SAP, Oracle competition heightens in LatAm

Wednesday, August 23, 2006

Latin American companies are expected to invest US$32.1bn in IT during 2006 with US$5.5bn of that figure going toward software, according to international tech consultancy IDC.

In the ERP software market, the competition between US corporate solutions provider Oracle (Nasdaq: ORCL) and German rival firm SAP (NYSE: SAP) has been heating up especially since Oracle's acquisition of ERP provider Siebel systems last year.

However, obtaining an accurate idea of which company is winning the race for clients in Latin America is not easy.

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A recent IDC study showed the Latin American software market as traditionally representing 20% of overall investments in IT and that the market is growing at rates of 9.7% annually.

"The applications market in Latin America, including CRM, ERP, SCM and other technologies, grew 22.2% in 2005 compared to 2004, when it grew 17.1% compared to 2003. So we can say it has been a very positive year for software vendors," IDC Latin America software analyst Karen Bitrán told BNamericas.


Oracle Latin American said that during its fiscal year 2006, ended May 31, 2006, there were 71 firms in the region choosing its solution over that of SAP, including Brazilian firm Aloés Industria e Comercio and Nova América, Chilean company Dimacofi and Venezuela's SVF Group.

In FY06, Latin America license sales for applications were up 33% compared to FY05 while overall sales in the region increased 30%. Oracle believes its license sales have grown twice as much as its main competitor in Latin America, Oracle said in a statement this month.

"Last year we achieved our goal of winning at least one client per week over SAP, and we managed to do so because of our applications, which solve specific business problems in the industries we are targeting. Besides, we are increasing our staff with people with a strong consultancy background," Oracle's Latin America VP for applications Javier Cordero told BNamericas.


According to José Duarte, SAP's managing director for Latin America, during the first half of 2006 alone the company has gained over 300 new clients in the region, most of them in the mid market.

"So far this year we have seen sales in Latin America grow 70%, meaning SAP wins seven out of 10 operations," Duarte told BNamericas.

Globally, SAP has seen its market share decrease to Oracle although the company feels comfortable about its organic growth strategy. "Without having invested US$20bn [in acquisitions] I feel really comfortable and investors will recognize SAP's strategy has been superior," SAP's CEO Henning Kagermann said during the company's last quarterly results conference.

However, Duarte said the narrowing of the gap with Oracle has not been reflected in the Latin American market. Since the end of 2005, IDC ranked SAP as leader in markets such as Brazil and Argentina.

"If we are growing at 70% and they are growing at 30%, I don't see how they are winning market share, if we, as their largest competitor, are increasing sales at double the growth rates they are seeing," Duarte added.


During its fiscal year 2006, Oracle attracted some 250 new Latin American clients in FY06 bringing the Latin American client base up to more than 2,700.

"We mostly grew in our new client base, which has been set as the key element for our growth, although our installed base is extremely important," Cordero said.

In the case of SAP, Duarte sees growth in both areas, expecting the increase within new customers to be faster than in the installed base.

"There is a trend within all [software] providers to grow within the SME segment. And there is plenty of room to grow there, but the competition is tough since there are many companies, local and multinational, that already have strong penetration in the SME segment," Bitrán said.

IDC also estimates the SME segment will invest over US$10bn in IT in 2006 and approximately US$13.9bn in 2009. According to the consultancy, SMEs will invest 16.1% of their IT budget in software this year.