Opportunities Change for the ERP Market

June 1, 2003
The Enterprise Resource Planning (ERP) market within the manufacturing sector is forecasted to rebound over the next five years and grow from $8.9 billion

The Enterprise Resource Planning (ERP) market within the manufacturing sector is forecasted to rebound over the next five years and grow from $8.9 billion in 2002 to $11.9 billion by 2007 for a CAGR of 5.8 percent, says Steve Clouther, ERP Analyst for ARC Advisory Group. General market uncertainty and persistently weak global economic trends had a negative impact on the ERP applications market in 2002 as annual revenues declined -0.6 percent from 2001. Despite the slow, challenging market, many manufacturers regard the current business climate as a good opportunity to take decisive steps aimed at revamping their operations and making them more cost effective.

The world economy remains difficult and the geopolitical environment is still unpredictable. The biggest difference between the situation a couple of years ago and now is that companies are investing almost exclusively in order to generate greater cost effectiveness. In late 1999, there was a huge surge in ERP implementations as businesses around the world prepared for the Y2K situation. Now, four years later, the motivation is for the manufacturers to be replacing or upgrading their ERP solutions.

Tier 2 Companies Lead the Market

Tier 2 now accounts for the highest percentage of ERP revenues, surpassing Tier 1 by more than 10 percentage points.

Tier 2 accounted for 41 percent of the total ERP market in 2002 and, with a CAGR of 6.3 percent, will continue to grow its share. The high adoption rate of ERP among the Tier 2 companies is driving this growth. The larger Tier 1 ERP suppliers are responding by re-architecting their solutions for this segment. Many of these businesses are in Europe and this geography has become a driver for growth.

Another driver is services. Within Tier 2, ERP services represent more than 68 percent of the total revenues.

ROI Is the Business Driver for ROI Procurement

Suppliers are now developing and offering pre-packaged solutions for the small and medium size businesses with pre-defined set costs and implementation schedules. Packaged Solutions are pre-configured software and services that let users take a modular approach to technology investment, as well as a phased approach to implementing a complex business solution. These Packaged Solutions address the business' most pressing problems first, with predictable schedules, costs, and time to ROI.

The ERP solutions now have solid business knowledge management functionality to make it easier to track and model business parameters and improve ROI. ERP solutions are also addressing the extended enterprise with integration of the back-office with the front-office. This helps deliver value-added products and services over the full length of the value chain, spanning customers, suppliers, manufacturers, distributors, financial institutions, and strategic end users.

Growth Opportunity Is in Europe, Middle East, and Africa

Geographically, Europe, Middle East, and Africa (EMA) account for 44 percent of the 2002 ERP revenues for software and services, followed closely by North America at 42 percent. In 2004, Poland, Hungary, the Czech Republic, Slovakia, Slovenia, Estonia, Latvia, Lithuania, Cyprus, and Malta will all become members of the European Union, and as the European Union expands and the euro becomes stronger, EMA will solidify its leadership position.