CRM World Domination
Multinational businesses implementing CRM need a vendor that can handle global deployments. The good news is, because the enterprise CRM market in the United States is reaching its saturation point, according to industry watchers, providers of CRM software and services are looking for new opportunities beyond the growing U.S. mid-market. Many are exploring other regions, including Asia, Europe, India, and Latin America. Organizations in some of these areas have embraced CRM fully; others are just beginning to explore CRM's possibilities.
With such varying acceptance rates, research estimates about the global penetration of CRM vary wildly. Cahners In-Stat Group projects that total worldwide revenue for CRM software will reach $30.6 billion in 2005. Research firm ARC forecasts the worldwide sales of CRM software and services to increase to $10.4 billion by 2006, a compound annual growth rate of 9.1 percent. IDC expects worldwide CRM revenue to reach $14 billion by 2005. And Aberdeen Group estimates that the 2002 worldwide CRM market reached $7.7 billion and will continue to grow at about 4 to 5 percent per year through 2006.
According to a study of worldwide CRM released by Aberdeen this past May, the largest market segment is SFA, followed by marketing automation and customer service automation. Call centers, field service, and partner relationship management each account for approximately 5 percent of the market.
The United States Leads the Way
The largest market penetration of CRM--estimates vary from about 50 to 75 percent--is in the U.S. In terms of revenue, estimates range from $7 billion to $14 billion for the total U.S. market.
Regardless of the exact numbers, because the U.S. market is already large and established, it is expected to continue to dominate the worldwide CRM market. The mid-market is flourishing and is expected to grow rapidly. Market-Partners, an independent research firm, surveyed more than 700 top decision-makers at companies with annual revenues between $50 million and $500 million and concluded that 41 percent of mid-market customers plan to increase spending on applications in 2003. AMR Research says the SMB market, combined with divisions of enterprises, is a $44.1 billion CRM opportunity over the next 10 years.
Even though the U.S. will continue to lead the global CRM market in overall revenue and market size, analysts expect other regions to have higher percentage growth rates than the U.S.
Look to the West
Most industry watchers agree that Europe and Asia Pacific, which are already sizable markets, represent the next huge growth opportunity for CRM vendors. Western Europe is set to grow at a much faster rate than the U.S., 22 percent over the next four years, according to Datamonitor.
A Cahners survey shows that the United Kingdom leads the geographical pack, with 29 percent of respondents saying they plan to implement a CRM solution. Spain was second with 19 percent, followed by Scandinavia (16 percent), Italy (13 percent), France (11 percent), and Germany (9 percent).
Operational CRM revenues are expected to reach roughly $3.6 billion in Europe, and about $2.7 billion in Asia Pacific by 2005. Most researchers agree that telecommunications and consumer good industries lead the areas of largest CRM growth, with healthcare and automotive sectors following.
Dendrite International, which focuses on CRM for the pharmaceutical market, is one vendor that recently moved to expand outside the U.S. The company formed a strategic alliance with Medical Data Management Group, a provider of physician databases and marketing services to pharmaceutical companies in the Central and Eastern Europe (CEE) market, including Hungary, Poland, Russia, and Ukraine.
By joining forces both partners will have the ability to deliver a broader array of services, combined with local market expertise and resources, and extend their reach into a number of growing markets. About 15,000 pharmaceutical sales representatives currently work in the CEE, and sales forces are anticipated to experience double-digit growth in coming years.
Asia has already been designated as a fast-growth area for CRM, and Frost & Sullivan is bullish on the region. The Asia-Pacific market for CRM software is expected to reach $561.8 million in 2003, more than doubling last year's sales, Frost & Sullivan predicts. Japan is the hot spot in the region, where Siebel holds the lion's share of the market.
Datamonitor estimates that the Asian market for CRM applications will grow from $445 million in 2002 to $739 million by the end of 2005, but many Western CRM providers, some of them large and prominent in North America and Europe, have been disappointed by the lack of return on their Asian investments. In fact, in a recent report the market research firm cautioned CRM vendors seeking to enter Asia, saying they must focus their limited resources on growing revenue in only one or two geographies, where their product and pricing are a good market match.
The report also warns that the road will not be easy. In Malaysia and China, two of the three leading growth markets (India is the third), local vendors will prevail over Western giants; and investing in localization in a high-risk market may be unwise.
However, Datamonitor also says that if CRM vendors plan carefully, assess their risk tolerance, and ensure their product matches local need for functionality and price, they should be able to take advantage of Asia's growing demand for CRM applications.
Datamonitor has witnessed a number of internal reorganizations, sales redeployments, and office closures across Asia, but particularly in markets that are considered stagnant, such as Taiwan, according to Evan Kirchheimer, lead analyst of Datamonitor's CRM research program. Kirchheimer says this is primarily because Western vendors have not adapted their strategies for each individual Asian market, where the CRM market is extremely fragmented and immature.
Kirchheimer says that in general the market falls into a number of categories. The most mature countries for CRM in Asia, excluding Australia, Japan, and New Zealand, are Hong Kong, Singapore, and Taiwan. Although Korea has shown recent signs of recovery, overall these markets will not exhibit the high levels of growth that other Asian markets will.
Indonesia, the Philippines, and Thailand are markets too immature to be singled out for investment, Kirchheimer says, since most CRM applications bought in those countries will be sold to Western-based outsourcers keen to reap profits through labor-cost arbitrage.
In contrast, China, India, and Malaysia can be characterized as the markets with the greatest growth potential, according to Kirchheimer. India's CRM market is dominated by call center technologies, although this will change and become more balanced in the coming three to five years. The Malaysian market is small, but many vendors have cited its growth potential, good infrastructure, increased liberalization, and high levels of education to justify planned investment.
"What is misleading about Asian growth," Kirchheimer says, "is the fact that it is so uneven. While the Chinese market will grow at an average rate of 59 percent per annum from 2002 to 2005, Japan will only grow at just
6.6 percent over the same period."
According to Frost & Sullivan, the market for customer interaction management software in China is predicted to grow from $103 million in 2001 to $264 million in 2008, with an especially large opportunity in telecommunications, banking, and outsourced call centers. However, the SARS outbreak is limiting near-term growth in China, says Hugh Bishop, a senior vice president at Aberdeen. "There will be a $2.2 billion decline in the near term, but after Labor Day things should pick up again," he says.
Bishops says that sales force automation in larger companies leads the way for CRM adoption in China. "These are the companies that have the infrastructure and the resources," he says, "although it is no longer the case that businesses have to spend millions of dollars to get their CRM effort going. Now they can go out and lease the software for minimal cost."
IDC claims that the Asia Pacific market is known for its volatility, but estimates that Singapore will bounce back by end of year, fueled by the inclusion of CRM analytic tools. "The intensity of competition in some industries has led to the need for CRM as a means of obtaining a competitive edge," says Alan Tong, senior analyst of enterprise applications at IDC Asia-Pacific.
Mexico and Latin America
It's not just China and India that are experiencing a boom in call centers. A recent survey conducted by the Instituto Mexicano de Telemarketing (IMT) states that Mexico is a hot spot for the contact center industry.
The Mexican call center industry employs roughly 210,000 people, of whom 170,000 are agents. According to the IMT survey, in 2002 there were approximately 8,000 call centers and 140,000 representative workstations in Mexico, plus another 30,000 at outsourcing companies. IMT predicts the call center market in Mexico will grow by 16 percent in 2003. Due to this surge in call center and telephony infrastructure build-out, there has been growing demand for improvements to the quality of telephone service.
Datamonitor says that Mexico has emerged as a stable and financially practical alternative for call center investment: With growth forecasts indicating that the number of agents will rise to more than 190,000 in 2007, Mexico is one of a select number of countries that has successfully established itself as a viable offshore locale for servicing Spanish-speaking customers.
"Generally speaking, a sluggish environment causes a lot of companies from industrialized countries to move call center operations and CRM applications to developing countries, to take advantage of more favorable economic conditions, such as real estate and labor prices," says Katherine Shariq, industry analyst at Frost & Sullivan. "The region is still in the early growth stages, which is why the growth rates are so large."
Aberdeen's Bishop predicts that in a few years the CRM space will resemble the structure of the car industry, where there are 20 or so multibillion-dollar companies that sell their products through local dealers: "I see that structure--especially in the mid-market--whereby a local reseller or systems integrator will work with local clients. If you are a U.S.--based supplier you are going to have to have a local presence in a market to make headway."
Whether existing Western CRM giants or new, localized CRM providers prevail, all this expansion into emerging markets is good news for the overall state of CRM. It's even better news for global businesses looking at CRM solutions to help improve customer relations and increase revenue.
Worldwide CRM Market in 2002:
NORTH AMERICA 56%
ASIA PACIFIC 11%
LATIN AMERICA 2.5%
MIDDLE AFRICA 2.5%
Source: Aberdeen Group
CRM Software and Services Market Share in a $6.7 Billion Market
WORLD- NORTH LATIN
WIDE AMERICA EMEA ASIA AMERICA
SIEBEL 29% 30% 29% 26% 42%
SAP 17% 13% 25% 21% 17%
ORACLE 13% 9% 11% 20% 11%
OTHERS* 45% 48% 35% 33% 30%
*Others includes Amdocs, E.piphany, i2 Technologies, Onyx, and Pivotal. Source: ARC Advisory Group
Contact Senior Editor Lisa Picarille at lpicarille@destinationCRM.com