INTRODUCTION

In the past, Indian companies had customized legacy systems which used to work on
different platforms. They used to develop this in house. There was a problem that these
legacy systems took care only of the data processing activities and some operational
reports were generated by the system. The actual data used to be in the form of
spreadsheets also having the various analysis that were performed on it. As a result the
data that they had was quite fragmented and redundant.
The other problem was that these systems had to undergo many changes and several
patches had to be installed over them from time to time. They were loosely integrated
across functional areas and there was duplication and information inconsistency. It was,
therefore, important to migrate from this platform to something more stable and futuristic.
The management wanted to align its IT systems to the business processes. IT was to be
used for strategic decision making rather than only for data processing activities. An
information systems plan was drawn up, which besides other things, stated that the
organization would go for common system across the organization which would also
achieve integration between all systems, emphasis would be on improving business
processes, to adopt best practices and to cover the entire supply chain.
The industries wanted to consider only state-of-art systems and one which had a clear
roadmap for the future including conduct of business over the net. Tired of in-house
developed systems, the company wanted a standard solution and in particular, an ERP.
The idea was to partner with a technology vendor capable of taking them forward as the
business expectations increasing rapidly.
The need for cutting edge ERP solutions is becoming crucial in this information age. This
is accentuated by the fact that even the most fundamental market philosophies are
changing rapidly and radically and market for almost all products / services has become
truly global.
Another important factor that is driving the demand for ERP solutions is the changing
characteristics of customers. Customers, who have become more knowledgeable of the
various choices, have come to expect better quality, faster delivery, highly customized
products, and enhanced support services. Delivering all these to customers is getting
more difficult with the consistent entry of new players in the market space, stiffer
competition and loss of regional domination because of globalization.

Last decade has seen the organizations around the world spending a large amount of
money to adopt ERP systems due to six main reasons. Firstly, companies require a
common database; secondly, they want to improve and standardize their process; thirdly,
they require ongoing monitoring; fourthly, cutting down the operating cost; fifthly,
improving relations with customers and suppliers and finally, improving their decisionmaking capability.
With the help of ERP solutions, enterprises are increasingly looking at sharing relevant
business process related information with business partners. This not only allows all the
partners involved to take decisions quickly and plan out actions according to the
changing market compulsions, but also decreases the overall risk factor.
The enterprises with a global outlook are making a beeline for implementing cutting edge
ERP solutions, which goes much beyond the focus of traditional ERP solutions. This is
rendering the vast majority of the current ERP solutions obsolete from both architectural
and business importance viewpoints. Therefore, there is increasing demand for both
ERP II (from large enterprises) and advanced ERP solutions.
There is need for an economical transformation to an enhanced ERP solution and ERP
vendors are rightly poised to undertake this transformation. ERP solutions, which are
developed painstakingly with an experience of over a decade, are also designed to take
care of an enterprise's future technology and business process needs.
LITERATURE REVIEW
The following articles were referred for the assignment. Some of these articles actually
were about the upcoming ERP for SME sector in India. It has become one of the most
promising business in the past. We could not find many articles and papers published on
the exact topic. But if we generalise the topic a bit we can have a huge resourse to
compile our literature review. For example we consider the scope of ERP in the SME
sector around the world as well.
1. A PROFILE OF ERP ADOPTION IN MANUFACTURING SMES WRITTEN by
Louis Raymond and Sylvestre Uwizeyemungu says that with the advent of
globalization and the appearance of new forms of organization based on
networks of closely cooperating firms, it seems clear that successfully
implementing ERP systems will take on an increased significance for the
survival,growth, and competitiveness of many SMEs. Given existing empirical

knowledge in this regard, the present study has contributed to a better

understanding of the nature,state, and antecedents of ERP implementation in
SMEs. It is known that these SMEs are highly flexible and adaptable to change,
whether they are environmental,organizational, or technological. Some already
have implemented enterprise systems,and, in todays global context, they must
follow suit by implementing manufacturing practices such as concurrent
engineering, just-in-time, value-added production, and agile manufacturing to
improve their competitive position. Enterprise systems should not be adopted
unless they are in alignment with the competitive environment, the strategic
objectives, and the structure of manufacturing SMEs.
2. IMPACT OF ERP SYSTEMS ON SMALL AND MID SIZED PUBLIC SECTOR
ENTERPRISES by Ashim Raj Singla on a comparative research done on two
stand alone medium sized firms find that ERP adopters are consistently higher in
performance across a wide variety of measures than non-adopters. Overall, this
suggests that indeed ERP systems yield substantial benefits to the firms that
adopt them, and that the adoption risks do not exceed the expected value,
although there is some evidence (from analysis of financial leverage) that
suggests that firms do indeed perceive ERP projects to be risky. There also
appears to be an optimal level of functional integration in ERP with benefits
declining at some level.
3. FACTORS AFFECTING ERP SYSTEM ADOPTION - A COMPARATIVE ANALYSIS
BETWEEN

SMES AND LARGE COMPANIES by G. Buonanno, P. Faverio, F. Pigni, A.

Ravarini, D. Sciuto and M. Tagliavini reveals that companies seem to be

disregarding ERP systems as an answer to their business complexity.
Unexpectedly, SMEs disregard financial constraints as the main cause for ERP
system non-adoption, suggesting structural and organizational reasons as major
ones. This pattern is partially different from what was observed in large
organizations where the first reason for not adopting an ERP system is
organizational. Moreover, the decision process regarding the adoption of ERP
systems within SMEs is still more affected by exogenous reasons.
4. SME ERP SYSTEM SOURCING STRATEGIES: A CASE STUDY by Deb
Sledgianowski and Mohammed H.A. Tafti identifies ERP system sourcing
strategies available to SMEs and to provide insights from a case study of the

practices applied and decisions made by an SME in using a hybrid of sourcing

resources to implement the successful conversion of their legacy ERP system to
a new information technology (IT) environment.
5. PRACTICE OF INFORMATION SYSTEMS EVIDENCE FROM SELECT INDIAN SMES
by Milind Kumar Sharma and Rajat Bhagwat carried out a survey of 210 SMEs,
revealing that though SMEs understand and acknowledge the importance of the
IS in day-to-day operations management in the present dynamic and
heterogeneous business environment but these are yet to implement, operate
and exploit it fully in a formal and professional manner so as to enable them to
derive maximum business gains out of it. SMEs are not found equipped
adequately with the IS resources to suit their needs.
6. ANALYSIS OF FITMENT OF ERP AND CONCEPTUALIZATION OF ITS
SUBSTITUTE IN SMALL SEGMENT A STRATEGIC APPROACH by Arindam Sen
and Ranjan Bhattacharya have carried out an exhaustive industry analysis to
identify the segments, the key success factors in each segment and the logic of
industry correctly. All key success factors in the target segment (up to 50 crore
INR turnover, 12M USD) have been analyzed and compared with offerings of
established ERP players. An IT strategy analysis has been done to analyze cash
flow and Return on Investment of ERP implementation. This establishes logically
the validity of ERP in small segment.
MARKET REVIEW
The ERP market shows lots of avenues irrespective of the size of the company. As a
subject matter of this link it becomes important to analyze the market opportunities of
ERP in S.M.E.'S. S.M.E. Market and ERP are analyzed from various dimensions.
Competition among larger and smaller players - The competition for ERP market in
S.M.E.'s is quiet fierce. The vendors have increased considerably with the influx of
bigger players in the fray. Earlier only the smaller vendors catered to S.M.E.'s but now
the situation is totally reversed in the current scenario. The numbers of vendors are
increasing not only due to the intervention of bigger players but also due to the intrusion
of many smaller ones.
This makes it difficult for all of them to compete as the best only get to strike a deal. This
market scenario has thrown more demands from the companies because they now have

many vendors to choose. On the contrary the emerging increase has also resulted in
more complexions in the market because each vendor is different and unique when it
comes to the issue of software.
Saturation point for ERP market in S.M.E.'S - It has been largely argued that S.M.E.
market has attained saturation point for ERP. This statement might appear logically true.
There was not enough number of players for the ERP products in the S.M.E. market
formerly. S.M.E. market for enterprise resource planning was not competitive. Hence
these existing ones made a killing with the software companies. Some of them handle lot
of project simultaneously and successfully. All this makes one to conclude that the Small
and Medium Enterprises. market for ERP is quiet saturated. On the contrary it is not so
though it might be tempting to think so. The needs of small companies are quiet different
when it comes to ERP unlike the larger companies. The larger companies may have
some common parameters in common whereas it is not possible to find the same in
small and medium enterprises. Their requirements are largely varying. Infact it is not
possible for bigger companies to place such demands considering the magnitude of the
operations and the volume of investment required. The minds of the ERP vendor are still
tuned to this framework even in the case of small and medium enterprises. This
drawback has remained unanswered though there are exceptions. The companies are
not yet satisfied even though the market sound saturated. This is an important issue of
S.M.E. market and ERP. The intervention of new vendors from different segments has
given a positive response to this problem. Many of them have made commendable
alterations and started to suit the needs of Small and medium ERP companies requiring
ERP. The market still shows greater opening if companies can come forward to rectify
this or deploy the existing ones. This statement is made on the assumption that other
drawbacks are nil.
Opportunities for innovation - ERP vendors are frequently coming out with inventions
and modular improvements not to forget mentioning the upgradation in the market. Small
and medium enterprises can afford to go for such modifications are invested in newer
ones if it is demanding and worth (assuming that finance is not a problem).Though larger
companies have a greater capacity to do the same it is not practically advisable .Hence
S.M.E.'s are still prosperous when it comes to ERP market.

The ERP market for S.M.E.'s is undoubtedly promising. It should be noted that vendors
will have a great opportunity when they explore into the untapped areas to facilitate
better flow between S.M.E. market and ERP.
SCENARIO IN PREVIOUS DECADE
Nine companies out of ten had disastrous experiences with ERP in the previous decade,
and pundits predicted the death of this application. But ERP has resurrected and is flying
high on e-biz wings.
There is a superstition that to turn your business around all you need is to plug in an
ERP solution and all will be well. But the reality is very different, if the experience of
hundreds of Indian companies and thousands of global firms is indication. A recent study
found that the average cost overrun in Indian ERP implementations was 178 percent,
the average implementation time overrun was 230 percent of original expectations, and
the average decline in productivity was an astonishing 59 percent. Most of the users
think that ERP packages cost the earth, take ages to implement and at the end of the
day deliver nothing. Looking at the inside story one discovers that the fault was not in the
ERP packages but

in poor understanding of what it takes to install ERP and poor

planning and implementation.

List of successful ERP implementations include Bharat Petroleum Corporation Limited,
Indian Oil Corporation Limited, Oil and Natural Gas Corporation, Reliance, Coke, Pepsi,
Colgate-Palmolive, Procter & Gamble, Mahindra, and TATA Engineering and Locomotive
Company. All these companies are using R/3 ERP application. It is true that 9 out of 10
ERP implementations in India failed, but the one success story produced such
spectacular results that it kept the market alive.

A quick look at the market scenario shows that nothing could be further from the truth.
ERP is actually very much alive and kicking, and growing robustly. The ERP
market in India has been witnessing a compound annual growth rate of 70
percent over the last 5-6 years. As a result, the market has leapfrogged over the
years from Rs 12 crore in 1995-96 to Rs 27 crore in 1996-97, Rs 62 crore in 199798, Rs 134 crore in 1998-99, Rs 250 crore in 1999-2000 to Rs 460 crore in 200001 and reached Rs 650 crore or $120.7 million in 2001-02 and has grown
tremendously in the current decade. The paradox of implementation disasters and
robust growth is easily explained. Indeed, customers are no longer looking for a
simple ERP solution but one that incorporates e-business elements such as SCM
and CRM. This kind of solution is ERP II, is central to e-business and as long as
there is compulsion for firms to become e-enabled, ERP II has grow robustly. India
has witnessing a paradigm shift in the ERP market, with more and more clients
demanding second generation ERP solutions which include SCM and CRM. In this
kind of market place, only vendors who have a second generation product and the
ability to implement it can survive and grow. Last few years have been the virtual
decimation of the unorganized sector ERP vendors because they did not have
second generation products and the experience to implement them.
A snapshot of the structure of the Indian market confirms this. The dominant players are
all second generation product vendors, who offer a complete suite. SAP India tops the
charts with a 56 percent share followed by QAD at 10.8 percent. Ramco at 10 percent,
Baan at 8 percent, Oracle at 6 percent, Peoplesoft at 3.5 percent, JD Edwards at 3
percent and ESS at 2.5 percent are the other major players. The remaining is constituted
mostly of the unorganized sector as well as ERP solutions developed in-house. The
Indian market accounted for nearly 8.4 percent of the total Asia-Pacific.
CURRENT SCENARIO
Though direct vendors dominate the ERP space in India, a recent trend has emerged
with the emergence of ERP consultants who are third-party providers. They not only
implement the vendor solutions at client sites, but also provide maintenance as well as
implementation services. This trend has been prevalent in the Western countries,
especially after they too suffered similar setbacks with ERP implementation. Thirdwares
clients include Ford Motor Company, Delphi Automotive, Lear Seating, Tata Johnson
Controls, Hindustan Liver Limited, Godrej Soaps, Fosters India, Bacardi India, Dabur

India, Sara Lee, Pilsbury, Nicholas Piramal, Allen Bradley, Raychem RPG, Tata, Liebert,
Schlumberger and GE Lighting among prominent names. Siemens, Information Systems
(SISL) is another major third-party player involved in implementing Baan, SAP and even
Oracle solutions. SISL has around 70 implementations with some major clients being
Marico Industries, Hero Honda, Sanmar Engineering and Chemplast, Osram and
Novartis. Peoplesoft solutions are being implemented by Chennai-based Hexaware
Technologies.
ERP is mainly used by manufacturing firms, with FMCGs, automotive, steel, oil, textile
and pharmaceutical companies dominating the picture. For these early adopters,
Finance and Accounting, Sales and Distribution, and Materials Management/ Purchase
are the most popular ERP modules implemented; though HR modules are also growing
in popularity. Names such as Tata Iron and Steel Co Ltd, Tata Engineering and
Locomotive Company, Nestle, Reliance, Godrej, Larsen & Toubro, HLL and Maruti are
prominent in the list of early adopters. The oil companies and even some IT-savvy Public
Sector Undertakings such as Konkan Railways also join the roster.
The SME segment in India has been one of the most aggressive adopters of ERP in
India. In fact, of the 791 firms in India today who have an ERP, almost 60 percent of
them belong to the SME segment. With different vendors coming out with countryspecific localizations, having a large pool of skilled functional and technical talent
available, the total cost of ownership of an ERP has dropped significantly. Subsequently,
the level of penetration of ERPs has increased significantly amongst the SMEs. Some
of the more prominent adopters of ERP in the SME segment include Tribhovandas
Bhimji Zhaveri, Nippo Batteries, Baroda Dairy and Haldiram among others. Among the
vendors active in the SME segment is ESS( full form) which has pioneered solutions
specific to SME firms. The Rs 260 crore Indo-National company, best known for its
Nippo brand of batteries, is a typical example of an ESS implementation. ESS has
implemented its flagship product ebizframe to automate their Corporate Office in
Chennai as well as their branch offices and two factory locations in Tada and Nellore to
aid the company in smooth inventory management, timely scheduling of production
cycles and shipment of goods, managing human resources and online data
communication.
ERP implementation has lead to a considerable qualitative and quantitative benefit for
most companies. BPCL has worked on the ROI on SAP R/3 implementation, totalling Rs

40 crore on annual savings. In Fosters India, in the absence of an ERP solution

(MFG/PRO from QAD), closing of accounts would take more than 20 days reduced to
less than less than a week. An in-house ERP called RMS helped Konkan Railways to
make substantial savings and now the other railways also intend to purchase the
application.

Let us now look at the positioning of different vendors in the SME segments.

MICROSOFT
Microsoft has its ERP product NAVISION for SMB segment. Microsoft has three fold
strategies in this segment:
(1) increasing Product Relevance;
(2) extending Partner Search; and
(3) strengthening Customer Relationship.
Cost of implementation: It varies from 30 lakh to 50 lakh INR per implementation.
Observation: The cost of implementation is a bit high and most small segment players
would not be able to afford it.
ORACLE
Oracle has no specific product for SMB. The same Product is being used for all
segments. Oracle has two main strategies in this segment:
(1) selling its Database Products in SMB to ensure an entry of its ERP product in this
segment;
(2) development of vertical specific solution.
Cost of implementation: It varies from 40 lakh to 50 lakh INR per implementation.

Observation: The cost of implementation is a bit high and most small segment players
would not be able to afford it.
SAP
SAP has its ERP product mySAP for SMB segment. SAP has three fold strategies in
this segment:
(1) developing vertical specific solution;
(2) with a preconfigured product, SAP is trying to reduce the implementation time; and
(3) identification of industry specific channel partner.
Cost of implementation: It varies from 40 lakh to 50 lakh INR per implementation.
Observation: The cost of implementation is a bit high and most small segment players
would not be able to afford it.

The other big and small players in the SME sector for ERP are :1. BIZTools - Kolkata based
2. Eresourse has come up with a special Indian SME product
3. Isys Chandigarh company has come up with an ERP for SME segment
4. Syscon
BUSINESS IMPLICATIONS
Indian mid-market ERP Software Vendors can gain high return on investment by
educating SMEs about the benefits of the solution.
The basic purpose of enterprise resource planning (ERP) solutions is to streamline and
integrate operating processes and information flows within the organization, ensuring
optimal utilization of the available resources. Due to the limited budgets of the Indian
small and medium enterprises (SMEs), mid-market ERP (MERP) vendors are
challenged to show profits on the deployed software solutions in the financial statements
in the short term. Marketing MERP software to SMEs is a difficult task, as they are
extremely cost conscious and limited by technological know-how to invest in projects
that will yield only long-term results. To overcome this challenge and cash in on the huge
business potential, both in the short and long-terms, vendors can maneuver their

marketing efforts by educating the SME segment by sending mass mailers as well as
conducting seminars and road shows near industrial areas to create awareness and
consequently, earn a high return on investments (ROI).
Growing competitiveness compels SMEs to invest in MERP solutions as sustainable
development is the new buzzword for the Indian SMEs, and MERP vendors increasing
focus on customized solutions is expected to provide fresh impetus to the MERP market
in the future, say the analysts. Moreover, escalating competitive pressure is forcing
companies to equip themselves with modern business processes that will provide
unlimited access to information and enable them to compete effectively in the emerging
global market.
In order to stay ahead of competition, SMEs are adapting to MERP systems. They are
witnessing increased pressure to improve efficiency, productivity, and competitiveness.
Moreover, since some of the SMEs are working closely with large global enterprises,
they are forced to adopt streamlined automated operations. The automation of the
processes would enable them best to conduct business as part of an extended
enterprise of large companies. Greater demand for MERP Solution drives overall growth
of the ERP Software Market. Economic performance and industrialization are important
drivers of MERP deployment in India. Other factors influencing the growth of MERP
software market include higher ROI, ease of integration with legacy systems, low
customization of software, and successful reference sites.
Indian SMEs are now looking to export their products to developed regions such as the
United States and Europe, which has resulted in tighter quality norms. The need to be
globally competitive, coupled with the necessity to deploy automation software, is
expected to boost the uptake of MERP solutions.

Conclusion
Most of the Fortune-500 companies have already implemented ERPs in their
organization. The level of penetration of ERP amongst the large players is very high.
Hence the scope for further projects in the large segments is limited. Given the high level
of competition of amongst various ERP vendors, it would be very difficult for a vendor to
survive purely based on ERP implementations in large companies alone.

Moreover, there has been a large growth in the SME segment in India. A lot of
companies have come up and have grown at very fast rates. Most of these companies
would really benefit from the implementation of ERP to help them improve and
streamline their processes as they grow and expand in scale.
Hence an ERP implementation would be beneficial to both the ERP vendors and the
SMEs in India and there is a lot of scope for business expansion in that segment.
However, given the high degree of competition, and the cost consciousness of most
SMEs it would be essential for an ERP vendor to prove that their product would really be
beneficial and would help the company in growing and prospering at a fast pace.
We can conclude that the SME segment is a huge growth opportunity for ERP vendors
provided they can prove their viability and usefulness to the businesses.