Archive for March, 2010
Geely acquires Volvo Cars, what will this mean for the global automotive industry?
Wednesday, March 31st, 2010On 28th March 2010, Geely signed a $1.8Billion deal with Ford to acquire their Volvo car business. Now this is significant for two reasons, firstly it represents the largest deal that a Chinese automotive manufacturer has made to acquire a western car company. Secondly it also brings to an end a 20 year cycle of acquisitions and divestitures across North American and European automotive industries.
Ford has been at the centre of many of the acquisition and divestiture activities over the past twenty years, this was so they could establish their premier automotive group. The recent economic downturn saw Ford disband their premier automotive group leading to the sale of Jaguar Land Rover, Aston Martin and now Volvo. It is important to stress here that it is Volvo Cars that has been sold to Geely, not the remainder of the Volvo Group which includes truck, bus, aerospace, and outboard motor business units. So why would Geely be interested in acquiring Volvo Cars from Ford and what are their long term goals likely to be?
The Chinese automotive industry is the fastest growing of all the major markets around the world. The Chinese automotive industry has been trying very hard to enter western markets but the poor quality and safety record of their vehicles has meant that it has been virtually impossible to enter Europe and North America. The Chinese automotive industry knows that they have a strong advantage in terms of having very low labour costs. They have also been very creative with developing cars for their domestic market and some designs have been heavily influenced by western designs. In fact last year Geely produced one of the most infamous copies of a western design based on a Rolls-Royce Phantom, needless to say Rolls-Royce were not too pleased but it does show the lengths that some Chinese car companies will go to when developing new cars.
However things are different now, I believe we are now entering a new 20 year cycle of merger and acquisition activity, but this time it will be driven by automotive companies based in the BRIC countries. Over the past decade western automotive companies
were forming joint venture partnerships with Chinese automotive companies and they were also buying up other car companies across North America and Europe.
Now things have reversed whereby western car companies are looking to form more joint ventures in North America and Europe and companies based in the BRIC countries are looking to acquire car manufacturers in the western economies. We have already seen Tata
acquire, Jaguar LandRover, Geely acquiring Volvo and the Russian car company AutoVaz has recently partnered with the Renault-Nissan alliance. An amazing turnaround when you think about it!
So why did Geely choose to purse an acquisition of Volvo? Well firstly, many Chinese car companies have been trying to enter the Western European market but have failed because they have been unable to get their cars through the strict crash tests that the European countries have established. By acquiring Volvo, Geely will get access to engineers and resources that have been developing some of the safest cars in the world. Volvo has one of the most advanced crash test facilities located in Sweden and Geely will certainly be looking to utilize those resources should they decide to bring their own cars to the European markets. The Volvo brand is well recognized and their cars are perceived as being well engineered, safe and made from high quality components. Geely will be hoping to utilize some of this expertise with the development of their own cars.
As well as having a strong car brand that they will be able to sell across China, (helped by the setting up of a new factory producing 300,000 Volvo cars per year), Geely will also be looking to expand the Volvo brand in other markets around the world. In addition, Geely will also have access to a ready made distribution network across North America and Western Europe that could possibly help with the distribution of their own cars around the world.
The Volvo brand has been part of Ford for many years and they have had to adhere to certain Ford policies and processes for developing their vehicles. Following the announcement of the acquisition, the global media has been very interested in comments made by Geely’s Chairman, Li Shufu. He referred to the Swedish brand as being a tiger that needs to be free. He said “a tiger belongs to the forest, it belongs to the wild world and not confined to a zoo. We need to liberate this tiger”. Li Shufu immediately announced to the media that they would be building a new Volvo factory in China. Li also said that while European factories are the “heart” of the Volvo tiger, “its power should project it throughout the world”. I think this is a great analogy and the automotive industry is certainly interested in where Geely/Volvo will go from here.
Another area of interest will be how Volvo and Geely integrate their IT environments because I am pretty sure that Volvo’s IT and B2B infrastructures are going to be far more advanced than Geely’s. Also, Volvo has been constrained with how they develop their IT platforms because they have had to adhere to Ford’s global IT policies and processes. Now that the ‘tiger has been unleashed’, Volvo and Geely have a chance to develop new IT and B2B processes to meet the needs of their expanded operations. I will discuss how this acquisition is likely to impact their B2B environment in a future blog entry.
B2B Automation Across the Manufacturing Industry
Wednesday, March 17th, 2010B2B automation can mean different things to different companies. For example some companies will say that they have automated B2B processes but very few have applied B2B solutions across every business process that may be operating across a manufacturing operation.
It is one thing being able to automate internal business processes, for example providing improved integration to an ERP system but it is another trying to automate B2B communications with a diverse range of global trading partners. Now when I say diverse I am referring to the fact that many manufacturing companies today are utilizing suppliers or contract manufacturers in low cost regions such as the BRIC (Brazil, Russia, India and China) countries. They probably will not speak any English and if you are trying to automate the way in which they exchange business documents with you then you will need to ensure that they have the necessary local support to be able to not only implement a B2B solution but also maintain on an ongoing basis. To get around this problem many manufacturing companies have deployed simple web form based B2B solutions across their trading partner community. So what are the current trends in B2B automation across the manufacturing sector and are there any other ways to deploy simple to use B2B tools?
To try and understand more about how today’s manufacturing companies are automating their business processes, GXS recently co-sponsored a study which was conducted by Forrester Research, entitled “Joint Industry EDI/B2B Survey”, the study was conducted by Ken Vollmer in February 2010. The study itself covered a number of industry sectors and for the purpose of this blog I will cover some of the manufacturing related results (making up 38% of the survey respondents) and provide a comparison to the other industry sectors that were surveyed.
One of the interesting issues that the survey highlighted was the amount of B2B automation which exists across the manufacturing industry today. The chart below highlights the fact that only 10% of the manufacturing respondents said that between 81-100% of their trading partners were able to exchange EDI/B2B documents. This figure was very similar to the average across all the respondents across the other industry sectors. The highlight on this chart for me is that nearly a third of the manufacturing respondents said that they were exchanging B2B documents with between 21-40% of trading partners. I had a meeting with a manufacturing company in January, they highlighted that for their particular operation, manufacturing trains and power generation equipment, where there were relatively few suppliers, they did not see a requirement for B2B automation. The company had a fairly blinkered view in terms of where B2B automation could be applied and we were able to identify several areas where B2B automation could improve their manufacturing operations. In summary the following chart shows that in general, B2B automation is relatively low across the manufacturing industry despite the fact that there are simple to use and low cost tools on the market that could help automate business processes.
The next area of the study that I wanted to focus on is the regional variations in terms of the countries that the survey respondents need to trade with. The manufacturing sector is probably the most global in nature of all the industries surveyed and many manufacturing companies have either established new plants in low cost regions such as China and India or they are on-boarding more suppliers in these regions. Trading partners in these particular countries need simple to use and quick to deploy B2B tools. It is expected that the manufacturing sector across the BRIC countries is likely to increase over the next few years, so this will see an increasing importance on exchanging business documents electronically in order to support global manufacturing operations.
The next area of interest for me is the volume of transactions being exchanged. From a manufacturing perspective you can see below that 11% of the survey respondents said that they were exchanging more than 100,000 documents on a monthly basis. So if you are only able to exchange B2B documents electronically with say 40% of your trading partners that means that there is a high probability that you will have to rework the paper based transactions for the remaining 60% of trading partners that you will be working with. Manufacturing companies, due to the need to run production lines 24/7, exchange a relatively high number of B2B transactions, ASNs for example are probably the most important B2B document used by many manufacturing companies today. If these ASNs are not sent electronically and there is a delay with the shipment of parts to a plant, then there is a chance that production lines could shut down.
The most interesting part of the study for me was seeing how many manufacturing companies rely on the simple exchange of Microsoft Excel Spreadsheets or other text documents. For some reason many companies do not have a problem with attaching a spreadsheet to an email and then sending to a trading partner. Not exactly the most secure way of exchanging information and there is always the chance that emails can get side tracked elsewhere, ie by entering an incorrect email address. Everyone talks about SAP, Oracle etc as being at the centre of manufacturing operations, but in China the most important business tool in use today is the simple spreadsheet. Many companies somehow manage to run their entire business in China via a spreadsheet. Many manufacturers will be using spreadsheets for sales reporting, spend analysis, cash flow forecasting and for creating invoices, purchase orders and shipping documents. Suppliers in China are not going to change the way they use their basic IT tools over night so it is expected that the simple spreadsheet will be used for many years to come.
Now given that spreadsheets are one of the most popular ways to run a small business, what about if you could send Excel based information as an EDI document to a potential customer or trading partner? GXS Trading Grid® for Excel enables companies with no formal B2B infrastructure to use Microsoft Excel 2007 to exchange spreadsheet based transactions with their trading partners
in an automated fashion.
Through a customized menu bar in Excel the trading partners are able to exchange spreadsheets with GXS electronically and the spreadsheet is automatically translated into electronic data interchange (EDI) or the trading partner’s document standard of choice. The simple to use interface with Microsoft Excel 2007 and 2010 makes it the ideal platform to allow a manufacturer to be able to exchange business documents with trading partners located anywhere in the World, in an electronic and more importantly secure, safe environment.
To get a better understanding of how Trading Grid for Excel could benefit your company, take a look at a new demonstration that was recently uploaded to our website, please Click Here >>>
For further information on the Joint Industry EDI/B2B Survey conducted by Ken Vollmer at Forrester Research, please Click Here >>>
Which Technology Trends will Drive Growth in the High Tech Industry in 2010?
Monday, March 1st, 2010The high tech industry is emerging from one of the toughest economic downturns for years and many high tech manufacturers are hoping that 2010 will be a year of growth for the industry. Over the past twelve months many CIOs decided to postpone technology refresh projects and now that the worst of the economic downturn is over, many companies are looking to start investing in their ICT infrastructures once again. But which technologies should the CIOs invest in and which technologies are likely to drive the growth of the high tech industry in 2010?
Deloitte recently published their annual report on which technology trends are likely to see mainstream adoption in 2010. For the purpose of this blog I will discuss three of these technology trends and how they will impact several manufacturers across the high tech value chain. The full list of trends highlighted by Deloitte can be reviewed here.
1. Thinking Thin is in Again
As many companies exit the global recession, IT departments around the world will be looking for ways to reduce costs and simplify technology deployments across their businesses. For this reason, virtualized, thin client desktops are likely to increase in popularity in 2010. Deloitte predict that up to a million software seats may go ‘thin’ in 2010, and over the next five years, thin based client software applications may reach ten percent of all enterprise client devices. With the benefits of cost reduction, improved energy efficiency, security and increased personal productivity, many medium to large sized corporations will be considering the case for shifting to virtualized desktop infrastructures. The Wall Street Journal article published an article late last year which talked about the increased interest in thin client based applications.
Oracle recently said that they would like to see a return to 1960s style centralized mainframe clusters which are used to deliver applications across the enterprise. With Oracle’s acquisition of Sun Microsystems they will have all the building blocks, including Java based thin clients and server technology, to be able to make this dream a reality. Oracle is likely to be in pole position for exploiting the expected interest in thin client architectures.
It seems strange to think that ten years ago I was using thin client software running on a JavaStation from Sun Microsystems. At the time I believed Sun Microsystems was way ahead of the market when they launched this device and who knows perhaps the expected growth in the thin client market could partly explain Oracle’s interest in acquiring Sun Microsystems in the first place.
2. The Arrival of the Net Tablet
In early 2009 Deloitte predicted that the Netbook would see strong growth in sales across the PC sector. In fact the Netbook, due to its low cost, small size and wireless connectivity options saw exponential growth in 2009 and was the most popular type of PC available on the market. According to Deloitte, in 2010 the Net Tablet or Tablet PC is likely to become the fastest growing sector of the PC market. Apple has already taken first mover advantage in the market by launching their iPad tablet device. Following the launch of the iPad, numerous other PC manufacturers released details of how they intend to launch tablet devices onto the market. Tablet based PCs are not new and several devices have been launched over the past decade. However Apple’s ability to design user friendly devices combined with their interactive user interface makes them an almost guaranteed success in the market.
Apple has seen equal success with their iPod and iPhone devices but the iPad could be the first Apple device to make significant traction in the lucrative corporate/enterprise market as well. Many enterprise software companies are already starting to think about developing software for the iPad and it will be interesting to see how some of the enterprise software vendors such as SalesForce.com and SAP start to embrace the iPad device.
Apple is not the only company to benefit from the expected high levels of interest in their iPad device, Foxconn, the largest EMS provider in the high tech industry is also likely to benefit as they have been contracted by Apple to manufacture the device on their behalf. The EMS sector is likely to grow by 10% during 2010 and it is devices such as Apple’s iPad that is likely to drive the growth of the EMS sector of the high tech industry during 2010. As Tablet devices are considered as premium products they are likely to require higher end components from the chip, touch screen and flash memory device manufacturers as well.
3. Cloud Computing, more than hype, but less than hyper
In 2010 Cloud Computing is likely to grow much faster than most other technology verticals, but will fail to reach the heights that its more enthusiastic supporters have suggested. According to Deloitte, cloud related revenue is likely to grow by 20% in 2010 to roughly $70billion and it is likely to see its strongest growth in the small to medium size enterprise market rather than in the large enterprise or government sectors. Indeed many surveys show that users remain hesitant about cloud based services, they have concerns with security, reliability, data portability and the overall cost benefits of using such services. In the last month the US Air Force has asked IBM to develop a secure cloud that can be used across their defence operations. If IBM can develop such a cloud then the security concerns of using cloud based services are likely to be dismissed forever.
Application Service Providers, Software as a Service and now Cloud Computing were all conceived to deliver software in an on demand or pay as you go fashion. In fact IDC, the European industry analyst, recently highlighted cloud based services as one of the key trends to watch in the manufacturing sector during 2010. IDC also stated that CIOs will be interested in exploring pay by usage type payment models. So is the tide changing in favour of hosted environments? The North American and Western European markets are likely to be the leading adopters of cloud based services in the near future however the method of delivering these services makes it ideal for use in emerging markets where there is limited resource to implement and manage traditional software environments on an ongoing basis.
So if cloud computing does see increased levels of interest this year, how will this affect the high tech value cha
in? From a hardware perspective, storage and server device manufacturers such as EMC and Egenera will certainly benefit, but new entrants to the market such as Google and Amazon are also hoping to exploit cloud computing market by establishing their own cloud computing environments. Traditional software vendors such as Microsoft also stand to benefit as many corporations will be looking to use Microsoft’s Windows Azure platform for getting access to hosted versions of their popular office and collaboration software offerings.
I will discuss how the structure of the high tech value chain is likely to evolve during 2010 in a future blog entry.