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Pan-Baltic IT companies: the pain and joy of building an international IT group InfoBalt Investor’s League Conference Vilnius, Oct 22, 2002. Allan Martinson CEO MicroLink. MicroLink’ summary. The largest Baltic IT group 60 m EUR in annual sales, 630 employees 5 divisions, 3 countries

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allan martinson ceo microlink

Pan-Baltic IT companies: the pain and joy of building an international IT groupInfoBalt Investor’s League ConferenceVilnius, Oct 22, 2002

Allan Martinson

CEO

MicroLink

microlink summary
MicroLink’ summary
  • The largest Baltic IT group
  • 60 m EUR in annual sales, 630 employees
  • 5 divisions, 3 countries
  • Business interests in
    • System integration, software development, enterprise applications, training (ML Systems)
    • Outsourced central systems and corporate data communications (ML Data)
    • PC assembly and service (ML Computers and ServIT)
    • New media (Delfi)
    • Microwave radiolinks (SAF Tehnika)
microlink s expansion story
MicroLink’s expansion story
  • 1991: Foundation of MicroLink
  • 1998: Sale of ML to CHS, creation of new ML
  • 1998: Merger with Astrodata
  • 1999: Acquisition of Parks, LvNet, Taide, SK, I-Net, VAR
  • 1999: Launch of Delfi portal
  • 2000: Merger with Fortech, ICS
  • 1999-2002: Sale of ML Elektroonika, Linki, Kungla Dialoog, Columbus IT Partner, Taig, CHS Service, ADML, e-commerce ventures, e-consultancy, closure of retail outlets
  • 2000-2002: restructuring
  • >20 m EUR invested in 4 years
  • 4 private equity placements, multiple bond issues
changes in business and culture
Changes in business and culture
  • Software, services and R&D (radiolinks): from 8% in FY98 to 40% in FY02
  • Sales by geography:
    • FY98: 100% Estonia
    • FY02: 48% Estonia, 45% Latvia, 7% Lithuania
  • Employees by country:
    • FY98: 99% Estonia
    • FY02: 40% Estonia, 50% Latvia, 10% Lithuania
  • Share of employees who are with ML from 1998: 6%
  • Original founders stake down from 100% to 15%
  • But basic DNA is still the same
microlink s slogans and strategies 1998 2002
MicroLink’s slogans and strategies 1998-2002
  • 1998/99: Within 3 years to establish itself in all 3 Baltic countries as leader in most IT markets (understood as PC & retailing & datacom). To invest 10 m EUR in 1-2 years
  • 1999/00: Quick and dirty. Just do it. Doing right things is more important than doing things right.
  • 2000/01: Streamline and simplify the group to become able to manage so many businesses in so many companies in so many markets
  • 2001/02: Sales, sales, sales & cost control
  • 2002/03: We are strong, established, profitable professional services and solutions company for large and medium accounts
why did microlink expand
Why did MicroLink expand?
  • Rational explanation:
    • IT companies have high and growing cost base
      • Personnel costs form 2/3 of the cost base and are growing
    • Revenue base on small markets is volatile
      • High uncertainty does not support dangerously growing cost base and investments into future
    • Necessity to lower risks by getting access to wider markets with less volatility
      • Have lunch or be lunch: there is no escape in the long run
  • Cultural explanation:
    • Aggressiveness, internationalism, enterpreneurship and curiousity are parts of MicroLink’s DNA
was it worth it
Was it worth it?
  • The fundamental question: did expansion add value for MicroLink and its clients?
  • The answer is definite YES
  • However, the first sources of added value were not where we initially expected them to be
  • We expected the main benefits to be in higher efficiency and cross-border transfer of professional IT competences
  • Instead, we benefitted from transfer of values, managerial competences and innovation
role of corporate values is often underestimated
Role of corporate values is often underestimated
  • Initially, we thought we can buy skills and teach them values
  • Now we know we can buy values and teach them skills
    • All acquisitions which turned problematic were with companies which carried different value sets
    • All acquisitions which shared similar values were able to learn and turn the businesses around… and around
  • In international expansion, you cannot buy market shares or businesses. You must buy right people: they will do the rest.
    • But before you find people similar to you you must very well know who you actually are
  • Mergers brought MicroLink (one of) the best management teams in Baltic IT industry
but consolidation also brings tangible benefits
But consolidation also brings tangible benefits
  • Lower costs through consolidation (cheaper financing, leasing, office space etc)
  • Pan-Baltic vendor relationship (Sun, HP, Dell, SAP etc)
  • Cross-border projects (some 20 Baltic projects fulfilled after mergers: Tallinn, Riga stock exchanges, Est/Lat finance ministries etc)
  • Possibility to serve pan-Baltic service clients (Coca-Cola, Statoil, Kesko etc)
  • Stronger managerial leverage (good managers get wider responsibilities)
  • Better visibility for investors and creditors
  • ML only starts to reap merger benefits
do nots of the expansion
Do-nots of the expansion
  • Never expand internationally
    • If internationalism is not part of your DNA
    • If your home is in disorder
    • Unless you have excess managerial power
    • Unless you are able to agree on simple rules and trust your new colleagues
    • Unless you are sure you have enough money to survive through crisis
  • It is always harder, costlier, slower than you ever think
why consolidation will continue
Why consolidation will continue
  • Personnel costs (incl salaries, taxes, training, HRM) grow faster than local IT markets
    • Average labor cost in Baltic IT companies 1200 EUR/employee/month, added value 2500 EUR/m
    • In CEE: LC 2000 EUR, added value 3500 EUR
    • In Scandinavia LC 5000 EUR, added value 9000 EUR
  • Competition increases with pan-Baltic integration and EU accession
  • Required competences become more deep and diverse
  • Obvious answer: Further consolidation and specialization of Baltic IT industry