Startup Crisis Reflects Global Uncertainty, SAP’s LatAm President Says

Buenos Aires — This year is proving to be one of turbulence for technology companies across the world, and Latin America is not the exception, as market volatility, rate hikes to contain inflation and Russia’s invasion in Ukraine have impacted the reality for many companies.

In this context, German company SAP, a market leader in business application software, is celebrating its 50th anniversary, having been in Latin America for 27 years, where it has more than 5,000 employees (and of whom more than 1,000 are in Argentina), and more than 48,000 customers, more than 2,000 of which are in Argentina.

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Cristina Palmaka, president of SAP Latin America and Caribbean since July 2020, after serving for almost seven years as president of SAP Brazil, spoke exclusively to Bloomberg Línea about the situation that the company and the sector are going through, within the framework of the SAP NOW 2022 event in Buenos Aires.

Regarding the scenario that unicorns and startups in the region are going through, she said “they are cycles”, and that it is linked to the “global uncertainty”.

Regarding investing in countries with political and economic instability, such as Argentina, she said SAP always looks at “the long term”, and that the company has a presence everywhere, without having made a decision “to leave due to specific political or economic problems”.

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The following conversation was edited for length and clarity.

Bloomberg Línea: Worldwide, SAP posted revenues of more than 27 billion euros ($28 billion) in 2021. In the first quarter, revenues were above expectations. After the first half of the year, what is your assessment and what do you expect for the future?

Cristina Palmaka: The last three years have seen major changes in the company. This year we are 50 years old. A company that started with a technological model that came out of a product such as enterprise resource planning (ERP) to now be a broader company in its offering. This made it possible that, when the pandemic arrived, when large projects were relegated, we already had an important portfolio in supply chain, e-commerce, to help our customers. 2020 was a difficult year, but in 2021 we started to see that technology started to be part of the transformation again, and we see how it has an impact on business. Last year was important, it was not a good year, but it built on the construction we put in place in recent years, and we have the ambitions to 2025, quite ambitious numbers for us, and aggressive, that show the strength of the portfolio, of the impact of the solutions.

You said that 2020 was a year of emergency investments, and that in 2021 structuring projects were materialized, how is 2022 coming along?

We will continue to be aligned with the strategy of consolidating our portfolio. There will not be an expansion of the portfolio, but we will ensure that our clients can take the best advantage of this.

Technology stocks in general have suffered declines so far this year. SAP has been no exception. What is your outlook for the short term? Do you attribute the current situation directly to the war in Ukraine, inflation and the Fed’s rate policy?

It’s the consolidation of different factors. We are still going through the pandemic, which is not over. That impacts for example with inflation. The war in Ukraine also had a hard impact. Because of the proximity, but also because of the decision to exit and close operations in Russia. It is the first time we have done that in 50 years. We have an approach of being very close to our countries, with flexibility. So it was a necessary but difficult decision. These factors led us to that situation. We handled it in the best way. Our vision is to look at the long term.

What are the risks for SAP if the war in Ukraine continues?

The business side we have already considered after our decision to close our operations in Russia. So what was happening in Russia was already in our financial considerations. Then there are the global impacts and how quickly economies will be able to absorb what is happening there, from the point of view of energy, fertilizers. All that production that exists in Ukraine and Russia that the world depends on. What its impact will be. That’s everybody’s concern. In addition to the human factor. We look at how other regions can help. How fast Latin America can position itself to attract investment. It is an opportunity. From an economic point of view, it can be an opportunity. Through our clients we can make an impact from an opportunity point of view. Nobody wants it to spread, but how we manage the risk to transform that into real opportunities has to be worked out.

Is SAP’s main business model in Argentina currently cloud software? How have customers in the region adapted to these changes?

Yes, Argentina has taken to the change to the cloud much faster than other countries in the region. Perhaps because they are more open to transformation, perhaps because of a vision of innovation. Argentina has been at the forefront of cloud adoption for many years, compared to other countries in Latin America.

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Unicorns and startups in the region are suffering from market volatility and several have adjusted with news of layoffs. How do you see this scenario? How is SAP doing in terms of hiring employees in Argentina and the region?

They are cycles. These times are a reflection of the global uncertainty. I don’t think it is a definitive point. With so much uncertainty everyone is more worried. I do not see it with concern, but as a cycle that companies and ventures go through, of prioritization. It is more a question of adjusting to the global moment than anything else.

What risks do inflation and the Argentine macroeconomic scenario imply for SAP?

We always look at the long term. We have been in Argentina for 27 years. We have a presence everywhere and we did not make the decision to leave because of specific political or economic problems. We have customers that we value, and we bet on the long-term perspective. Not only in Argentina or Latin America, but all over the world.

Translated from the Spanish by Adam Critchley