Klein, a member of the executive board of SAP sees “a very good chance” of former Deloitte CEO Punit Renjen being elected as successor to SAP chairman Hasso Platner. And termed it as a “big benefit for SAP,” if Renjen’s recent nomination to the post is approved by shareholders.
In an exclusive interview with ET’s Romita Majumdar and Surabhi Agarwal, the 42-year-old chief executive, who is among the youngest to helm a global technology corporation, said that he expects India to become an innovation hub for SAP as it develops core products end-to-end here.
Inflation is rising and there are several geopolitical tensions, how do you assess the global demand situation for technology spending?
I see Asia differently. India, to me, is one of the winners of the current situation because the economy is strong, talent base is strong. I feel a lot of companies are just looking to India, when it comes to reducing their dependence on countries which are at risk of geopolitical tensions. So, India will be a winner. Southeast Asia, we see decent growth. On the technology side, there are discussions about decarbonisation of supply chains, reshuffling supply, and new business models. So, we are actually seeing a strong business for our solutions.
I am confident that the North American economy will see decent growth because despite high inflation, they are not dealing with the same kind of energy challenges like us in Europe. In Europe and in Germany, the challenge is different. Because we have very high energy prices after everything that has happened in Russia. That is not good for the economy, especially when (one is) a very manufacturing-heavy industry (that) relies on cheap energy.
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How are technology companies like yours readjusting the business model to cope with such change?
Companies want to safeguard their supply chains and logistics from disruption if it is concentrated in any one region. We are helping large multinationals and local businesses rethink whether they can move parts of their business to places like India where it is a safer bet with a stable environment for many years to come.
We believe India is one of the countries that will benefit from this shift as there is access to a market and customers who are willing to innovate and invest in technology like generative AI and blockchain among others. It’s clear on where we need to put our money.
We ourselves are looking to invest here (in India) because of the business case and the talent. We (SAP) are out of Russia. We had a small lab in Ukraine, and it has completely shut down now. China is now reopening but let’s see how the disruptions work out. So, Germany and Europe (in general) have a lack of talent. North America has talent, but it is largely concentrated in Silicon Valley and the pool is not as big as it is in India. So overall, the Indian market makes sense.
Is SAP also looking at the India market as a de-risking option to offset slowdown from other global markets?
In India, we already have the largest R&D center, but we will double down because the economy is strong. Now we have 15,000 people, is it realistic to say that then, in five years from now, we can double the size. The ease of doing business is getting better. That was also a big point during the meeting between Prime Minister Modi and our Chancellor (Olaf) Scholz, that the ease of doing business needs to be further simplified, but we are in a decent shape in addition to the strong talent base.
The last year changed more into India’s direction. I would say three or four years ago, China was still a huge market as well. But, you know, now the perception and the political environment has changed.
To what extent do you foresee phenomena like ChatGPT and the Metaverse disrupt today’s technology industry?
ChatGPT, AI and metaverse- will be disruptive in certain parts of the business. I don’t believe that everything will be disrupted by ChatGPT but there will be strong use cases and one or the other function of an enterprise or in an industry. We as a technology company must start embedding this solution in our technology. It will of course mature further. But over the next two or three years, it will be ready for primetime. And then our customers need it to stay ahead of the competition.
We do our own AI development, and we are also partnering with companies like OpenAI. The software world is big and no Microsoft, Google or even SAP can capture everything. We must invest where we are strong. You need to use partners like OpenAI to embed that technology in ours. They will win. We will win and the customer still will see tremendously more value.
How far are the India operations contributing to SAP’s global revenue?
Our flagship is our ERP solution, and a lot of the code and IP is developed here in India and that comprises a huge revenue share for SAP. Supply chain sustainability, our platform, which is the foundation for all our products, is also developed here in India. So, the majority of the revenue that SAP is driving has the source code here in India.
It is very important that we not only shifted work to India, but we shifted complete responsibility for products so that employees don’t feel that they are complementing work done in the US and Germany. But have end to end responsibility and ownership of solutions.
SAP has announced some layoffs globally. Did the company overestimate talent requirements?
Last year, the tech sector indeed had a challenging year because after COVID a lot of tech companies saw a real boom because everyone needed to work remotely. There has been a little bit of a calm down in the industry. As SAP, we are reducing some parts of our portfolio, which are not core to SAP or our customers. We are reducing capacity. But we are investing in other places where the customers need us in utilities and the public sector and in retail. We are growing triple digits here, there is no doubt that our capacity in the country will grow by a lot in the upcoming years.