NetSuite has set it sights on regaining growth in the UK and establishing operations in Europe and EMEA, also earmarking millions of dollars to support a data centre expansion.

The US cloud ERP and CRM vendor first came to Europe by setting up in the UK in 2003, where it has faced competition from the likes of Sage, Oracle  and SAP, as it battles to win customers in a competitive UK market, with a focus predominantly on the small to medium business (SMB) space.

In the past two years NetSuite's UK business has lagged behind the growth rate seen domestically, as the company targeted its resources towards sales in the US market. This has meant that UK revenue growth has slowed compared to the wider business.

However, in its most recent financial results the company noted one its strongest quarters, and with over $190 million (£125m) in cash assets, the company is now intent on investing more in growing its presence both in the UK, and more widely across Europe and EMEA.

“We are hoping to string together a few of these very high growth quarters and then really start to invest more broadly across EMEA in the second half of the year, and in the next year,” NetSuite CEO Zach Nelson told press at the SuiteWorld 2013 customer event in San Jose.

“The challenge when you establish a new office is that when you go to Germany or you go to France, it is like a new SaaS business. You have to put a three to five million dollar investment in, and that takes you three to five years to get back. It is actually a far larger investment than it might look.”

“That said, we are at a point now, and we have the leadership and momentum to actually expand in Germany, and that will probably be the first country we go to.”

Part of the strategy has been to appoint a new vice president for EMEA operations, Peter Daffern, formerly CEO of payments firm ClairMail. Daffern added that aside from the rest of Europe, the opportunity in the UK remains “enormous”.

“I look at where the opportunity is by vertical, I look at the opportunities that are coming in the door, and how we can enhance the ways in which we go after those territories, and we are barely scratching the surface. We started to put bottom-up planning together, and there is a lot of headroom in the UK.”

The drive into Europe will also be spurred by a channel push in order to get the necessary “feet on the ground”.

Data centre investment

Part of the strategy to establish NetSuite in Europe is to establish a new data centre, earmarking up to $3 million to set up a facility later this year, just as CRM rival Salesforce did earlier this month. Nelson claimed that the plans were definite to go ahead, following similar plans in the past, though he said the decision was yet to be made on whether to place the data centre in the UK or another part of Europe.

NetSuite currently uses two data centres located domestically in the US run by Savvis. Nelson added that the US location has not had a major impact on its ablility to win international customers so far due to compliance with EU Safe Harbor regulations.  However, the sales cycle has been extended slightly in some instances.

The main intention is to improve the levels of service for international, for example around latency, he said.

“It is great to have the systems closer to the end user customer. The biggest value will not be the Safe Harbor concerns a customer may or may not have, it will be the systems are sitting closer to them, the websites will be running faster, the application will run faster. It will be a performance benefit more than anything.”

Nelson also pointed to the prospect of targeting more public sector business in the UK as a result of the data centre expansion into Europe.

One UK customer of NetSuite told ComputerworldUK that it had not experienced any problems with latency, but would be interested in seeing what benefits could be brought about by a regional data centre.

SI partnerships

Another announcement which will help gain a foothold in Europe is the announcement that NetSuite will partner with Capgemini to target larger customers. So far NetSuite has joined with large systems integrators with a focus on the US market, previously partnering with the likes of Accenture and Wipro.

Nelson said that the company is likely to continue to move into the enterprise space with a 'two-tier' approach, as customers remain keen to move partial elements of their business to using cloud ERP first.

“Two-tier is awesome, we were built for it. Two tier can sound pejorative, like we are the second tier, but it is really a physical description we are talking about, this is not about one system being more value than another system.”

He added: “Ultimately two-tier will turn into one-tier.”

Challenges for European expansion

However NetSuite does face a number of challenges, both in regaining its growth levels in the UK, and pushing further into Europe.

According to Gartner research director Chris Pang, NetSuite was affected by the tightening of spending by its SME customer base in the UK due to ongoing economic uncertainty.

“The UK has been a little bit slower for NetSuite over the last couple of years, which is no surprise because of the UK economy. A lot of the companies they are targeting there are small to mid-sized companies and they are not exactly rich of cash at the moment."

Pang added that while NetSuite's UK business has continued to grow despite economic headwinds and competition from other ERP vendors such as of Sage, SAP, Oracle, Epicor and Infor, moving into mainland Europe - particularly where English is not widely spoken - is no small feat.

“NetSuite is still relatively tentative in Europe in terms of operations, and most of it is still based in the UK. A lot of the deals they have won in continental Europe have been either with US customers, or customers going abroad, rather than native customers.”

“I think they have got the product in place now, but what they really need to do is invest in sales people, marketing people, and, crucially, customer support and services on the ground in France, Germany, or wherever," he said, adding that Northern Europe, where English is widely spoken in business, could be a strong area for the company.

"France and Germany and other parts of continental Europe will take longer to crack because you need to be there for a good amount of time before you really build up that trust and support with native companies.”

Pang said that the plans to invest in a European data centre located in Europe would benefit NetSuite's plans to establish itself in Europe.

“If you look at all the EU regulations on security and privacy, NetSuite basically subscribes to all of that as well with the Safe Harbor agreement, so there is nothing legally stopping say a French company from using NetSuite. But from a company persective, particularly at an SMB level, there is a greater level of comfort in having your data located in you country.

“It is the same to an extent with UK companies, but I think there is less of an issue with having data in the US. Continental Europe may be a bit more concerned. If you are a large international company you are not going to care too much, but as a small or medium-sized firm with operations only in Europe, that is where you may prefer to have it more local.”

He added: “Also if they do put a data centre in Europe, it does kind of prove that they are in it for the long run, as opposed to a kind of 'hit and run'. It is a commitment.”