SAP CEO says the world is entering the ‘next phase of globalization’

The CEO of German tech giant SAP said the world is entering the next phase of globalization — and he’s largely optimistic on the outlook for technology despite challenges posed by higher interest rates and supply chain disruptions.

“We are entering from my perspective the next phase of globalization,” SAP chief Christian Klein told CNBC’s “Squawk Box Europe” at the World Economic Forum in Davos, Switzerland.

In this era of change, companies will want to shift their focus toward building up resilient supply chains and improving their sustainability credentials, Klein said.

He added that firms are coming together to secure their supply chains and tackle corporate responsibility issues by better using data.

Supply chains have been challenged by a confluence of factors, not least the Covid pandemic. Lockdowns caused major disruptions to economic output, and highlighted a dependency on China for global trade.

The Ukraine-Russia war compounded those issues, as Russia is a significant supplier of oil and gas, and Ukraine is the source of of vital exports related to food, agriculture and industrials. That has led to upheavals of supply chains and higher prices for consumers and businesses around the world.

Sanctions on Russia, meanwhile, led companies to rethink where they base their operations — including SAP.

Despite that, Klein said he’s optimistic about the path ahead.

“We in the tech sector, we at SAP, we are very confident about the year ahead,” Klein said.

Reflecting on the gloomy state of macroeconomic conditions, he said that there have been cutbacks in tech, as well as the broader economy, and that CEOs of large enterprises are becoming increasingly cautious about spending.

There have been waves of layoffs happening in tech, including at the likes of Amazon and Meta, as higher rates and fears of a recession force them to be more prudent with spending.

“We had for a very long time negative interest rates,” said Klein. That has now changed in both Europe and the United States, with the Federal Reserve, European Central Bank and Bank of England hiking interest rates to tame soaring inflation.

Klein added, however, that technology is the “solution” to making supply chains more resilient, as companies need a better handle on the data underpinning their businesses to make more effective decisions.

“Actually, people still want to invest money, but they really care about where to invest,” Klein said.

Automotive manufacturers, for example, “want to see how they can build resilient supply chains up from the raw materials up to finishing and producing the car,” he said.

“It’s about coming together and technology plays a key role in that,” said Klein. “And that’s why in the ERP [enterprise resource planning] in the supply chains space, we see really high spending these days, and there will not be a big change in 2023.”

SAP’s growth has been expanding as it plots a shift away from traditional computing infrastructure to the cloud, Klein added.

And that’s helped the company continue to do well despite its exit from Russia, he said.

Government sanctions on Russia and the solidarity that big corporations showed Ukraine forced many businesses to leave the country, leading to income losses and worsening geopolitical divides.

But Klein said SAP wouldn’t be as affected as others, thanks to the reprioritization of its business, which now focuses more on cloud computing and recurring revenue streams.

He suggested the firm would avoid having to lay off workers as many of its peers have done, as it is “in a very strong position.”