SAP, one of the world’s largest enterprise software companies, could outperform its US rivals during the trade war because it is free to trade with China, the company’s CEO Bill McDermott said in an interview at a TechCrunch event on September 6.
The trade war has created a binary hurdle for American rivals including Microsoft and Cisco: not only has the US banned trade with Chinese businesses, China’s state-owned firms will not let them bid on their procurement tenders.
“The fact that Germany has excellent relations at the public and the private-sector level in China, it’s no question it’s a help to us.”
—Bill McDermott, SAP CEO
Why it’s important: The Trump administration is betting on a strategy of non-cooperation to stifle China’s competitive tech companies on the global stage. McDermott’s comments indicate that the trade war is helping it gain an edge over US rivals simply because it has unfettered access to the Chinese market.
Details: SAP, with a market capitalization of $145 billion, makes financial and management software for enterprises, competing with Microsoft, Cisco, and Oracle among others. SAP’s German roots has allowed the company to target China’s gigantic state-owned enterprises as clients.
- But the company is toeing a thin line. Last year, it spent $10 billion to acquire two American software companies, Qualtrics and Callidus software. McDermott said that if more than 25% of the company’s software is based on US innovation, they could also be subjected to US export restrictions.
- McDermott said they have not significantly changed their software development process in anticipation of a no-deal between the world’s largest economies.
- SAP does not disclose its revenue from China.
- The German company has implemented a cost-cutting strategy to offset the costs of its spending spree. It implemented layoffs and has promised to boost margins by 500 basis points over the next five years.
Context: Washington has taken bold moves in the trade war, trying to force Beijing to end practices that the Trump administration sees as unfairly promoting China’s homegrown businesses and stifling foreign competition.
- American companies seem to disagree with this strategy, claiming that lack of access to one of the world’s biggest markets is hurting profits.
- US chipmakers reportedly lobbied hard for the US government to end a ban on trading with Huawei.