As EU Celebrates New Additions, Expansion Seen Boding Well for ERP Market

Addition of countries to European Union will drive more manufacturers to adopt enterprise resource planning systems - ARC

Addition of countries to European Union will drive more manufacturers to adopt enterprise resource planning systems - ARC

Dedham, MA — April 30, 2004 — The expansion of the European Union due tonight at midnight ultimately will provide a boost to the market for enterprise resource planning (ERP) systems, helping to drive the worldwide ERP market to $12 billion by 2008, according to a new report from technology consultancy ARC Advisory Group.

The European Union, previously known as the European Community, is currently comprised of 15 countries and some 370 million people with 11 official languages, but ten new countries are due to join the union at midnight tonight, forming a 25 nation community of some 450 million people.

The nations that make up the union share common institutions and policies that have helped Europe become the leading geographical region implementing ERP solutions, according to ARC. The union, created after World War II to unite the nations of Europe, economically surpassed North America as the leading ERP region in 2002, and it continued that trend in 2003, ARC reported in its "ERP Software and Services Worldwide Outlook."

"The European Union is the largest economic entity in the world, and it is now solidified even further by the single currency, the euro," noted Steve Clouther, an ARC analyst and author of the report. "The European Union will become even a larger economic entity in 2004, and it is a key element of the growing ERP market."

This year Poland, Hungary, the Czech Republic, Slovakia, Slovenia, Estonia, Latvia, Lithuania, Cyprus and Malta will all become members of the European Union. This 40 billion euro expansion will push Europe's borders to Russia and the Middle East, and it will open up the markets of Eastern Europe and inevitably lead to more manufacturers requiring ERP solutions in these countries over the forecast period of the ARC study, through 2008.

The worldwide market for ERP was $9.10 billion in 2003 and is forecasted to be over $12 billion in 2008, growing at a compounded annual growth rate (CAGR) of 5.7 percent over the next five years, according to ARC.

In looking at the overall ERP market, ARC noted that while process industries have lacked ERP solutions designed for the idiosyncrasies of the process environment, this sector remains relatively strong in its adoption of ERP. This sector will see strong growth in excess of 5 percent CAGR over the forecast period as solutions become more robust and vendors develop and support more vertical solutions for the critical process industries, ARC predicted.

Particularly strong areas of growth will be in the food and beverage and pharmaceutical industries. The consumer packaged goods and food and beverage industries, as they expand to serve the global market, will leverage ERP solutions for better brand management, regardless of where product is manufactured.

In addition, ARC pointed out that revenues from ERP-related services (consulting, implementation, training and maintenance) represented 70 percent of the total ERP revenues in 2003, and this will continue to drive the successful growth of the ERP market.

While maintenance/support services account for a large percentage of the service revenues, more value-added services for the solution will kick in over the period of the report. In conjunction with the potential growth within the process industries, value-added services play a key role in vertical process industry solutions and fast-track implementations.

ARC also noted that the European Union is working out trade agreements with Mercosur — an economic entity comprised of Argentina, Brazil, Paraguay and Uruguay — which represents the fourth largest economic entity worldwide. Mercosur has more than 200 million consumers and boasts a combined gross domestic product (GDP) of more than $1 trillion.

"Mercosur is now among the fastest growing markets in the world, and any trade relationship with the European Union will be a definite win-win situation for both entities," continued Clouther.