While many business-software makers are seeing sluggish growth, Germany's
SAP AG bucked the industry trend in the first quarter by posting a double-digit profit gain.
For SAP, the world's third-largest software maker by sales, success in the Asian-Pacific region is vital. At first glance, the region's contribution—15% of the company's overall revenue in the first quarter—pales in comparison with the U.S. and Europe.
But Stephen Watts, an Irish-born executive who took the helm of SAP's Asian-Pacific operation in 2010, says that his region is playing an increasingly important role in the company. SAP's software business in Asia has doubled over the past three years, and that growth isn't likely to slow: In China alone, the company plans to invest $2 billion by 2015.
SAP counts
Oracle Corp. among its main rivals, while its newer cloud-based business competes with
Salesforce.com . In the first quarter, SAP's net profit rose 17% from a year earlier to €520 million ($680 million), while Oracle's net profit for its December-to-February fiscal quarter was flat compared with a year earlier as revenue declined slightly.
On a recent visit to Hong Kong, the Singapore-based Mr. Watts met with The Wall Street Journal to discuss intensifying competition in the region and why it can be so hard to scout talent. Edited excerpts:
WSJ: What kind of support are you getting in Asia from the German headquarters?
Mr. Watts: I report to SAP's board, and we have a very flat organizational hierarchy. The company is very serious about Asia, and investments and support I receive are incredible. When your business has doubled in three years, you probably have the right to ask for a little bit more, too. Board members are very interested in meeting our customers in Asia.
I think that's one of the things that differentiates us in what we do; I don't have somebody in the U.S. telling me "We think we know what's best for Asia."
WSJ: How is SAP's business in the Asian-Pacific region?
Mr. Watts: For the past three years Asia-Pacific has been the fastest-growing region for SAP, and the business is expected to stay solid as we invest more. Our software business in the region doubled in the last three years. The region now has around 23,000 customers and about 8,000 employees. We are investing not only in major markets like China and India, but in other emerging markets like Indonesia, Vietnam, Sri Lanka and Bangladesh.
In this region we have more potential in our existing customers, and more potential new customers, than anywhere else in the world. I wish everyone else well in the rest of the world, but I don't understand why you would want to live anywhere else.
WSJ: What is the biggest challenge for SAP in Asia?
Mr. Watts: Building and scaling talent. Asian emerging markets are talent-rich but experience-poor. The kids coming out of school are incredible, but the availability of mentors and coaches around them isn't as great as some other more mature markets. In mature markets I might find 10 people in middle-management positions who have experience in some of our core operations. In markets like China, Sri Lanka and Bangladesh, I might find one.
Across Asia, we take a ground-up approach and spend a lot of time educating young people. In China, for example, we work with over 70 universities on curriculums that help build fundamental business and technology skills. That's the single-best enabler of growth for all of us.
WSJ: Do you feel competition intensifying in Asia?
Mr. Watts: Our major global competitors like Oracle are all here in Asia. But I'd say our biggest competitor in Asia today is a mix of alternate uses of capital. Instead of spending money on software, customers can spend it on a new shop or factory, or to hire more people. In Asia, people running fast-growing businesses are not interested in technology for the sake of technology.
Ten or 15 years ago, software makers sold products based on new functions and features, by showing customers how well it worked on the screen. That's not the situation we have today. You have to show how the software will help improve, for example, shipping and transportation management, and what kind of impact that will have on the customer's business. The software's functions and features are an absolute given, and that's not a differentiator any more. The differentiator is the business value you get out of the technology.
WSJ: How is your business in China?
Mr. Watts: We've been in China since the mid-1990s and we continue to invest in scale. Clearly the opportunity is vast, and it just takes time. We have over 2,000 developers based near Shanghai, and we are developing enormous amount of software there for the rest of the world and also for Chinese customers. We have also moved our global customer-support headquarters from Germany to Beijing.
We invest in China for the long term. We announced over a year ago that we would be investing about $2 billion into China by 2015, and we are well under way. Many of our customers, locally and globally, are building scale in China, so we must be there as a partner.
WSJ: How would you describe your management style?
Mr. Watts: I've lived in Singapore for years, but I travel between 250 and 300 days a year. I spend a lot of time listening to customers all over Asia, because I believe that's the best way to actually understand business. You visit your customers regularly and frequently, and over time you build trust. I'm now in a position to be able to say, when someone says I think we should go left, I can have the voice of the customer in my ear that says "Hmm…are you sure?" Even though we build software globally, we operate locally. That means I have to operate locally too.
Résumé
Education: M.A. in marketing from Southern Cross University, Australia
Career: Became the head of SAP's Asia-Pacific and Japan operations, covering more than 20 countries, in January 2010. Before the current position, Mr. Watts was most recently chief operating officer for the region. He joined the company in 2001 as sales director for SAP Australia and New Zealand.
