In September 2013, IBM reignited their Analysts Insight event in Singapore to highlight investments in the IBM Growth Markets Unit or GMU. For those who are unawares, the IBM GMU contains most of the growth countries of the global economy. The IBM GMU has over 140 countries, and the only locations excluded are the US, Canada, Western Europe and Japan.
To put the size of the GMU in context, the market contains the world’s second largest economy, 8 of the world’s 10 most populous countries and 55% of world GDP growth.
For further context, consider that IBM’s revenue (just over $100B) is greater than the GDP of over 100 countries including Morocco, Sri Lanka and Slovakia. This clearly creates some interesting discussions about size, scale and process execution for IBM executives when dealing with organisations and government from these countries.
In order to make the GMU a more manageable business proposition for IBM, it is split into eight sub regions, and 20 focus countries. These are obvious markets based on size and IT opportunity, but are highlighted below with both sub-regions and focus countries.
- ANZ – Australia
- ASEAN – Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam
- Central and Eastern Europe – Czech Republic, Poland, Russia
- Greater China Group – China, Taiwan
- India South Asia – India
- Latin America – Brazil, Chile, Mexico
- Middle East and Africa – Saudi Arabia, South Africa, UAE
- South Korea – Korea
Overall the GMU structure for IBM has been successful. It is not without challenges, both logistically and with the pace and nature of growth in the component markets, but it facilitates growth well above the overall IBM organisation.
It ensures mature markets such as Korea and Australia do not suffer from complacency when compared with the growth in say China or Brazil. From an emerging market point of view, it has perhaps been most valuable in markets such as Africa and parts of the Middle East. It has enabled greater penetration for IBM in these markets due to more dedicated resources and backing.
From a business perspective, the overall strategy of IBM is not that different in the growth markets to that of the more mature markets. The challenge is the varied level of maturity. Russia and China are markets traditionally strong in hardware investment but weak in services and applications. Transforming this enterprise and public sector buying pattern toward long term services and solutions engagements is proving a little more difficult than anticipated by IBM. It may gain some comfort in the fact that it is not alone in this struggle.
From an offering point of view, the core IBM strategic initiatives around:
- Smarter Cities – Critical in emerging cities in China, Brazil etc
- Big Data and Analytics – Strong focus on identifying and applying value to big data
- Mobile – Driven by the sheer size of consumers and primacy of online commerce,
- Cloud – Whilst IBM and market issues are real, core enabler of rapid organisational growth
- Social Business – driving customer sentiment and eCommerce
are all relevant and have strong market potential. Additionally, as highlighted in a research note in September, the shift toward outcomes based pricing (Outcome Based Pricing – Adoption soars in Emerging markets http://wp.me/p15cZf-8G) is accelerated in the emerging markets (or Growth Markets in IBM terminology). This is a shift that IBM is in general terms structured to meet.
The challenges for IBM in the GMU are related to four key areas:
Cloud – In general IBM lags behind in terms of cloud investments in comparison with other legacy providers such as HP, and when compared to pure play cloud providers such as Amazon Web Services (AWS), and salesforce.com. From a corporate level, cloud based revenue (note – revenue identified by IBM) is still only a couple of percent of the overall IBM revenue, and similar in size to AWS, a company that has only been in existence for 7 years. Whilst the acquisition of Softlayer in June, 2013 will be a positive, it is clear that there will also be some cultural ramifications of the integration that may slow the full realisation of benefit.
From a software/applications point of view, to put it simply, IBM has moved too slowly to enable a combination of on-premise and cloud procurement options. If it continues to do so it will quickly lose relevance and brand awareness.
Commodity Technology Sectors – IBM is the same as any other leagacy vendor. It faces big challenges as cloud shifts technology procurement and the requirement for big shiny boxes diminishes. It has shown a willingness to divest commoditised markets (PC’s Printers, CRM Call Centres) and this needs to be maintained. Short term this presents challenges as hardware centric markets such as China, Korea, Russia et al lag in solutions based expenditure. For recent divestment of the CRM BPO Market see (IBM Sells its CRM BPO unit to Synnex – A Case of Leaving a Commodity Market Behind? http://wp.me/p15cZf-92)
Skills – Clearly IBM has a large and (typically) capable workforce. The ambition of the GMU strategy does place significant pressure on skills and consistent delivery. This is for both in-country and offshore delivery of services. IBM has struggled in part with this element of service delivery in both mature and emerging markets. It needs to make further investment in the skill level of teams in order to execute to client expectations. The best and strongest strategy in the world is pointless if you do not have the personnel to execute on it. At the top level and in the “A Teams” I have strong confidence in the overall level of execution capability; it is when one percolates down IBM that the challenges are met by clients.
140 countries – Managing the focus 20 does cause a range of logistical and resource challenges that would potentially cripple the most nimble of companies. IBM needs to drive efficiency deep into the organisation and remove barriers to knowledge sharing, skills transfer and customer understanding if it is able to successfully deliver services both to the select 20 and to the greater organisation.
A note on the AR team at IBM. IBM has historically invested more in Analyst Relations than virtually any other vendor that I have regular access to. Whilst many have missed the Insights hiatus, it is great to have it back. As expected the IBM team executed strongly, and facilitated a good level of interaction in the limited time frame available. I am sure that most analysts appreciate the hours of effort in corralling content and executives that goes on in the background as well as onsite for delivery.
IBM has taken a unique approach to covering the emerging markets globally. The GMU is a daunting organisation at every measure. This creates significant challenges. To date the success has been strong. It is on track to meet internal budget requirements and is creating significant amounts of value and IP for the overall IBM organisation. The challenges that GMU faces are largely overall IBM challenges as well so it is important that resolution be done across the board for IBM. Whilst this is not easy, IBM has little choice.
If you require further information, please contact Phil Hassey, Founder capioIT. capioIT is an advisory firm focused on helping organisations to understand emerging technology in emerging markets. Phil may be contacted by email below,