Turnover and performance of the sector

The­re has been recent con­so­li­da­tion in the busi­ness softwa­re mar­ket. Smal­ler and lar­ger players have been bought into inter­na­tio­nal con­glo­me­ra­tes. In this con­text, I count as busi­ness softwa­re ven­dors the manu­fac­tu­rers of the softwa­re used to make sales, eit­her invoicing or cash and card sales, i.e. the crea­tion of receipts. Not all manu­fac­tu­rers of CRM softwa­re fall into this cate­go­ry, alt­hough many do have a CRM module.

In total, my sur­vey shows that the­re are 137 manu­fac­tu­rers in the industry in Fin­land, and at least three foreign com­pa­nies sell their softwa­re direct­ly to Fin­land wit­hout inter­me­dia­ries. Natu­ral­ly, all figu­res inclu­de only com­pa­nies regis­te­red in Finland.

Their com­bi­ned tur­no­ver is just over EUR 680 mil­lion. I used the latest avai­lable financial sta­te­ment data, most of which is from 2019 and some from 2020. The figu­res are the­re­fo­re not “aca­de­mical­ly accu­ra­te”, as this is a sur­vey and not a stu­dy. Some of the lar­gest com­pa­nies have been exclu­ded from the figu­re because this busi­ness is only a small part of their other acti­vi­ties. The most notable example is Mic­ro­soft Ltd.

The ave­ra­ge pro­fit for the financial year for the who­le group stu­died was around 5%. Of cour­se, for inter­na­tio­nal com­pa­nies this does not always tell the who­le sto­ry. The median tur­no­ver of the com­pa­nies in this group was around 1.1 million.

Consolidation and internationalisation

The deve­lop­ment has progres­sed in such a way that foreign softwa­re houses have not so much set up sales com­pa­nies in Fin­land, as SAP did in the past, but foreign manu­fac­tu­rers have bought up ope­ra­ting Fin­nish softwa­re manu­fac­tu­rers. The lat­ter have gene­ral­ly con­ti­nued to ope­ra­te with their own softwa­re pro­ducts, and their pro­duct deve­lop­ment has remai­ned in Fin­land. I have some per­so­nal expe­rience of this. Futur­Soft Oy, whe­re I was chair­man of the board, was sold in 2016 to the Swe­dish com­pa­ny Vitec, and the pro­duct deve­lop­ment of this com­pa­ny is still done in Finland.

I count as foreign manu­fac­tu­rers here manu­fac­tu­rers that are at least 50% foreign-owned accor­ding to public sources. Usual­ly the­se are 100% sub­si­dia­ries, but in some cases the com­pa­ny is owned by a foreign invest­ment com­pa­ny, in which case I count them here as foreign-owned. Howe­ver, this is of litt­le rele­vance to the ove­rall picture.

Foreign-owned com­pa­nies account for 23% of all busi­ness softwa­re manu­fac­tu­rers by volu­me, but 65% of their tur­no­ver. The figu­re would be even sig­ni­ficant­ly hig­her if the figu­res for the inter­na­tio­nal giants Mic­ro­soft and Oracle were inclu­ded, which are not avai­lable for ERP softwa­re acti­vi­ties in Fin­land. They sell softwa­re main­ly through resel­lers, so it would be dif­ficult to obtain figu­res for them. A real figu­re for the sha­re of foreign players in softwa­re tur­no­ver could be in the order of 75-80%, for example.

My figu­res do not inclu­de the tur­no­ver gene­ra­ted by domes­tic softwa­re resel­lers, which inclu­des not only softwa­re sales but also ser­vices around software.

The figu­res are also not accu­ra­te because some manu­fac­tu­rers have many other acti­vi­ties, and some also sell other softwa­re pro­ducts, such as the ERP softwa­re of the inter­na­tio­nal manu­fac­tu­rers mentioned.

In addi­tion, some foreign com­pa­nies that sell their pro­ducts direct­ly to Fin­land wit­hout a natio­nal com­pa­ny or distri­bu­tor here take a sha­re of the industry’s tur­no­ver. In such cases, sup­port ser­vices are gene­ral­ly pro­vi­ded from abroad.

As can be ima­gi­ned, inter­na­tio­nal manu­fac­tu­rers are prac­tical­ly the only softwa­re manu­fac­tu­rers for lar­ge inter­na­tio­nal com­pa­nies. Even for smal­ler com­pa­nies, the­re are plen­ty of options from foreign ven­dors. A small excep­tion to the lar­ge com­pa­nies’ side is the softwa­re in this field, which is cus­tom-made in Fin­land and which I know is also being deve­lo­ped for lar­ge companies.

We can also look at the extent to which the mar­ket is domi­na­ted by lis­ted com­pa­nies com­pa­red to pri­va­te­ly owned com­pa­nies. Pri­va­te­ly owned com­pa­nies are inc­rea­singly bac­ked by pri­va­te equi­ty inves­tors, which is anot­her chan­ge that has taken place over the last few years. Lis­ted com­pa­nies account for about 13% of the num­ber of com­pa­nies, but their tur­no­ver repre­sents about 45% of the tur­no­ver of all companies.

Market changes and the role of listed companies

Chan­ge has come in many ways over the last 15 years. In 2006, 15 years ago, I col­lec­ted data for my the­sis on the domes­tic mar­ket for financial and mate­rials mana­ge­ment softwa­re ven­dors, stu­dying the growth stra­te­gies of com­pa­nies in the sec­tor. Whi­le the big­gest players today were alrea­dy in the mar­ket then, new inter­na­tio­nal players have emer­ged since then. The­se inclu­de Vitec Softwa­re, a Swe­dish lis­ted com­pa­ny, and Con­fir­ma Softwa­re, a Swe­dish pri­va­te equi­ty firm, and Total Spe­si­fic Solu­tions, bac­ked by Cons­tel­la­tion Softwa­re, a Cana­dian lis­ted com­pa­ny. The­se com­pa­nies have acqui­red a num­ber of tra­di­tio­nal Fin­nish softwa­re manu­fac­tu­rers with a com­bi­ned tur­no­ver of between EUR 40 and 50 mil­lion. Their sha­re of the total mar­ket is less than 10%, but they account for a sig­ni­ficant sha­re of the ERP softwa­re mar­ket for SMEs.

SAP, the mar­ket lea­der among the sur­veyed com­pa­nies, has seen its tur­no­ver grow very sig­ni­ficant­ly in 15 years, more than tripling since 2004. On the auto­mo­ti­ve ERP side, for example, Auto­mas­ter Oy is now the Fin­nish sub­si­dia­ry of the US-based CDK Glo­bal group. The­re has also been con­so­li­da­tion among domes­tic com­pa­nies, for example Sol­teq acqui­red Alda­ta Solu­tion Fin­land, a major player in the sec­tor, in 2012.

So ove­rall, 45% of the sec­tor’s tur­no­ver now comes from lis­ted com­pa­nies, and I think this sha­re has grown sig­ni­ficant­ly in 15 years. This chan­ge is main­ly due to acqui­si­tions and orga­nic growth by lis­ted com­pa­nies, rat­her than to the lis­ting of new com­pa­nies in the sec­tor. The two new lis­tings account for just over 3% of the sec­tor’s turnover.

Ove­rall, the sec­tor has under­go­ne sig­ni­ficant inter­na­tio­na­li­sa­tion and con­so­li­da­tion over the last ten years. Inter­na­tio­nal players are in a strong posi­tion to com­pe­te in the 2020s, and the lar­ger the com­pa­nies, the more pro­nounced this beco­mes. The role of domes­tic players will inc­rea­singly be to act as con­sul­tants and resel­lers in the inter­na­tio­nal softwa­re supply chain.

Aut­hor. Timo Lintunen