While most ERP biggies are focused on large industries, a new breed of vendors is exploiting its domain expertise and cost-competitiveness for niche sectors such as textiles, furnishing and plantations
By Mehak Chawla
Gone are the days when technology applications were orchestrated and implemented only for the tech-savvy segments such as BFSI, telecom and IT/ITeS. Almost all application vendors today are busy courting the lesser tech enthusiasts like pharma, education and retail. But there is yet another breed of vendors that is digging deeper and aiming to reach micro-verticals like farming, poultry, food and beverage, and even spas and furniture makers.
Business applications for such niche verticals have been growing on the sidelines while most industry watchers were busy concentrating on the growth of mega vendors. Though these applications may only go as far as an ERP, the vendors catering to these sub-verticals have found their niche, and managed to thrive. At least so far.
These vendors have grown on the back of their domain expertise, their extensive customization proposition and, needless to say, their cost competitiveness. However, the niche application market in India is anything but a cakewalk for those trying to make their fortunes from it.
Vertically yours
Karnatak Kumar, the owner of Comfort Furniture, has four furniture stores spread across Delhi and NCR. A couple of years back, he used to cut out paper bills and maintain stacks of files to take care of his tax requirements. Today, he uses a basic application that takes care of his finance and payroll. The application, according to Kumar, came with no frills and an agreeable cost. It connected his stores to the main office and he can now view his daily sales processing with a few clicks.
Kumar is one of those breed of entrepreneurs who are actively evaluating technology solutions to better run their businesses. However, their needs differ from those of large corporates or businesses with well-defined processes. As a result, these organizations often find it hard to find a solution that will automate only their back-end, let alone the front-end processes.
It is here that application vendors catering to niche verticals come into the picture. Explains Sateesh H Gururajachar, CEO, Lamp Software, a company that provides ERP for leather and textile industry, “In the niche verticals, processes keep on changing. So, the dynamics of a footwear company are very different from an automobile company. Big vendors expect a set of definitions for application implementation. However, in niche industries there are no standards so they need solutions that are very flexible. That is where companies like ours come in.”
Though the demand is far from exciting, the awareness of such applications is just beginning to rise. Since the mega application vendors don’t have specific solutions that cater to the flexibility requirements of niche verticals, these businesses scout for vendors that can bring intellectual property to the table. Elaborates Anand Sri Ganesh, SVP, Strategy & New Business of Manthan Systems, a company focused only on the retail segment, “Niche companies are now looking for vendors who bring in unique intellectual property to the table. Retailers, for instance, wish to invest in infrastructure that is embedded with deep industry context and sophistication that can catapult them to the level of sophistication that tier-1 retailers in mature markets have developed over several years.”
Building by exception
Lack of any standardization is perhaps the biggest characteristic of niche verticals. It is also one of the major reasons why off-the-shelf apps are often redundant for these enterprises. As Gururajachar observes, “Niche industries are still far away from the corporate culture so they need vendors who can work as per their specific processes. Unlike mainstream vendors, we build by exception, not by rule.”
Swarndeep Singh, MD, Logic ERP Solutions, corroborates by saying, “Niche verticals require a very high degree of customization and app reconfigurations. Though there are multiple software available for standard procedures like finance and payroll, the demand for process-based niche apps has gone up in India since the last half decade.”
Niche verticals, he adds, are the businesses that are not using Tally because it cannot fulfill their MIS requirements. Singh, who caters to clients like Levi’s, Numero Uno and Haldiram’s, believes that each of these verticals has very specific requirements.
According to Prakash Gopalani, General Manager – Sales and Marketing, Eastern Software Systems (ESS), it is the rising complexity of business operations that has caused even the grass root/non-conventional industries to go for ERP.
One of the key niche verticals that have seen a fair bit of automation in the recent past is farming. ERP solutions for farming, though not talked about yet, are getting mainstream. Typically, most of these apps are relegated to tea gardens and sugar plantations. iSmart Solutions is a company that deals exclusively in business apps for the plantation sector.
T.G. Mathew,VP, iSmart Solutions, says that it was around the year 2005 when they realized that plantation was a segment that needed some automation but was not finding the right solutions. “It is a very traditional industry that is mostly rural and thus, not catered to by the mega vendors,” he says.
The awareness as well as adoption of software related technology has increased in the plantation segment in the last half decade, feels Mathew. He reveals that in niche segments, the primary emphasis is always on productivity. “Productivity applications tend to do well in niche verticals because of labor and other costs involved.”
Others have not found equal success in their chosen niche verticals. Fashion and apparel is a good example. Though there are a fair number of ERP solutions available for the fashion industry, they are primarily for the back-end systems and not for the front-end operations. “The apparel industry in India, though very old and mature in terms of its offerings, is not a tech enthusiast. We are doing well in the US, UK and Spain because of their evolved technology understanding,” opines Suryakumar Shivasagaran, COO, Plural Technology, a company that caters to the PLM needs of apparel, retail and furniture segments.
Says Shivasagaran, “It is a little too early in India for niche apps, but we are seeing a very good response overseas. We believe that productivity tools would catch up in India soon. However, providing extensive customization services is the key to cracking niche verticals.”
There are other verticals for which ERP vendors are doing extensive customization. “Some of the other off-beat sectors where we have seen ERP implementations happening are jute, rice mills, etc. Even the industries such as retail, which initially just wanted a POS software, are looking at an ERP which gives them a POS that is well-integrated with their back-end ERP, as their supply chains become more complex to manage. Education is another such big vertical that has seen the onset of many smaller players offering vertical-specific ERP,” says Gopalani.
Niche, but restricted
The biggest hurdle for vendors catering to micro verticals is the fact that the IT maturity of these verticals is substantially low. “A lot of concept selling needs to be done before they get ready to buy an ERP,” says Gopalani.
While lack of awareness certainly acts as a deterrent for vendors, many vendors don’t attempt such off-beat domains simply because they need a resource pool with extensive domain knowledge to venture into any unexplored territory. Such micro verticals also are not able to create application demand for want of business volumes. “Even if some niche vertical players come up, they are not able to sustain business for long. In fact, companies operating only in one vertical and offering only vertical-specific ERP have not managed to sustain their business. They run a very high risk of depending on a single vertical and if that vertical suffers because of a business slowdown, such ERP companies face the heat and have to ultimately shut down their operations,” says Gopalani.
Another challenge in tapping micro verticals is that though some of them might think of adopting a basic reporting tool, advanced apps find no takers, and that in turn halts the growth of vendors. Amlan Ghose, MD, Prologic First, observes that adoption for technology concepts like business intelligence is low in sub-verticals. “This is due to the investment required and because awareness about benefits is not adequate.”
The other key thing with niche business apps is that while they can be implemented for really small ventures, it is only mid- to large-size companies that can get the right returns. Though some vendors have tried to experiment with open source for these segments, given the cost constraints, customization needs often render open source unviable.
Thirumoorti RA, CEO & MD of Apparel Direction and Design (ADD), tells us the customer side of the story. Thirumoorti had been experimenting with several ERP systems but he had always found the solutions lacking in flexibility. “I wasn’t able to achieve over 50-60% of implementation because customization was a big problem,” reveals Thirumoorti. Flexibility was, therefore, a key consideration that clinched the deal in favor of a niche vendor, Axind Software, which specializes in PLM for retail and manufacturing verticals.
Mathew of iSmart also points toward the integration impediment. “Although mega vendors don’t often cater to niche verticals, niche app vendors usually need to have tie-ups with these vendors for integration needs. We have tie-ups with SAP so that we can integrate our products with theirs for big players like the Tata Group, whose core applications run on SAP.”
The cost matrix
Even though domain expertise is what these vendors bank upon when they approach the niche verticals, the fact remains that in a price-sensitive economy like India, everything revolves around costing, eventually. But do the offerings of niche players really come at highly slashed prices? That might not always be the case, feel experts. According to Gururajachar of Lamp Software, “If we compare on the basis of TCO, costs for a vendor like us would be 60-70% of the cost for a mega vendor. However, we market ourselves on the basis of domain knowledge and low maintenance.”
That is pretty much the case across the board, except for a few vendors like Plural Technology who are trying to tap the market through their opensource solutions. They too, however, provide customization services. Says Shivasagaran, “Our community version is free but our customization services can cost up to Rs7-8 lakh for a customer with 5-7 outlets.”
For vendors like iSmart, costs can vary as per modules and scope of implementation. “We operate on fixed license costs, plus the modules that an organization needs. For instance, for about 20 estates our cost would be in the bracket of Rs1-1.5 crore for the whole package. A small establishment of five estates can begin from as low as Rs5 lakh,” elaborates Mathew.
Though these costs are certainly lower than those of tier-1 vendors, Gopalani of ESS argues that when it comes to niche vendors catering to only one or two verticals, costs can in fact be steeper than those of the biggies. “Since there are limited quality vendors offering solutions for these industries, the costs of these systems are substantially higher,” he observes.
Consolidation ahead?
Many believe that though some of these vendors are successfully tapping the niche verticals, the application market will eventually witness some sort of consolidation. The scenario does not seem so unlikely, given the fact that mega vendors like Oracle, SAP and Microsoft are known to acquire niche players to build up vertical-specific expertise.
The other scenario could be that these niche vendors would ultimately diversify, either horizontally or vertically, since the saturation levels are reached sooner in these verticals. There is then a possibility that we would see these niche players reaching out to mainstream verticals in order to support their growth.
The third scenario is that the demand from these niche verticals sees a spurt over the next couple of years, so that all these niche vendors would have to do is to increase their capacities to meet the enhanced demand.
The jury is still out on which of these scenarios largely unfolds in the Indian market.
