SAP, Old World Thinking, and the Southeast Asian Opportunity

Back in 1991, the European technology markets were a mystery over in the US. Domestic vendors’ revenues from Europe were high and growing fast, a few European companies were making headway in the US, and a grand experiment in furthering the goal of a unified European market, the Maastricht Treaty, was about to be ratified and signed into law.

The moment – Europe poised on the brink of real economic unification, European tech and concepts like client/server computing and business process reengineering poised on the brink of defining a new era in enterprise software (SAP was about to launch R/3), American vendors fighting for advantage in a newly unified market – presented a once-in-a-lifetime opportunity to witness the interplay of geography, demographics, politics, business and tech. By the end of the year I had installed myself in Paris for what turned out to be an almost four-year stint as a freelance correspondent, writer, analyst, and eyewitness to monumental change.

Twenty-eight years later, at the end of August of this year I went to Bangkok on the invitation of SAP to attend a customer event and hear the story of the Southeast Asian tech market. The similarities of the current moment in the Southeast Asian market are palpable  – while it’s definitely not unifying like Europe in 1991, the interplay of geography, demographics, politics, business and tech in Southeast Asia is no less dramatic or important to the world at large.

A new world of tech and its impact on individuals isn’t only being created in countries like Thailand, Myanmar, Malaysia, Indonesia, the Philippines, and Singapore – tech is too much of a global phenomenon to point to a single country or even continent and declare it to the be ultimate crucible of innovation any more. But these countries and their incredibly youthful and tech-savvy populations are definitely poised – at the very moment when European unity is devolving into economic and political disunity and legacy systems and processes are dragging European and American businesses down – to become the new proving ground for the concepts that embody the otherwise over-played notion of digital transformation. The “old world” is definitely looking old these days, while Southeast Asia is looking vibrant, youthful, and, in ways that surprised me, like it’s ready to lead the global economy into the next phase of the 21^st century.

Old world is a great name for the relative status of the populations of the US and Europe.  Germany, SAP’s home country, has a median age of 47, which pretty much defines the demographics of the majority of the EU. Over in France, the median is 41, in Brexitland it’s 40. The US is a little more spry, with a median age of 38.

But that’s nothing compared to the Philippines (23) , Myanmar (27), Malaysia (28), Indonesia (30) and the majority of the region. Thailand is the anomaly among its peers, with a median age of 37. But as I rode Bangkok’s Skytrain and its subway over the course of a week it was hard to understand where that number comes from. Suffice to say I was most of the time the oldest person in the car by a factor or two or three. Regardless of the official statistic, the youth of Thailand is literally and figuratively on the move.

Young people in Bangkok do what young people here do, only more so. They crowd onto the SkyTrain in a well-coiffed and well-dressed mob and promptly burying themselves in their phones. Chat, games, Instagram, the usual. When they look up they see ads on the SkyTrain monitors about gigabit fiber, cosmetics, cars (gas is about $4/gallon, which means that the minivans are even bigger than they are in the US),  diet aids, and more fashion. Then they get off at a mall, or a market, still engaged in their phones and their tech-driven lives.

Thailand’s always-connected youth are just the visible end of an enormous, multi-tipped iceberg of tech usage across the region. Scott Russell, who runs SAP’s APJ (Asia, Pacific, Japan) efforts, rattled off some amazing statistics to the audience during his kickoff talk: the region is home to half of all the Internet’s users, two-thirds of its middle-class citizens, 60% of its young people, and many believe it will be the home of four out of the five largest economies in the next decade.

What does this mean in terms of the opportunity for tech uptake? My favorite example comes from a retailer, Ronald Lee, who hails from Myanmar. His family business, City Mart Holding Company, is jump-starting modern retailing in his country, where only 10 percent of the population is considered middle class. Lee’s company is opening a new grocery store every other month, and thinking brilliantly about what he needs to do to capture the expected hockey stick growth in Myanmar when middle class growth takes off.

In language that would get him invited to the podium at any Silicon Valley tech-meets-business conference, Lee explained how his company, which has also had to build and manage the malls needed house his new stores, is planning to offer a host of app-based services that are innovative by any standard. Lee wants to allow people to shop at his stores and then conveniently leave their groceries for pick up later in the day when they’re done with their other errands. And about those other errands: Lee also wants to offer awards and coupons on his shopping app to encourage his grocery customers to visit the other shops in the mall (which are also his tenants) and stay in the mall longer.

Considering those are two things my Amazon Prime Now app doesn’t do, I was impressed.

I asked Lee how he stays so well-informed about tech, and the answer, coming from an SAP customer who is running S/4HANA and the SAP Commerce Cloud,, was interesting. Lee looks to his neighbors in India for ideas and validation, not the US and Europe. In India he finds operational challenges similar to his own – hyperlocal markets vying for increasingly online and app-driven customers evolving away from traditional shopping modalities. And India is also where he finds talent. China, Myanmar’s other big neighbor, has a much more mature ecommerce market, which is providing Lee a sense of what will happen when the recently opened up Myanmar middle class explodes.

Of course, SAP has been around Southeast Asian markets for 30 years, so there is an indirect path from Waldorf, Potsdam, Newtown Square, and Palo Alto to Lee’s headquarters in Yangon. Nonetheless, it’s important to note what the more direct path looks like: People like Ronald Lee embody what we chauvinistically call a “Silicon Valley” ethos that at is largely Southeast Asian in origin, not Californian, or European  for that matter.

Speaking of China, India, and Myanmar… When I asked Lee about Myanmar’s prospects as a regional economic power – and by extension the prospects of his family business moving beyond Myanmar’s borders, his answer was simple: 40% of the world’s population – India and China – are either on his country’s border or basically in the neighborhood. There aren’t a lot of countries were the view out the back door includes that much of humanity.

One more thing about Lee and his company: City Mart is billing itself as “The Responsible Company,” and has a value-statement slide that hits all the high notes we’ve come to expect in this era of corporate social responsibility. That’s part of a major trend we also chauvinistically believe is uniquely Euro-American. Not so. According to another speaker at the conference, Lisa Robins, the global head of transaction banking at Standard Chartered Bank in Singapore, 80 percent of consumers in Southeast Asia – those kids I was riding the SkyTrain with every day – would pay a premium for a sustainable product. Think global, act local isn’t just for aging California hippies and green Euro do-gooders any more.

Robins’ presentation brought home another important fact about Southeast Asia that is interesting in light of its prospects for future development. Outside Japan, Korea, and China, Southeast Asia is a market dominated by what we like to refer to as small and medium-sized enterprises. For many of these countries, SMEs are really the powertrain of the economy: 50% of the region’s GDP comes from these companies, and in markets like Vietnam and Thailand, SMEs represent over 90% of established businesses and 70% of all employment, according to an E&Y report.

Robins focused on a new initiative between her bank and SAP Ariba that will open up trade finance opportunities for SMEs, which are suffering from a serious financing gap. While they comprise the vast majority of businesses, SMEs only have access to 18.7% of  the available credit, which translated last year to a $5.2 trillion financing gap for SMEs  in 2018, up from $2 trillion in 2010, according to Robins.

Using networked business platforms like Ariba to support trade finance is an old promise yet to be fulfilled at any appreciable scale (GT Nexus, now a part of Infor, has tried, with very modest success, for over a decade. Standard Chartered rival HSBC teamed up with GT Nexus and supply chain platform rival Tradeshift in 2017, also with little to show for either of these efforts). Regardless, it makes huge sense to use the ability of a platform like Ariba to aggregate data about a supplier’s spending, on-time delivery, and other key metrics as a means for a bank like Standard Chartered to assist suppliers in their loan qualification and processing efforts. Considering what’s at stake – that $5.2 trillion SME financing gap – maybe this time a regional powerhouse like Standard Chartered can make it happen.

Indeed, I think Southeast Asia could be the place for trade finance to finally reach its potential. The preponderance of SMEs favors the kind of services that Standard Chartered and Ariba want to provide. The volume of trade among Southeast Asian countries is huge, export/import activity accounted for some $300 billion in 2017, according to the World Bank. If all Standard Charter and Ariba did was finance a slice of this pie, we could call it a success. The odds are in their favor: Standard Chartered apparently knows something about financing supply chains in Southeast Asia, having won an award for this in 2018.

One other issue highly important to SAP’s future that might get a boost from the Southeast Asia market is the prospective uptake of S/4 HANA and the overarching, and somewhat overreaching, concept of the Intelligent Enterprise. While it was disappointing to hear one customer at the event echo that, for his company, the business case for upgrading to S/4 HANA had more to do with the 2025 support deadline than anything else, that shouldn’t have to be the norm in this market. The requirements for digital transformation are largely no different in Southeast Asia that in Europe or the US, with an important twist. The extreme use of smart phones and the Internet, combined with sheer number of young people poised to enter the workforce, means that the experience economy that SAP loves to talk about is a solid imperative in Southeast Asia.

SMEs also have a definite leg up in either migrating to S/4 or doing a greenfield implementation. SAP’s core European and US base is awash in legacy SAP systems that both still get the job done and aren’t necessarily destined to become platforms for major digital transformation initiatives. Indeed, the impression that everything customers are running with an SAP logo has to move to S/4 HANA has been a bit of a gut punch to these customers, who need SAP to give them a path that is more cognizant of their complex, heterogeneous environments than the current S/4 HANA or else approach.

Over in the land of the SME, this problem takes on a different dimensionality. Heterogeneity is still the reality most companies live in — City Mart Holding Company’s finances are run on S/4HANA, while another major part of the business runs on a decades-old ERP system from a largely defunct vendor and real estate management processes are handled is using spreadsheets. Companies like City Mart Holding are going to need to upgrade all their processes – including those spreadsheets and that legacy ERP system –  if that middle class starts growing as expected. When it comes to City Mart and its peers across Southeast Asia, I believe that SAP, if it plays its go-to-market strategy a little differently than it has in the US and Europe, can bust loose in Southeast Asia with S/4HANA.

I’ll close with the observation that Hasso Plattner, when we met at the company’s SAPPHIRE conference, passionately defended the massive personnel and reorg changes at the company by emphasizing the need for a younger, hipper vision at the company. The average age of the SAP board has declined significantly in recent years, as has the age of its tech leadership (Max Wessel, SAP’s new chief innovation officer is… young.) And I recently caught SAP sponsoring a Silicon Valley conference in San Francisco, TechCrunch Sessions: Enterprise, that was clearly positioned as a way to reestablish SAP as part of a Silicon Valley innovation ethos that the company has in the past eschewed relative to its software company peers.

To a certain extent what SAP is doing at a TechCrunch event, or in its Potsdam (Berlin) innovation center, or in its new, more youthful leadership, is retrofitting its old world model to a more youth-oriented reality. It’s like SAP itself is in the midst of a brownfield reimplementation of its own decades-old business model.

Meanwhile, in Southeast Asia, the opportunity looks much more greenfield, and, in many ways, less of a stretch. I think SAP is in an excellent position to stop just touting a Euro-American centric view of innovation and tech leadership and start pushing a vision that draws naturally on its 30 years of success in Southeast Asia.

They are hardly alone. Microsoft is in the region too, and also has been for ages. Same with Oracle, though I would give the former much more credit for being a force for innovation in Southeast Asia than Oracle. But both companies’ go-to-market vision tends to view the enterprise software market from a biased perspective that comes from being a little too closely connected to Silicon Valley and US-centric tech culture. Microsoft’s enterprise software go-to-market is in particular highly compartmentalized, and whatever they are doing regarding leadership in Southeast Asia isn’t shared outside the region. This mirrors Microsoft and many vendors’ focus on large analyst firms and their own compartmentalization – which build both regional and product-centric silos around their coverage – and is another example of a narrowness of vision that focuses on local and regional sales efforts instead of the increasingly global marketplace of ideas.

A marketplace of ideas and business models that is now clearly shifting towards Southeast Asia. Be there or watch the world change without you. Count me in.