IBM's Global Strategy to Double Its EPS
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It is important to IBM’s (NYSE: IBM) global strategy to identify and start to establish strongholds in what it calls growth markets. In 2010, these markets contributed 20% of IBM’s overall revenue. The company’s plan is to raise that to 30% by 2015, an aggressive emerging markets move. The focus on the region is part of the company’s global five-year road map, through which IBM is committed to delivering $20 per share in earnings (up from $10 per share) by the end of 2015. Here is an example of its global expansion plan in action and how it intends to accomplish this.
IBM in Tanzania
The nation of Tanzania in East Africa has a national ICT Policy which states that it will become the hub of trade in the wider region, with the goal in mind being to enhance economic development. IBM continues to work with the country to make this happen. It is working with the Tanzanian Ministry of Communication, Science and Technology to help accelerate the adoption of technology. It is also helping the country transform its infrastructure and build national data centers, all the while making sure that the country’s initiatives are competitive under international standards.
One of the focus areas of the agreement will be the port of Dar es Salaam, which is the main point for Tanzania’s imports and exports. Not only is it Tanzania’s main port, it is also the hub port for neighboring countries like Zambia, Malawi, Burundi, Rwanda, Uganda, and the Democratic Republic of Congo. IBM and the government will use innovative technologies and approaches to help the port operate more efficiently, transform revenue collection processes and strengthen regional trade links.
Middle East Growth
IBM is also aggressively looking at a larger presence in the Middle East, with offices already established in Dubai, Abu Dhabi and Saudi Arabia, and in April this year it opened an office in Doha, Qatar. IBM is concentrating on four main initiatives in this region as part of its global growth initiative:
- Helping build smarter cities
- Exploring business analytics
- Working on cloud computing
- A geo-expansion strategy, especially in the growth markets
IBM in India
A nice strategy is paying out for the company as engineers for IBM at its Bangalore development center create technologies when needed for the Indian market and then customize them for other global markets. Take for instance a $1.5 billion software development program for Bharti Airtel, India’s largest telecom operator. IBM picked up its business because there were no IT companies in India at the time that would take it. Expanding it to an over 1 billion dollar project, Airtel’s “Tower Arm” runs 33,000 towers in India with software developed by IBM. Labs monitor diesel usage in the towers and send out alerts when a tower goes down. This work has led to more work with Vodaphone and Idea.
IBM in China
IBM s opening up two more offices in China as it continues to expand there. The two new branch offices will be in the cities of Yantai and Yinchuan with 50 locations now! IBM has a well thought out plan on how they open branches around the country: It establishes a geo expansion program, moving its operations in to emerging high growth regions, and it continues to explore new areas that it considers untapped markets in second and third tier cities. This enables to company to move in and form a presence before other international players show up.
The two cities were historically agricultural, but with all the growth in China there are emerging services and manufacturing sectors driving the demand for IT services. These businesses are modernizing and turning to technology to be able to compete on an international level, as well as run more efficiently. This is when IBM engaged clients. Its services span sectors and include businesses like financial services, retail, textile, and telecommunications. As an example of what it does for these companies, IBM implemented a new IT system for Yantai Wanhua Polyurethanes Company to help manage its supply chain, human resources and customer relationship processes. The client is expected to increase operational efficiencies by up to 77% in four years.
In the next five years, IT service in China is expected to double, with spending exceeding $20 billion. IBM’s growth will continue as companies adopt next-generation IT systems and services.
Doubling its EPS from $10 to $20 is a challenging task, but with plans like this in place, IBM looks like it can do it!
The Motley Fool has no positions in the stocks mentioned above. johnmylant has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
