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1.0 INTRODUCTION

Consolidation is a process whereby companies can combine to add

assets, increase market share and grow profits. In a consolidation, two
or more companies merge to form one new, larger company. All of
each company's assets and liabilities then become the property of the
new company. This process has been seen as one of the biggest trend
in the IT industry. For example, we saw IBM, Oracle and Microsoft
buying up either specialty companies to fill out their portfolios, to get
certain people in the fold, or to remove the competition. On one hand,
this can be seen as a good thing because it can bring about an
increase in efficiencies, improved responsiveness and a greater
synergy. On the other hand, it could impede our ability to compete
effectively.

Currently, there are 4 companies under Johor Corporation and it’s

subsidiaries that are involved in IT business, namely, Sovereign
Multimedia Resources Sdn Bhd, Pinnacle Platform Sdn Bhd, Extreme
Edge Sdn Bhd and Healthcare IT Solutions Sdn Bhd. Basically, these
companies provide IT-related services and solutions for their clients,
mainly for the JCorp Group of Companies. Due to this scenario, it is
crucial for us to formulate and implement out-of-the-box strategies
towards discovering new markets with less competition, venturing
beyond traditional market boundaries and inevitably achieving greater
profitability. We must be able to adopt blue ocean philosophy by
creating value innovation to fuel this new way of thinking and executing
strategy. By engaging in value innovation, we’ll be able to adapt to
customer needs and develop innovative products to create sustainable
profit growth. But to succeed, a value innovation must demonstrate
actual savings and an appreciable benefit that a customer can use
immediately. These companies must make sure that their value
innovation is accessible enough for customers to grasp its
technological benefit and put it to use promptly. They need to go
beyond competing to seize new profit and growth opportunities, and
develop strategies by looking across to complementary product and
service offerings to be able to stand apart in the marketplace.
Therefore, this report is undertaken in order to identify the strategic
moves that will lead them from the red ocean of bloody competition into
the blue ocean of uncontested markets.

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2.0 OBJECTIVES

The objectives of this study are :

1. To identify the underlying issues that may exist among these IT

companies. (i.e. competition, complement activities, etc)
2. To recommend the appropriate strategies towards enhancement
of efficiencies and creating synergy in business.

3.0 SWOT ANALYSIS

3.1 Strength

 The strength of having a portfolio of well-established

clients
 A wide array of products and services, as well as
expertise.
 Working with renowned partners such as TMNet,
Symantec and SAP Solutions.
 Clients from various segments of industry
 Ability to offer a one-stop IT solution centre
 Have the abilities and experiences in developing an in-
house IT solutions system

3.2 Weaknesses

 Majority of their clients are internal clients.

 Limited fund resources.
 High procurement costs.
 Entrepreneur skills and spirits.
 High payroll expenses – skilled and seasoned
employees.
 High employees’ turnover.
 Highly dependent on the parent and sister’s company.

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3.3 Opportunities

 Opening of new corridor – Iskandar Malaysia.

 Transfer of technology and skill resources between the
companies.
 Exciting changes in access to and use of information and
communication technologies in rural areas.
 Technology platforms transfer from MIMOS
 Malaysian IT spending is expected to grow to U$5.2bill in
2011, from US$4.8bill in 2010.
 Development and adoption of cloud computing services
which will provide SMEs with critical software applications
 Development of link programmes between academia and
private sector and entrepreneurship development in ICT
 Progress toward the "paperless office”
 Sharing of resources in providing comprehensive
services to customers.
 Government’s long-term initiatives with favorable
implications for demand for IT products and services, including investment in
broadband infrastructure.
 Government’s drive to increase use of computers and
ICT in schools through expansion of the Smart School programme.
 Development and widespread use of ICT which are
central to the realization of ‘Vision 2020”.
 By 2015, software spending is expected to be rising
healthily to US$1.3bill.
 MSC Malaysia provides the ideal growth environment for
Malaysian ICT SMEs to transform themselves into world-class companies.

3.4 Threat

 Competitions from larger companies and customer

perceptions.
 Obsessions with technologies over results.
 Limited services offered.
 Onslaught of global competition.
 Rapid technology changes.
 Reduced market share.

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4.0 FINDINGS

 No coordination in terms of proposals or tenders submissions to

external clients.
 Each company has its own specializations and segmentations.
 The obligation of the existing contracts which could possibly
lead to a breach of contract.
 Already have their own group of clients – rapport has been built.
 Reduced profit margins.
 Entrepreneur skills and spirits.
 Possible conflicts of interests, working cultures, business
objectives & leadership.
 Reluctance to consolidate within the companies.

5.0 CONCLUSIONS

Consolidating these IT companies won’t be an easy task. This is

because, in theory, by consolidating it means combining these
companies, and creating a new larger company. This may result in a
conflict of interest among leaders of the previous companies,
degrading productivity arising out of organizational differences,
employee fears and differing cultures. These have been highlighted in
the findings. If these issues couldn’t be resolved, it seems like leaving
things as it is – without any change in ownership – may be the best
strategy.

However, consolidation – if done properly – could also lead to the

growth and the strengthening of their business. This is because,
directly or indirectly, some competition do exists among these IT
companies as can be seen in Table 1.0 in Appendix 2. All four
companies are basically involved or have the capacity to engage in
similar activities such as software development, web development,
networking and hardware maintenance. However, they each have their
own specialization and strength, which should be seen as an
advantageous position. There should be some sort of integration or
cooperation in order for them to be more of a complement rather than a
competition among them.

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By working together, they’ll be able to reap the opportunities arising

from a global economy and be able to overcome threats posed by it.
Strategic cooperation alliances among these companies would also
allow them to pool technical, human and financial resources in order to
address larger-scale projects on both national and international
markets. However, no matter what are the strategic actions to be
taken, we must put in considerations these companies’ interests and
wellbeing.

6.0 RECOMMENDATIONS

These are a few of the recommended options :

 Create a consortium whereby these companies will collaborate

among each other and cooperate on areas non strategic for their
core businesses. This will reduce their costs on non strategic
areas and they’ll be able to compete on other areas where they
can differentiate themselves better. However, there must be an
agreement between them in order to ensure a win-win situation.

 Create a wholly-owned SBU within Jcorp where these

companies are combined without having any ownership. This
SBU will provide all the necessary IT support and services for all
JCorp’s subsidiaries and its subsidiaries – e.g. I-Perintis.

 Consolidate Pinnacle Platform Sdn Bhd and Extreme Edge Sdn

Bhd and create a single IT NewCo under Kulim (M) Bhd, due to
the followings :
 Greater contributions for the parent company.
 Able to offer a more comprehensive products and
services.
 Increased responsiveness towards customer needs.

 Create a strategic partnership between these companies in

bidding for internal or external projects without any changes in
ownership of companies.

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 To offer an additional or total purchase of shares – at an

appropriate price – for the companies that have a large and
consistent segment of external projects.

 Design and organizes initiatives to encourage collaboration and

cooperation among these companies such as:
 Organize business meetings among these companies to
enhance cooperation
 Manage R&D and innovation collaboration projects to
improve competitiveness among these companies
 Organize a monthly working breakfast or lunch to foster
communication and familiarity between these companies

 Create a non-competitive environment between these

companies through a possible signing of MOU in order to avoid
any misinterpretation regarding their respective responsibilities
in the planning and implementation of the agreed strategies.

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Appendix 1

CASE STUDY – FUJITSU GROUP

Background :

 Provider of IT-based business solutions for global marketplace.

 Consolidated its businesses in North America by bringing
together three companies – Fujitsu Consulting, Fujitsu Computer
Systems Corporation, and Fujitsu Transaction Solutions – under one
umbrella.
 Established a new company, Fujitsu North America Holding
to step up its solutions business base in North America.

Purpose :

 Generating better synergies by consolidating their IT strengths

under one corporate structure, which will enable them to respond to client
needs with integrated suites of innovative, world-class IT services and
solutions from Fujitsu.
 Before consolidation, these companies have different focus
areas. The formation of one company is expected to trigger greater
collaboration among the three companies.
 A boost to customers since it will enable a unified approach in
providing clients with a broad portfolio of products and services.
 Significantly improve responsiveness to global clients who
look to Fujitsu to support their North American operations.

Result :

 Revenues approaching $2 billion annually.

 The combination of the three companies ranks Fujitsu among
the top North American IT services and solutions companies.
 Improved responsiveness to client needs
 Faster time-to-market with integrated value-added solutions.
 Greater market presence.
 Improved operational efficiencies.
 Additional support from key alliance partners.

Business Development Department, R & D Unit