If vendors of enterprise resource planning (ERP) systems meet their growth forecast, they'll have America's mid-sized companies to thank. According to recently released data from the ARC Advisory Group in Dedham, Mass., the ERP market within the manufacturing sector is expected to grow to $11.9 billion by 2007 from $8.9 billion in 2002 for a compound annual growth rate of 5.8 percent. And it looks like it won't be the big guys leading the way. Growth will be driven by mid-sized (a.k.a. midmarket or Tier 2) companies.
"Tier 2 now accounts for the highest percentage of ERP revenues, surpassing Tier 1 by more than 10 percentage points," says ARC analyst Steve Clouther, co-author of the study, ERP Software & Services Worldwide Outlook. Tier 2 accounted for 41 percent of the total ERP market in 2002 and will continue to expand its share, Clouther predicts.
The forecast for an overall growth rate of 5.8 percent should come as welcome news to ERP players. General market uncertainty and weakness in the global economy hurt the ERP applications market in 2002, when annual revenues declined by 0.6 percent from 2001 levels. Nonetheless, ARC reports that many manufacturers view the current business climate as a good opportunity to revamp their operations and make them more cost effective.
"The world economy remains difficult and the geopolitical environment is still unpredictable," according to Clouther. "The biggest difference between the situation a couple of years ago and now is that companies are investing almost exclusively in order to [improve] cost effectiveness. In late 1999, there was a huge surge in ERP implementations as businesses around the world prepared for Y2K. Now, four years later, the motivation is for the manufacturers to be replacing or upgrading their ERP solutions."