially because of the big
investment and the big struggle to unify these two countries.
Now look to Europe, and now we get eight or nine or 10 countries
on a very low level. [Ten new countries will join the EU on
Saturday]. Now, it’s much better there than 10 years ago. If you go
there, like to Hungary, things are much better there than in the
1990s.
But still, the salary level [in those countries] is 20% to 25%
that of Germany. It’s a big discrepancy. We get a lot of the labour
force coming in which works for 20% of the German average
worker.
You cannot say this is one big entity. It will over time become
closer, but we are not there yet.
Do you see that as an opportunity for your company, in
that you can tap into a less expensive labour force right in your
backyard?
I see it as an advantage. We did the same as US companies, we
have invested in China, and we will continue. But the east of
Europe is another place for us. It's closer, it's the same culture.
But we have done more in India and China so far, so we have to ramp
up in the east of Europe. Like in Bulgaria, we will do more
there.
In India we have over 1,000 people, and we’ve been there five
years. We did it very carefully, and we know how to manage it now
so we can, to some extent, scale.
It can be an opportunity for us to invest in low-cost areas of
the EU right now. The risk is lower because the currency is the
same. You cannot invest only in India, the risk is too high. The
next big piece will be the east of Europe.
Tom Krazit writes for IDG News Service