IBM has a firm establishment in key emerging markets which will pay off in the future as developing nations increase their demand for technology and services.
IBM’s model is the anti-model. Whichever country the company is working in, it has a game plan exclusively catered to it. It encompasses not only the determination of the customer needs, but also the provision of every aspect of the required technology solutions – including recurring maintenance, updating and even financing.
And financing is crucial these days. IBM’s long history in the world’s markets has given the company a recognition and credibility abroad, helping to mitigate competitive threats from unproven newcomers.
Its presence in India will yield dividends as India’s economy emerges from the global financial crisis.
IBM leaders have shrewdly increased the company’s investments in the fastest growth areas of the world, increasing its unparalleled geographic diversification as it keeps emphasizing its higher-value businesses – especially software, highly profitable middleware and services.
At the beginning of 2009, 71% of IBM’s nearly 400,000 employees are working overseas – a 65% increase from two years prior.
In fact, IBM incorporates the words “global” or “world” in nearly every sentence of the business strategy outlined in its annual earnings report of 2008.
“The Internet has enabled communication and collaboration across the world and brought with it a new computing model premised on continuous global connection. In that landscape, companies can distribute work and technology anywhere in the world,” the report said.
It continues: “At the same time, the current economic crisis increases the pressure on both businesses and governments around the world to adapt…. Given these opportunities and economic challenges, IBM is working with its clients to develop new business designs and technical architectures that allow their businesses the flexibility required to compete in this new landscape.”
IBM Boosts Profits with Business Overhaul
In addition to global diversification, IBM has also successfully employed a versatile and aggressive business model. Between 2000 and 2008, IBM acquired more than 100 companies and poured more than $50 billion into research and development.
In 2000, the distribution of IBM’s business model was: Hardware (24%), software (25%), financing (10%) and services (40%).
But by the end of last year, the model had evolved to: Hardware (9%), software (40%), financing (9%) and services (42%).
The result was a 130% increase in annual earnings per share (EPS) on more than 22% annual revenue growth in that span.
For 2008 – by far one of the worst years for companies around the world – IBM posted an 18.4% increase in net income and 23.9% increase in earnings per share. And IBM blew away analysts’ estimates with a fourth-quarter net income of $4.4 billion, or $3.38 a share – a 12% increase from 2007. Analysts had expected IBM to earn only $3.03 per share.
