For some time, the world’s biggest IT company, Hewlett-Packard (HP), has been investing in emerging markets to offset stagnating sales in the US and western Europe. Despite the current economic situation, the company’s new head of Middle East, Mediterranean and Africa (MEMA), Santiago Cortes, says this is a good strategy and adds that the company still has areas of clear growth in the region. It might be the optimism of someone who has only held the post since February this year, but the sentiment has been echoed in the past by industry analysts who viewed the California-based firm as robust enough to weather the economic downturn because of its diversified product offering and geographical footprint.
However, the opportunities must be weighed against the firm’s announcement in February that it would lower its profit and sales forecasts for the year after reporting a 13% fall in profit for the first quarter. Growth in emerging markets also slowed in the first quarter of 2008. Revenue declined 11% in Asia-Pacific, while revenue from Brazil, Russia, India and China was down 22%, reflecting a global slowdown in IT spending.
Rather than draw back in the wake of a set of gloomy results, Mr Cortes believes this is the time to transform business models to drive future growth, and not just be led by the current circumstances. This is particularly true of the MEMA region, where HP has operations across 71 countries and where Mr Cortes says there are huge growth opportunities to adapt businesses, compete globally and gain weight in the worldwide economy. “When you see the gaps in IT investments in emerging economies, you realise the growth opportunities we have by being close to the customers in the region,” he says. HP already has subsidiaries in Algeria, Egypt, Greece, Israel, Kenya, Morocco, Nigeria, South Africa, Turkey and the United Arab Emirates as well as sales offices in Saudi Arabia, Lebanon, Oman and Uganda and a global delivery centre in Tunisia. Israel is a major hub for the firm with HP Indigo, HP Large Format Printing, HP Labs and HP Software R&D all located there.
Launching operations in the MEMA region adheres to the company’s ethos of being close to its customers everywhere it operates. Although the company has a global operational model, it uses local market conditions and customers to define its strategy within each country.
“We respond to the different needs of the different markets and get close to the local governments, companies and institutions in all the countries in which we operate,” says Mr Cortes. HP works closely with local governments when it considers opening an operation in a new country, and registers high interest from many governments in the region in attracting multinational high-tech corporations.
Deciding on the level of presence to have in a particular market depends on that market’s critical mass. And the point at which to establish country operations is as soon as the company feels that it has a minimum critical mass. HP then groups its country entities into sub-regional operations to integrate the pool of resources available to serve all of the different needs in those countries.
“As soon as we get critical mass, we localise the specialised resources so we can place them as close as possible to the customers,” says Mr Cortes. That is when the transfer of knowledge and development of local expertise can take place. This expertise is then not only available locally but also made available to be transferred across the rest of the organisation. “In fact, we have management from the MEMA region working in HP worldwide in many countries in Europe, in the US or in Asia-Pacific,” he says.
HP has headquarters in many countries in the region, but management is evenly spread across the different locations. The company does not have a regional headquarters as such, and instead has different support or expertise centres in a number of countries, says Mr Cortes. The company regards its responsibility as developing not only the HP business but the IT market in general, because the development of local know-how will help local companies, entities and governments to be more competitive and develop their economy globally. “There is a direct correlation between IT investments and economic growth and competitiveness,” he says.
In terms of the form that a new country launch takes, Mr Cortes says each market requires a different approach. “We have joint ventures in different countries, but mostly we start operations on our own,” he says, adding that HP has strong local partner networks in all countries in which it operates. The firm has two joint ventures in Kuwait and Bahrain but in most countries it is represented through a strong network of solution partners.
As with all new operations, finding the available skills is always a challenge. HP has strong links to many universities in the MEMA region, and has an ongoing strategy of strengthening relationships with local governments to create joint programmes designed to develop expertise and knowledge transfer. “New generations in African and Middle Eastern markets can take a more important role in the global development of technology know-how, first for their countries of origin, but also for the rest of the world,” says Mr Cortes.
“I am convinced we will see many more highly qualified professionals working not only in these countries but globally in more advanced economies,” he adds . In doing so, the transfer of technology expertise to developing countries will also benefit Western economies because there will be highly qualified professionals in the Middle East and Africa who will be willing to work throughout the rest of the world. The end result, says Mr Cortes, is that all economies concerned will benefit from a higher level of competitiveness and sustainable economic growth.
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