Tech IT Easy » emerging economies

How Mergers and Acquisitions May Actually Narrows the Scope of Innovation

Anand — Fri, 15 Jan 2010 13:36:47 +0000

Be it Automobile , Aviation or Heavy Metal Industries, everyone felt the heat of recession but regardless IT fared better than most. In spite of worst economic meltdowns in history, acquisitions among big vendors continued to reshape the market, operating-system wars extended to mobile battlefields, microblogging became a powerful source of real-time information, and the take-up of small, Net-connected devices was stronger than ever.

But how good is this wave of mergers and acquisitions for the future? ( By future I mean upcoming innovation and future of Startups which target innovation not business)

Whenever your biggest competitor takes you over, it blunts the competitive spirit that can drive innovations. Thats what concerns me most, the spirit of innovation is somehow compromised because of takeovers.

Not always always a potential Merger or Takeover can be taken as a positive sign of ever increasing competition and globalization. And particularly not right now when it comes to web and social media startups, many of which are still more focused on innovation and building up audiences than on making profits. Rushing them into deals to fulfill long-delayed plans for an exit strategy could derail the evolution of a strong business plan.

From an investment standpoint, founders and venture capitalists have good reasons to cash out now. Market caps of public tech giants are rising — the Nasdaq gaining big time – and so are their cash stockpiles. For Instance Microsoft has a stock pile of about $49 billion in cash; similar is the story of Google with $24 billion. High-profile Multi Billion dollar deals like the ones we had in recent times have a way of spurring on other acquisitions.

TimeWarner buying AOL and eBay buying Skype come to mind. Even snapping up a hot startup for its technology or talent — Google buying Dodgeball or Yahoo buying Flickr – can lead to culture clashes, customer anger and other disappointing results.

I tried to re-compile the list of some major takeovers which are substantial enough to change the future of computing. We are talking about some multibillion dollar mergers and acquisitions, where the Big gets even Bigger.

Oracle eclipses the SUN @ $7.4 Billion

This Merger can be coined as “father of all the Tech Mergers” announced last year. If the announced the deal went through, Oracle, the industry’s largest database software vendor would get an entry into the server and storage markets worldwide.

The acquisition, still pending, was announced in April, and may even be blocked because European regulators are contending that combining Oracle’s technology with Sun’s open source MySQL database would violate competition laws. Lets see if this deal goes through.

Xerox snaps up ACS in $6.4 billion

Another major takeover, Xerox pays about $6.4 billion in cash and stock for Affiliated Computer Services (ACS), a large IT and outsourcing firm. With this merger Xerox hopes it will give it a bigger foothold in the business services space. While the deal will surely boost Xerox, investors wondered whether it overpriced the deal.

Calling the ACS deal “a game-changer” for Xerox, Burns, CEO of the company, said it would help Xerox “expand our business and benefit from stronger revenue and earnings growth.” The deal will triple the service component of Xerox’s revenue to roughly $10 billion annually from $3.5 billion, according to the company.

Dell – Perot Catch-Up Deal worth $ 3.9 Billion

Buying Perot was a part of Dell’s plan to expand its footprint in the IT services market, which was a necessity in a time when hardware sales were falling. Dell offered a staggering $3.9 billion for Perot Systems, a 68% premium over Perot’s actual stock value. Dell’s purchase can also be seen as a response to rival HP’s $13.9 billion acquisition the previous year of EDS — another services company founded by Perot.

Cisco-Tandberg worth $3.4 billion

Cisco, already a major player in collaboration products with WebEx and TelePresence, signed an agreement in October to purchase videoconferencing vendor Tandberg, which makes both video devices and network infrastructure products. The acquisition, if completed, could have both a direct and indirect impact on Cisco’s bottom line, because expanded use of videoconferencing may increase network traffic, letting Cisco sell more switches and routers.

HP Acquires 3Com For $2.7 Billion

HP launched a straightforward assault on Cisco in their own Game of Networks. HP’s increasing influence in data center networking and convergence markets will have a big boost with its purchase of 3Com, a maker of switches, routers and security products. HP says the acquisition will further its data center strategy “built on the convergence of servers, storage, networking, management, facilities and services.” The acquisition of 3Com also help to expand HP’s Ethernet switching offerings, add routing solutions and significantly strengthen the company’s position in China thanks to 3Com’s strong presence in China. The transaction is expected to close in the first half of 2010.

I have collected the figures and numbers from various sources including PCWorld, Gigaom and Wikipedia. Let me know if you have a suggestion or correction to make. Please forgive me for the grammar, I was always bad in Grammar since school

Article Previosuly mirror-posted by me at Global Thoughtz.

Anand

Unlike

The Poor Man’s Business Model—How Out-of-the-Box thinking can generate tremendous value for customers

Vincent van Wylick — Tue, 01 Dec 2009 13:17:21 +0000

I’m always fascinated by business models, i.e. at how entrepreneurs and companies put together services in order to make money from them. I’d call it the source code of business if I hadn’t seen the other source code in Luxembourg —legal and accounting—but arguably that’s more like binary code, i.e. 99% unintelligible.

Sarah Lacy writes about SMSONE, a ultra-local news provider in India similar to Outside.IN, a Union Square Ventures funded US-only company that provides news updates via the web. SMSONE does it, as the name suggests, via SMS. And it spreads through a franchising model, working with local entrepreneurs that pay a franchise fee and also collect a share of the advertising revenue from locally focussed businesses. It is able to do this because of something that apparently doesn’t exist in the US (but does in Europe): receiving an SMS in India doesn’t cost the recipient anything.

When reading about this, I was immediately reminded of a similar business model employed by a Dutch entrepreneur in Russia, Ms. Annemarie van Gaal, founder of Independent Media, a company that distributed Russian versions of magazines like Cosmopolitan, Marie Claire en Good Housekeeping (source). When she spoke at the Star entrepreneurial seminar in Rotterdam a year ago, she told us about how she differentiated herself from the competition (paraphrased as I haven’t got my notes with me):

The trouble with getting your magazines distributed in Russia was that you had to pay quite a lot of money (some would call it bribes) to companies that would then take care of it… badly. Instead van Gaal decided to do it differently. She would hire street kids to distribute her magazines, similar to the gold days of newspapers: the newspaper boy.

If you read Sarah Lacy’s account on Techcrunch, you’ll see that SMSONE does it similarly, hiring local kids, often without much education, to take care of distribution. Doing it via official channels is likely a nightmare over there, and centralising distribution kind of defeats the purpose of micro-news.

It’s a different way of thinking, which many of us westerners don’t have. I mean, would you entrust your products to a beggar on the street or to a street musician? Not only is it probably against the law (except if the government does it), we pride ourselves on our super-organised infrastructure, where anything from temp-workers to interns are there to provide companies with a flexible workforce, and anything from printing presses to mobile internet exists to produce and distribute your stuff.

Of course, I wouldn’t just leave you with these two examples. In the beginning of 2008, Boston Consulting Group published a study of “local dynamos”— domestically focussed companies, which use creative business models to capture value from emerging markets that are filled with challenges, like lacking infrastructure and low-income consumers. The map below shows how widespread these companies are.

Some very interesting examples are mentioned, like:

Shanda, a Chinese gaming-company, that, in order to combat software-piracy, focusses on providing interactive services through gaming, services that are impossible to pirate. And to overcome a lack of a financial infrastructure to pay for online services, they work with pre-paid cards.
Indian CavinKare, which sells cheap sachets of shampoo through small local retailers, while using educational marketing to teach customers how to use their products.
Goodbaby, which targets the many 1-child families in China, who are both willing to spend more on their child than multi-child families would, but are also in need of education.
Amul, an Indian food-and-beverage-marketing-organisation, which collects and pays for milk locally, while tracking all operations via satellite and uses ERP solutions to make analysis based on the data and gauge whether future supply needs to be increased or decreased.
Wimm-Bill-Dann Foods (Russia), which works extensively with local partners, and has devised leasing schemes for expensive machinery to boost their production and is able to serve 280 million consumers nation-wide.

The BCG, of course, takes the stance of its customers, Western companies, and the study is mainly aimed at how multinational companies (MNCs) can replicate 6 of these dynamo’s advantages, in order to compete with them. They are:

Customising to local needs – which involves first understanding these needs, and then meeting them.
Devising innovative business models that overcome local challenges – a logical follow-up to the last point, how to make money from the info you gained.
Leveraging the latest technologies – meaning that these emerging economies are less burdened with traditional infrastructure and quicker on the uptake of more affordable, newer, and easier-to-spread technology, e.g. mobiles.
Beneﬁting from low-cost labor and overcoming shortages of skilled labor – there’s two ways to look at this; a local workforce will be better equipped to interact on a local level, a highly-trained workforce will be better equipped to run a business. Tough call.
Scaling up fast – Russia, India, China, Brazil, etc. are all giants with the promise of huge rewards when you capture them. Many of these dynamos grow quickly through both through acquisitions and building up their network of suppliers and distributors.
Sustaining long-term hypergrowth without imploding – this kind of follows on to the last point

Some of the Western companies mentioned, which have managed to compete on a local level, include:

General Motors, which has adapted its luxury-liners to meet the demands of its Chinese customers, who are usually sitting in the back;
LG, in China, which has learned that the audio-quality of its televisions is more valued by its customers, who often reside in noisy environments;
Carrefour, which has started to work with local municipal governments in China, as these don’t meddle in their operations like local dept. stores would, and are able to provide access to prime locations;
Perfetti Van Melle, in India, a candle/chewing-gum manufacturer, which has found local means to advertise, interacts frequently with local partners, and has adapted its products to local tastes;
and Yum! Brands, which owns Pizza Hut and KFC, and has adapted its menus to meet local Chinese tastes, started a new food-chain aimed specifically at the market, and uses its international expertise to integrate IT, lean supply chains, and a higher level of food standards into their offering.

It shows the value of out of the box thinking in terms of reaching people, and I believe that traditional “Western” thinking should long ago have been thrown out the door anyway, particularly in light of the troubles that media-, automotive, and financial industries are going through. We are in the flux of disruptive innovation and only those quickest to grasp new technologies and ways of thinking are able to survive another day.

No shortage of lessons on that from entrepreneurs in emerging economies…

Vincent out

Unlike