Accounting for the Global Business Market

Systems Union is a leading supplier of SunSystems client/server financial and business management software. With 13,000 customers in 172 countries, Systems Union is one of the top ten financial application software license vendors worldwide, and the leading supplier of accounting applications using Microsoft SQL Server. Its 1996 global revenues were $65 million. For more about Systems Union, see http://www.systemsunion.com/ John Pemberton is chairman and group chief executive of Hampshire (UK)-based Systems Union Ltd. Prior to founding Systems Union in 1981, he worked as project manager with Smiths Industries in London. Computing Japan interviewed Mr. Pemberton, and Warren Muir of SunSystems' distributor Eclipse Computing, at Tokyo's American Club in September.

interview by Wm. Auckerman

What was your impetus for starting Systems Union?

John Pemberton: After working extensively with both customized and package systems, particularly in accounting, I came to the conviction that there were severe limitations in most of them.

At that time [the late '70s], there were mainly mainframe packages available, and there were beginning to be minicomputer packages. A lot of them were American; they used to ship them from the States to their distributors or subsidiary offices in each country, and the distributors would change them for local functionality. I can remember needing some software quickly, so we got it directly from the States without going through the UK distributor. All the dates were in the American month/day/year format, and before every amount field there was a dollar sign....

A lot of the software I worked with didn't have enough places before the decimal point for Italian lira or Japanese yen amounts. Or, I can remember working for years and years with an accounting package that had department numbers from 1 to 99. The trouble was that we'd had a convention over a number of years of calling departments by letters instead of numbers. So whenever you entered data, you had to translate "Department A" into "Department 1," and [do the reverse] with all the outputs.

That sort of thing convinced me that I could design and develop software that was more flexible. I felt it should be possible to provide an accounting solution that would work properly anywhere in the world. Those were the ideals that motivated me to set up my own company.

Do you sell your SunSystems products primarily through direct or indirect channels?

Pemberton: Both, although for us, the indirect channel is much the stronger channel, and always has been. We have something like 180 distributors around the world, in 60 countries. I met with Warren [Muir, of Eclipse] just over 10 years ago, and Eclipse handled the distribution of our product in Japan up until about two years ago. Then, in January 1995, Systems Union formed a joint venture with Eclipse.

I'm quite proud that we try to be conscientious about our distribution channel - operate it in a way which is not destructive to our distributors. Distributors get very nervous, because makers "use" them. Too many companies in the computer industry tend to appoint distributors in various countries. Then, if the distributor is successful, the maker buys them out. And if they are not successful, the maker drops them. We don't do that.

I'm particularly pleased that we formed a joint venture with Eclipse - Systems Union Japan - yet still left Eclipse in place. We've built the distributorship, and we still have a pleasant relationship.

Who are your major clients in Japan?

Warren Muir: Until now, the major clients have been a mixture of international companies: foreign firms coming to Japan, and international Japanese companies. But we're starting to crack the domestic market.

And what are the major SunSystems products in Japan?

Pemberton: Our two major products are SunAccount, for accounting, fixed assets, multi-currency, corporate allocations, and so on, and SunBusiness, which handles auto processing, purchase order processing, inventory, etc.

How do you handle the localization of your products?

Pemberton: That is done in the headquarters. One principal I applied from very early on was that there should be just one version of the source software for use globally. That's a common principal now, but when we started out it was very uncommon for accounting.

The conventional wisdom was that an accounting product would only work within one country. Even now, although it is very fashionable in the industry to be an "international" software provider... because we've been doing this for 15 years, I think it is fair to say that we have more generalized products in more languages [than other vendors]. And over the years, we have built local features into the core product, including a number of features for Japan.

Plus, our product is sold by distributors who are quite capable of adding on further software. So what is delivered to the customer very often consists of various additional portions of software above and beyond our core product.

Which market segment do you target?

Pemberton: We've tended to succeed best in what we call the mid-market. You can define the mid-market as excluding the shrink-wrapped products - the bottom-end business and accounting products - and excluding the products that tend to focus around business process reengineering. We don't require the customer to change their processes in order to implement our product. But we do have a sophisticated product, so mid-range is really where we sit: sophisticated, yet with a low cost of implementation.

We sell our product across all industry types, so it's a generic product. I think that's one of our strengths: we have just one product, and we don't vary it.

Another way you can classify the mid-market is in the size of the organizations we sell to. In general, we tend to sell to organizations with roughly $50 million to $500 million in annual revenue, or to divisions of larger corporations where the division has that range of revenue.

But we also have some users in the very small businesses, where they have a need for our special functionality, such as the multi-currency aspects of our product. And we have sold very well into government in certain countries. Sometimes, our focus is driven by market forces to be different in different countries.

How do you view the potential of the Japanese market?

Pemberton: The Japanese market has huge potential. Application software in Japan tends to have been customized, to have been part of the solution purchased from one of the hardware manufacturers. And so there has been an absence of package development. The shrink-wrapped area, the bottom of the market, has some very sound accounting applications. But when you start to get into the mid-range, there are not that many strong applications in Japan. That's one factor.

Another factor which must come into it is that Japan is the second-largest economy in the world, so it's a huge market. Our pricing, for the software only, is in the region of \1 million to \2 million. With that kind of unit price, you need users with a reasonably sophisticated [software] requirement, and a reasonable preparedness to make a purchase of that size. So [our product] tends to be more suited to the wealthier countries, the higher GDP countries.

With that kind of focus on the mid-range, and that kind of pricing, Japan is an ideal market for us. And given the absence of strong products already in the marketplace, it's an ideal target. Plus, in Japan, through working with our partners over the years, we have a proven product. It has been fully translated and documented, and works in a two-byte environment. We find that we can satisfy Japanese users' requirements; we can provide a benefit to them.

Of the Western accounting products that have been brought to Japan, I believe we have more sites than all of the others put together. Oracle is second.

Where does Japan rank in terms of your worldwide revenues?

Pemberton: In English pound terms, we're looking next year at about ��2 million for Japan, and we're a ��50 million group... so, about 4%. But if you look at the Systems Union group as a whole, we grow by roughly 30% per annum, whereas in Japan we're growing by 100%-plus per annum. So, the proportion will increase.

What's been the biggest surprise for you, in terms of product acceptance?

Pemberton: In the past two years or so, we've produced an implementation with NT SQL Server. That is rocketing in sales terms. Regardless of what one might think about Microsoft Windows 95/NT, it is the de facto standard, and SQL Server is becoming the environment of choice for client/server. Even we have been surprised by the success those environments are having.

Interestingly enough, few Western SQL Server products have been brought to Japan. We've been meeting with Microsoft here in Tokyo. They, of course, want solution vendors who have proven products adapted to Japanese requirements - fully translated and reliable. And we can offer that. Microsoft wants solutions to validate their operating environment, and we'd like access to users who have that operating environment. It's a good working relationship. Who is your major competitor here in Japan?

Muir: Our biggest competitor is still the lack of knowledge of package software, or the desire still to go with a customized solution.

Pemberton: Historically, there haven't been such user packages as ours; the solutions have traditionally been customized solutions. So from a package viewpoint, it's a new market into which we can put our footprint because we have a proven product and are making the investment in Japan.

So the Japanese market is now ready for package solutions?

Pemberton: Yes. Japan as a market is moving into the next evolution of the information technology cycle. Until now, organizations were predominantly using proprietary systems. As these systems reach the end of their lifecycle, companies are more willing to accept package solutions. So there is the potential for us to go in.

Muir: We're going to companies like Fujitsu, Dentsu International Systems, Softbank.... We're going to orgnizations that already have a client base of custom software. Now, they're taking their customers from custom to package; they still retain the client, but they are putting in a different solution for them, [helping them] make the transition to package software. Japanese integrators and software companies would like to change internally from having big teams of engineers to having teams of implementers. That's the transition we're taking advantage of.

What are the biggest problems of doing business in Japan?

Pemberton: You can start out with the technical problems. It is quite a significant problem to make a Western product work because of the two-byte requirement. Initially, even if you're not talking about the translation of the product in terms of the titles on the screen, and the reports and so on, you've still got to accommodate data in two bytes. That's the first level. Secondly, you do need to do the translation, the manuals and the help screens and all that - so you've got to climb that mountain. From a technological point of view, there are challenges.

Also, the business culture is very different, so you've got to understand that. And there is the high cost of entry into the market: finding staff and premises, and the usual costs. Then there is the marketing issue: carving out a market share in a market that traditionally hasn't bought package solutions.

Of all the markets in the world, I think Japan is one of the most difficult markets for Western vendors to enter. A lot of the Western vendors in our field, and other fields, have come and put their toe into the water, and... "ouch," they've gone home. Which means that the ones that have stayed, have gained from being persistent.

And if you had to pinpoint the one major challenge?

Muir: The challenge to get good staff... especially in Japan, it's very hard.

Pemberton: For Japanese employees, we have two disadvantages: they see us, number one, as a foreign firm; and, secondly, while we may be a force to be reckoned with globally, we're very small in Japan. So the two things to fight [in attracting good staff] are size and being foreign.

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