The boss of Europe’s largest software company, SAP, has said the continent “has to do better” if it wants to compete in tech with the US and Asia.
Christian Klein, 40, who took over as sole chief executive of the German group in April, said that while it would be “definitely do-able” for Europe to build another tech company the size of SAP, the continent needs to build a better pipeline of talent.
Earlier this year the European Commission unveiled a plan to boost the bloc’s tech sovereignty and ensure that it can compete with the US and Asia in artificial intelligence and the analysis and use of data.
Europe is also planning to build its own network of cloud computing and data services, named Gaia-X, that will be protected by EU laws and offer an alternative to the US providers Amazon, Microsoft and Google.
Additionally, Brussels has said it will spend €600m to train more than 250,000 people across Europe with advanced tech skills.
Mr Klein, who joined SAP as a student and whose company is helping the EU build its own data infrastructure, said there was “clearly a lack of talent” in the company’s home region.
“When we have position open for a software engineer in Europe, I’m getting round about 20 to 30 people applying for the job,” he said. “When I [offer] the same position in Asia, I have one hundred people, who want to have that job. And of course, also in the US, you see, when you are close to the very good universities, you have great access to talent.”
SAP, which employs more than 100,000 staff worldwide, with roughly 25,000 based in Germany, does most of its business abroad. The US, its single biggest market, accounts for roughly a third of its revenues.
The group, which is in the midst of transforming from an on-site business to a largely cloud-based one, has placed its largest cloud development labs in Asia and America, with bases in Palo Alto, Vancouver, Seattle, Bangalore and Shanghai, among others.
The company also recently opened an innovation centre in Newport Beach, California, due to its proximity to universities with AI skills.
The need to be near SAP’s German headquarters was further weakened during the Covid-19 crisis, when almost all staff worked remotely, without a noticeable decrease in productivity. Other than when German-language skills are required, the Walldorf-based company tends to advertise new software development roles globally.
Founded almost 50 years ago by former IBM employees, SAP has grown into Germany’s most valuable public company, and the country’s sole tech titan.
Wirecard, the payments technology company that looked set to follow in SAP’s footsteps, filed for insolvency last month after revealing a multiyear fraud.
Last year, digital industry association Bitkom warned that Germany has a shortfall of more than 124,000 skilled IT workers, and that tech vacancies tend not to be filled for six months — a situation it said “threatens the competitiveness of our entire economy.”
“Europe has to watch out,” Mr Klein said, “because these digital skills are not only relevant for SAP, but for all other industries as well.”
“This is something the countries in Europe have to double down on,” he added.
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SAP has prospered during the Covid-19 pandemic, especially as its major customers have used its software to rearrange their supply chains disrupted by lockdowns.
Its operating profits grew by 7 per cent to almost €2bn in the three months between April and June, as its cloud business revenues shot up by approximately 20 per cent.
But SAP’s customers remain frustrated by the lack of integration between its core software suite, S/4HANA, and a slew of large acquisitions made under Mr Klein’s predecessor, Bill McDermott.
Mr McDermott spent tens of billions of dollars on buying travel expenses specialist Concur, staff management software firm SuccessFactors and Qualtrics, which provides customer feedback data, among several others.
Last week, SAP shocked markets by announcing that it would float Utah-based Qualtrics, which it has bought in 2018 for $8bn, to give it greater autonomy and to allow it to pursue its own acquisitions.
“I think it signals that SAP is potentially more refocused on really the core European market,” said Julian Serafini, an analyst at Jefferies, adding that Qualtrics was probably an exception, and that other products would continue to be folded into SAP’s main suite over the next few months.
“The customers have been asking for this to happen for years at this point.”
Earlier this month, a joint study by the powerful German SAP users’ organisation, DSAG, which represents 3,500 European companies, and its American counterpart, ASUG, found that just 27 per cent of US users felt that S/4HANA worked “extremely well” with other SAP products. A mere 6 per cent of German speaking users felt the same way.
Mr Klein insisted that change was imminent. “I’m hearing our customers very loud and clear,” he said.
“About 10 per cent of our development capacity is assigned now to make the business process integration work,” he added, revealing that 50 per cent of the necessary work was already done.
“By the end of the year, we will hit 90 per cent”. At least until Mr McDermott’s purchases were properly integrated, SAP would focus on “organic growth,” Mr Klein said.
But he did not rule out making further acquisitions. “There will be also for sure in the future scenarios where we say: ‘OK, we can expand our portfolio by some tuck in acquisitions where our customers see the benefit’.”
He added that the company’s US clients, which include many of the country’s largest businesses, such as Exxon and Walmart, are in some respects more advanced than their European counterparts.
“A lot of customers in the US are really at the forefront of the digital transformation,” Mr Klein said.
“The industry cloud for retail will not be developed predominantly in Europe, we will do this in close co-innovation with our US retail customers.”
In contrast, some of the largest businesses in the EU are reluctant to move to cloud-based services, and even pay SAP to ensure that their data is stored on European serves and managed only by employees with EU passports.
“A lot of the core innovation is actually happening out of the US,” he said, adding that SAP would strengthen its management team in the country over the next few months. “It would make no sense to manage these teams out of Germany or Europe.”