David on IT Outsourcing in China: [news] SME Stats in the Enterprise Software Space

Tuesday, June 15, 2004

Dateline: China

A recent report analyzed U.S. SME (small and medium enterprise) spending on enterprise software. (See http://tinyurl.com/2vxpy ; this link opens a MS Word file.) Total U.S. spending on enterprise software reached $14.6 billion in 2003, with nearly $1 billion spent by SMEs; U.S. spending accounts for over a third of worldwide spending. Spending by SMEs on enterprise software is growing at 14.3% compounded annually versus 4.9% for spending by large(r) enterprises.

10% of small enterprises and 25% of medium enterprises are using CRM or SFA solutions, with less than 5% of small enterprises and about 20% of medium enterprises using ERP or SCM solutions. However, over 380,000 small enterprises and 27,000 medium enterprises view implementing enterprise software solutions as an important strategic focus over the next year, with CRM and SFA showing the highest growth rates over the next five years. Hosted, utility computing solutions will gain steam in serving SMEs.

Bottom line: U.S. SMEs are both an opportunity and a challenge for China's SIs, as is utility computing. (In a CSA "Commentary" or in a China Sourcing Monitor posting, I will take a look at utility computing and its relationship to IT outsourcing.) Working with utility computing companies focused on serving U.S. SMEs and interested in the domestic market in China is certainly one approach worth investigating. Also, focus on "sell-side" apps, e.g., CRM and SFA. Although a few wins here and there in the "buy-side" space, e.g., SCM and PLM, are certainly possible, a "sell-side" approach for targeting U.S. SMEs is the better strategy.

Cheers,

David Scott Lewis

President & Principal Analyst

IT E-Strategies, Inc.

Menlo Park, CA & Qingdao, China

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