China’s Kingdee wants to take on SAP, Oracle

Catering for the small and midsize business (SMB) applications market in China is its primary focus, but that doesn’t stop Kingdee International Software Group from hankering to take on global enterprise software players SAP and Oracle.

“We’d like to be an SAP or Oracle in the future,” Barry Ho, general manager, corporate finance and investor relations at Kingdee, said Wednesday. He was addressing analysts at the 2006 UBS Enterprise Technology & Services conference in New York, which was also Webcast.

At present, Kingdee competes with SAP and Oracle in the midmarket ERP (enterprise resource planning) space, but not in the high-end applications arena. The largest single customer deal Kingdee signed in 2005 was under $1 million, Ho said.

However, the Chinese company is already spending around two-thirds of its R&D (research and development) budget on its Enterprise Application Suite (EAS) offering. Kingdee is also working with EAS customers to build up its expertise in particular industries. For instance, the company has worked closely with Wuhan Tobacco Group on its specific ERP implementation needs so Kingdee can later apply the knowledge learnt to other companies in the same industry, he said.

Kingdee was pleasantly surprised recently to be named by SAP as a future possible competitor, Ho said.

Léo Apotheker, SAP president of customer solutions and operations, described Kingdee as a “meaningful company” at SAP’s Sapphire U.S. user conference last week in Orlando. While Hasso Plattner, SAP’s co-founder, said he expects to see a major Chinese applications player emerge within the next five to 10 years.

Kingdee is hoping to be that company, with the goal of becoming the dominant SMB ERP market player in Asia-Pacific by 2010 and harbors a longer term, more ambitious desire to rank among the world’s top 10 application software providers.

For the time being, the major growth opportunities remain in the SMB space where Kingdee has its KIS low-end accounting software and its K/3 SMB ERP products. While Ho estimates that around half of all large Chinese enterprise are using ERP software, only 7 to 8 percent of local SMBs are deploying similar applications.

“I think there’s very great room for us to grow,” he said. “The [SMB ERP] industry is still at the infant stage.”

It’s a gradual move for Chinese SMBs to take on ERP, with many customers being first-time users of the software. At the same time, Kingdee can’t count on much revenue from maintenance contracts. “The mentality of customers is that they’re not willing to pay maintenance at the moment,” Ho said. “They’ll upgrade or buy new software rather than pay maintenance.”

Kingdee has already expanded its operations outside of China to parts of Southeast Asia, but only 2 percent to 3 percent of its revenue comes from that market, Ho said. In future, the company might also look at partnering with foreign companies to expand operations to Africa and South America, he added.

Founded in 1993, Kingdee has its headquarters in Shenzhen and is listed on the Hong Kong Stock Exchange. It employs around 3,000 staff and relies heavily on its exclusive 1,100 distributors to sell its KIS software to customers.