International Internet Magazine. Baltic States news & analytics
Wednesday, 22.05.2013, 13:51
ERP market in Latvia: a view of insider
|Peter Pavuk at a roundtable in the BIA. Riga, 27.04.2011. Photo by Maris Morkans.|
The article was prepared for the Roundtable-Seminar held in the Baltic International Academy (BIA) on 27 April 2011. Its organisers: BIA, online magazine The Baltic Course, Employers' Confederation of Latvia and the Diplomatic Economic Club (DEC).
Modern ERP systems are products with complex and highly developed business logic, as a rule, covering all more or less typical business processes. In most ERP systems there are integrated embedded development tools that allow you to modify the logic of the system to the requirements of specific business.
It is obvious that the implementation of an enterprise resource planning (ERP) system aims to increase the efficiency of the enterprise through better management processes, and as a consequence – lower costs, both of personnel and technical means.
Choice of platform
Modern ERP from different vendors are usually very close in functionality. Both major foreign players such as Microsoft, SAP, Scala, and local solutions are presented on the market. Many years working with products Microsoft, one should still pay tribute to competing systems, and acknowledge that they have no fundamental differences. More important is not the functionality of the system, but the choice of supplier, who can fully realise the opportunities inherent in the product.
Choice of vendor
And here we encounter a major problem – how to choose a partner able to actually realise the implementation of an ERP system in the enterprise? The Latvian ERP market is small, I would estimate the total sales of ERP systems and related products in the 8-10 million lats per year. Of course, when for example Lattelecom implements a new CRM system – this somewhat distorts the market, but projects of this magnitude do not happen every year. Two dozen integrators are represented on the market with a volume of 8-10 million lats. Annual revenues for the three or four biggest players are within a million lats, and the rest are content with not even hundreds, but tens of thousands a year.
The professional community of ERP integrators in Latvia has 200-250 persons, and it is segmented by products. As an expert in MS Dynamics NAV, I can say that the labour market today has from 70 to 100 specialists in MS Dynamics NAV, and 70% of them have worked less than 2 years. Experts with experience of more than 5 years are 15-20 persons.
Another unfortunate trend – emigration of the experts. Over the last year five of them left just from my professional environment. This is roughly 5% of the total number of specialists and 30% of the experts, because unfortunately most qualified of them leave.
It is clear that in such a situation on the labour market there is quite a tough competition between the companies-integrators, but it has little effect on wages, since it is limited to proceeds from the sale of projects. In the ERP business, labour costs (including taxes) are up to 60% of revenues. Clearly, in such a situation, winning is the company that has the possibility to gather the most skilled professionals under its own brand.
Can we name any particular company – this is not possible. The biggest player on the MS Dynamics NAV market has a staff of 30 employees, including management and administrative staff. Real integrators are slightly more than half. Of these, experts are 3-4 persons. In smaller players – it is just one man show. And the success of the product implementation depends on the quality of these particular persons who are not more than two dozen in the whole country.
Thus, when choosing a partner for the implementation of an ERP system, you can not take into account the brand awareness or previous achievements. Probably the only objective criterion is the recommendation of the company, where the product implementation was successful, but at the same time, you should make sure that key persons from the successful project are still in place.
The current market situation is very unstable, staff of the integrators migrate from one company to another, which generally has a very negative impact on the market. I would estimate the ratio of successful implementations to a failure as 40% to 60% not in favour of the successful ones. That is, in six out of ten cases the customer invests heavily in the implementation of an ERP system – and does not get the desired effect.
This situation leads to discredit of the very idea of ERP, resulting in a small market becoming even more compressed.
What are the prospects of the market of ERP systems in Latvia? I would call them vague. Last year I had figured out a business plan for establishing a new integrator company, as a result I did not dare to create it. My prediction – stagnation on the market of implementation of ERP systems, and arrival on the market of a major western company in the term of three to four years, possibly through absorption of someone from the local players, with further monopolisation of the market.
In a situation where 300-350 IT professionals graduate from higher schools every year (and the ERP market is at best 5% of the total IT market), small companies simply do not have the possibility to fill the brain drain abroad, which will inevitably lead to at least stagnation, if not a recession.
Another interesting trend that has manifested itself in the last 4-5 years – large customers, who have implemented an ERP system, often buy up the best specialists from the integrators on their side to ensure the development of their system, and it is even more blurs the already unstable market of ERP specialists.
Thus, we can predict that the big western companies or local companies of the level of Lattelecom or Latvenergo will attract the foreign suppliers to the implementation of IT systems (ERP including). Medium-sized businesses, not willing to pay the world rates, will remain in a situation of a lottery with the choice of a partner. And the availability of ERP for small businesses can be absolutely forgotten.