Sajjad Syed is the Managing Director for SAP in Pakistan. In a time when one would think companies have to cut costs, Sajjad talks about how smart investment in technology and infrastructure and how it will help Pakistani companies grow in the longrun. “Companies have to invest today so they are prepared for the growth and competition that will happen when the markets begin their upward trends again.”
SAPs faith and commitment to the role Pakistan plays in the global landscape, is immense. It is with this dedication and commitment that Sajjad heads SAP Pakistan’s operation and works with local business to help them grow
With the advent of globalization, geographical boundaries hold little meaning beyond the collection of lines on a map. Companies everywhere want to sell to markets everywhere. Businesses need to be wary not just of the competition that is unraveling in the local market, but also know what international players are in the global game. After all, nothing stops them from coming into your backyard and capturing your customers.
And while there is little you can do to stop the international competition from flying in, there is a lot local companies can do to ensure that when the competition does arrive, they are prepared for it. And that’s where technology can help to make companies and businesses more efficient and continue to make a positive impact on their bottom line.
Enter ERP
The ERP market has transformed. ERP client base was initially limited to just the top end of town; multinationals and the large companies. The Indus Motors or Nestle’s and companies that had international alliances would buy it. But now because of cost and competitive pressure and because of our internal supply-chain issues, coupled with pressure from the Chinese, the market has changed phenomenally.
Now, Pakistani companies have to become so much more aggressive, adopt best practices and compete in the international markets. “I have customers telling me that before an international competitor comes and sells in Pakistan, they need to go and sell in that economy. Eventually, the companies go through explosive growth because they go from being Pakistani companies to becoming multinationals. Two of our customers Getz Pharma and National Foods are classic examples of this trend” begins Sajjad Syed, Managing Director of SAP Pakistan. So when local companies are in the process of aligning their business objectives with the rate at which they are growing, that’s where SAP comes into the picture. “We help them make that transformation seamless. In case of Pakistan it is usually when the owner-managed company turns into a professionally managed company.”
When asked about what an appropriate analogy would be for companies to better understand what ERP can do for them, the SAP MD thinks for a bit, and then responds with, “ERP implementation is much like open heart surgery of an organization. You pretty much take apart an organization and put it back together in order to make it run more efficiently than it does.” Before the decision to implement an ERP, it is important for the organization or industry to be able to identify the losses in the supply-chain management at the present time, and exactly what solution will best resolve that problem.
A company’s reliance on management systems increases when they make the jump from being a local company to being an international player, and that’s where the IT systems or ERP comes into play. With so much expansion and cost optimization, SAPs ERP allows for companies to manage themselves more efficiently.
ERP in Pakistan
In case you’ve heard of ERP and don’t quite know what it is, you wouldn’t be alone. The concept, like most technology processes, was to make a manual processes more efficient. SAP ERP enables the company to run its entire management on a single integrated platform. So it automates all functions within the organization. Originating from back in the 1960s, SAP showed up in Pakistan through it’s affiliation with Siemens. Today, SAP has several other partners including Abacus Consulting, IBM, Sidat Hyder Morshed and Association and NetSol.
Between 2004 and 2007, SAP and its partners implemented various large cases of SAP at organizations such as PIFRA – FAB project, Pakistan Petroleum, Pakistan State Oil, HEC, Tri-Pack Films, PARCO, PTCL, Punjab Beverages and Pakistan Refinery just to name a few. The trained consultants had a constant flow of work because of the growing demand in the market for SAP-trained professionals who understood how the technology could be deployed. With time and better access to a more robust infrastructure available in the country, the scale and scope of the projects grew significantly. But it wasn’t until a few years ago that the regional headquarters in Malaysia began looking at Pakistan because of the untapped, aggressive growth that was taking place here. Today, SAP Pakistan enjoys the largest revenue in the local market and has 93 customers, most of whom make up some of the country’s largest companies in Pakistan.
“The PIFRA, the Auditor General of Pakistan, will be rolled out in more than 450 sites and is the largest ERP deployment in the region.” says Sajjad. The LE or Large Enterprise market is something that literally runs on SAP. According to Sajjad, Pakistan is at the second tier for IT transformation where there is a lot of conversion taking place. Companies are leaving one low Tier ERP and moving onto more sophisticated systems. Classic example are companies such as National Foods, PARCO and Getz , all whom left a lower-end ERP and moved onto SAP. The fact that SAP is finally here adds to the comfort level for companies who are running ERPs.” And it certainly would for any company or principle.
“A lot of work came to us when Telco’s invested in the local infrastructure. Before then, there was just no infrastructure on which these solutions could run. With the improved infrastructure, to a large extent, management schools such as LUMS and IBA also played a critical role in producing the HR to keep up with the rate of transformation.” Sajjad reminisces about the changes that were taking place in the second tier management levels. “Earlier, most companies were owner-managed because there was no middle management. Since there were professionals working the middle tier and businesses were expanding considerably, that opened up a lot of opportunities for us to work with the companies.”
“SAP helps managers focus more on long term business strategy and tactics rather than short term and individual decision making. Thus, helping the organizations become more efficient and making the managers more efficient in their roles.”
But what about the trend of the owner-managed business or industry in countries like Pakistan? Isn’t there a stereotypical mindset against automation to begin with? “Look at it this way – any organization will want to make more money, export more, expand into greater markets. Who wouldn’t? I have been told by so many people that they want to let go of the everyday operations and focus on strategy and expand but are unable to. And once this realization takes place, it becomes easier to consider what technology is able to do for the company.”
A lot of companies in the mid market have had this realization. Faisalabad-based Punjab Beverages, Sitara Chemicals, National Foods. “These are mid market companies who have made the shift. National Foods is a Rs.4 billion company and has aligned its technology implementation with its business goal to be a Rs.20 billion company. So the shift and change in mindset is definitely happening.”
SAP has made sense to companies in a growing number of markets including Food and Beverage, the Pharmaceutical sector and CPG. “Moving on, I foresee a great change happening in the utilities sector. Lots of automation and opportunity for growth there,” adds Sajjad.
Sure technology is always a challenge but you have to realize that people opt for ERPs under two conditions: either when they are making a lot of money or else when they fear they are going to lose a lot of money. And that’s why you keep hearing the following phrase – ‘it if makes economic sense run with it!’
But what is perhaps more surprising than anything else is the speed at which companies are turning to SAP or any technology integration for that matter. Trade policies, price wars, globalization and, yes, the internet. And the reason for a lot of growth in the mid market level that Sajjad talks about is based on the increased level of exposure the internet provides to companies as even the smaller companies see the demand of their products grow in the international arena, there is no reason for them not to expand.
A lot of the benefit of an ERP, as one would think, is intangible. These are things that you can’t necessarily quantify which is what makes the decision to embrace any innovation a difficult one. “But there are a lot of tangible, quantifiable benefits also. Inventory control, for example, which leads to better planning.”
The Challenge of Local Companies
Companies in Pakistan historically have not been so great at inventory planning. You can’t always have Just in Time inventory for all kinds of products. “Once you have inventory control mapped out, you can plan your sales and marketing more effectively; you can plan the launch of products and base your orders on seasonal trends and manage ever decreasing lead times” explains Sajjad.
If you’re looking at all the elements that have impacted the supply-chain management system include port operations – these haven’t been historically as efficient as they are today. An unstable political and economic environment puts a lot of pressure on when and what business activity will halt. “There are two major problems: our economies are historically low trust economies; and we are unable to enforce contract.”
In the absence of a structured and formalized ERP system to help with the planning, the way industries have traditionally functioned is this – an order is placed and the production begins. Our planning and production processes were uneven making our cost of production uncompetitive and delivery unreliable. This cost our business dearly.
To illustrate the practical impact of what he means, Sajjad gives an example of the domino effect at work here. “Because we can’t trust and because we can’t enforce contracts, our inventory goes up. An increase in inventory means an increase in cost. Increase in costs means that our prices are high and our companies cannot compete effectively with the competition. Believe it or not, there is a direct correlation between the production cost and the trust factor in the business community. Where you can enforce contracts, your production costs go down.”
Is Pakistan Losing Its Low-Cost Labor Edge?
Pakistan has always competed on the basis of low labor cost and we were very good at it.. “Our massive population is one of the biggest strengths we have,” reaffirms Sajjad. “But China and India have transformed that. Chinese labor is cheaper and energy there is much cheaper. So Pakistani companies now have to focus on management efficiencies, which is one of the major reasons why ERP adoption has grown so much in the recent past.”
The general onlooker may think that if ERP and other technology solutions bring in so much efficiency, then even if the companies aren’t keen to make the investment, should certification bodies not be enforcing a minimum technology requirement? Isn’t that a good way to ensure that Pakistani companies that work in the export market have a greater chance of competing? “Some manufacturing companies that we sell to, force the suppliers to implement a supply-chain ERP in order to coordinate and meet the timelines. You have to understand that if a company says that they are running SAP for their internal processes, businesses around the world recognize that to be a standard.”
Turning Uncertainty into Opportunity
The world is going through an economic crunch and companies everywhere are cutting costs. The local market doesn’t look very good. With the political upheaval and slump in the economy, how is SAP planning on dealing with the situation? “We’re still very positive about the situation – it will become better. We believe that though there is economic uncertainty but based on my meetings and frequent interaction with the people that run the huge enterprises in Pakistan, nobody is scaling back on their investment plans in the country. There isn’t as much gloom and things will probably get a lot more difficult than they are now, but eventually things will get better.”
Company sales for the most part, don’t look all that great. Should companies really be thinking about investing in building their infrastructure right now? “Why not? If they can invest now, they will be prepared for the quick surge that will come. These are just business cycles. The smartest and most successful businessmen are not scaling back on any investments. They might not be initiating new projects, but they certainly aren’t cutting back.”
It’s true. The trend in the economy is usually set by the largest, most influential players in the local market. Take a look at the Mansha’s, Dawood’s or the Lakhani’s as examples. They are still around and still commitment to growing the local economy through their trade and commerce activities.
Staying Committed to Capacity Building
SAP has plans to establish 50 eAcademies in the remote areas of Pakistan. “Places like Kohat, Hyderabad, Quetta and Bahawalpur and a lot of other cities in Pakistan, for two specific reasons. I think there is a lot of talent in the second tier cities who aren’t being given the opportunities to take advantage of their potential, and in the next year or so, we’re going to fast run out of the skilled workforce.”
Workforce and capacity building. Doesn’t every company want to launch their training program? How does the SAP model differ than anything else that is already out there? “If we look at the service industry in Pakistan, it is not as developed as it should be at this point in time. Normally, what an industry does is training or development specific to their needs and requirements. Others do generic training. Companies lose interest in the trainings because their growth is in trouble or they simply don’t have the patience.” Training a population isn’t an easy task. It becomes an even more daunting task when the results of the training don’t show up within the same economy.
“Building human capital in Pakistan is essential. We have to adopt a realistic approach to it. Train 100 people and perhaps 60 will look for jobs abroad because the demand is so much higher there. That’s okay because most of these trained resources will eventually come back to Pakistan along with a lot of experience, exposure, contacts and in some cases investment ready capital.” The real ROI of the training will realized between 5 to 10 years. “For a Multinational like SAP the ROI maybe realized earlier. SAP realizes the importance of human resource development in Pakistan and is committed to training and developing the same in the coming years.”
Sajjad explains that any SAP certified consultants that leave Pakistan to go and work abroad is no indication that there is a shortage of work in the country. “There is actually a lot of work here. However, people leave because there is just a lot more work to do outside at higher pay rates.”
To date, there are approximately 900 SAP certified professionals in the market of which about 400 are working in Pakistan. “We actually still have the largest number of ERP consultants trained on SAP,” explains the SAP MD.
Pakistan is going to become a Center of Competence for SAP Consulting for which SAP Pakistan has already taken up the additional office space to manage the people. “We have expertise in a lot of verticals such as Utilities, Textiles, Chemicals, Consumer Package of Food Industries so we’ll be exporting a lot of our consultants outside of Pakistan also. We want to become that center of competence. Develop some niche areas, identify the expertise areas and take the people to where the projects are. It’s a win-win for Pakistan and for the SAP environment.”
Looking Ahead
The total install base of ERP in Pakistan is currently about 400. Compared to the size of the entire industry, there should be at least 25,000 companies that should be running ERP. Once again the question, why are businesses not implementing something that will only make them better? Sajjad smiles and explains the dynamics. “The implementation is difficult. Lack of awareness. Costly. The intangible ROIs don’t make the adoption any easier. This of course is changing”
Change management is a great challenge for any ERP and of course, the larger the organization, the larger the organizational inertia. “There is no tool or IT software that can help you overcome it. HR management is a professional subject that has to be understood. Human Capital Management is something that needs to improve and once it does, that will enable companies to align their business objectives with the core benefits that an ERP brings to them.”
A SAP solution called B1 is specifically designed for the SME market. “Companies like Haseen Habib, Imperial Electric, Wilsons or Hidayat Sons, and the cost of a wall to wall ERP is cheaper than the local solution that they would buy. This product has been very successful in Pakistan.”
According to Sajjad, next year maybe difficult but he projects a growth of 5% in the next 2 -3 years. “Next year will be a difficult year for everyone. But things will become better because that makes economic sense.”
The role of the Government is to become a transformational agent. “The Government can use IT for its own management, which will give Pakistani companies the necessary experience to bid for projects in the international markets.” That’s the value add we need, he says. “Right now, a lot of focus is on software development. However, we need to understand that the profitability on services is higher than software development. We have to transform our IT industry into being more service-oriented than product-oriented.”
Sajjad talks about the consolidation factor in global IT market. “There are fewer larger companies than several smaller ones. The Government, if it wants to really play a strong role, needs to shift its focus and support IT services business and partner with large
international software companies to develop the services industry.”
SAP Pakistan plays its role in promoting Pakistan as a business hub. “Perception is key. Everyone who comes into Pakistan through SAP definitely makes a second trip. We talk about the implementations we have done, the companies who are working with us, the growth in the industries that is ongoing. The potential of Pakistan is great. We make it part of business strategy to promote Pakistan within SAP. We firmly believe in Pakistan and make our contribution towards building the economy by strengthening companies who an in turn, develop the country’s economy. Our aim, in Pakistan, is to ensure that all that companies run SAP to improve their efficiencies and become the best run companies in their respective industries.”
