German software giant SAP is seeing a stabilisation of demand in emerging markets, including China and India, as its deal pipeline improves and companies loosen their purse strings for IT spending.

"We are absolutely seeing a level of stabilisation in markets across Asia," said Stephen Watts, chief operating officer of SAP Asia Pacific Japan, at the Reuters India Investment Summit.

"We saw liquidity challenges in the last four quarters when people held their cash," Watts said. "I am seeing spending come back." SAP, which had focused on large customers for contracts in the past, is increasingly turning towards small and mid-sized firms.

The company, founded by five former International Business Machines employees in 1972, boasts McDonald's, Pepsi, Audi, Apple and GE as customers. SAP has been growing market share in Asia-Pacific, which has registered the fastest revenue growth among its three geographical markets for two years running.

SAP sees incremental growth in the region from utilities, the public sector and financial services, said Watts, who will continue to act as the interim India president into early next year. He replaced Ranjan Das, president and CEO of SAP India, who died last month.

Watts said the company expects to increase headcount in India over the next nine months, and was on track to spend $1 billion in India between 2006 and 2010. The opportunities in China, India and Australia will certainly speed up the pace of growth for enterprise application vendors, IDC analyst Praveen Sengar said.

"With SAP strength in the manufacturing sector, it will continue to expand its footprint in Asia-Pacific since it is the global manufacturing hub," the analyst said. Japan, however, will remain a weak link and take longer to recover than some other markets, Watts said.