UK TMT: Staying smart in a downturn - UK.COM

6UK TMT: Staying smart in a downturnFrom acquisition to innovationand strategic partneringAt the end of 2007, TMT companies were bankingon acquisition to fulfil their growth plans, with60% of respondents reporting that acquisitionwas their number one growth strategy during thenext three years. Now, this appetite for M&A islimited, with only 12% of respondents saying theircompanies are planning acquisition as a long-termgrowth strategy. (See chart 1.)No doubt the current recession has made raisingcredit for M&A an unrealistic prospect. As onemedia sector respondent to the recent surveypointed out, “there is extreme difficulty inexecuting M&A, other than through private mergers,[which] will reduce growth opportunities.”Certainly, consolidation has become much less ofa driving force in the industry. In the 2007 survey,nearly two-thirds of respondents cited sectorconsolidation as the most important macro-trend> Chart 1 – Top three-year growth strategies: 2007 versus 2009Acquisition2007 200912%60%facing their company in the next three years; only6% say the same about industry consolidationin the latest survey. All eyes are now focused onthe perilous state of the global economy, whichis seen to be the most important macro-trendfacing companies in the next three years, followedby competition in domestic markets, industryconsolidation and technological advances. (Seechart 2.)With M&A looking unlikely against the backdropof recession and with competition intensifying,how are TMT companies looking to grow? Well,31% of respondents say that innovation is theircompanies’ top growth strategy; a result thatstands in stark contrast to 5% who said thesame in the 2007 survey. Rapid innovation hasalways been a viable option for the TMT industryand, of late, one of its shining stars has beenthe development of affordable mobile wirelessinternet that is available via PCs. The developmentof wireless internet is also responsible for therapid evolution of the Smartphone: the launch ofthe application-heavy iPhone and the BlackberryBold, for example, means that Smartphones areno longer the reserve of the businessman andare quickly becoming a consumer commodity.According to Oliver Wyman’s 2009 “State of theIndustry” report for the communications, mediaand technology sectors, shipments of Smartphonesgrew from 16m in 2004 to 120m in 2008.InnovationNew markets inexisting countriesNew markets innew countriesNew productsOrganic growthStrategic partnerships2%5%6%5%4%5%7%9%16%14%15%31%0% 10% 20% 30% 40%50% 60% 70%Another notable difference between the 2009and 2007 surveys is a stronger leaning towardsstrategic partnerships. 15% of respondents citethis as their top growth strategy for the nextthree years, compared with 5% at the end of 2007.(See chart 1.) When capital is in short supply,collaborating and sharing assets with rivals andequals alike is a good battle tactic, and there havebeen some recent high-profile examples of this.In March this year, for instance, former arch rivalmobile phone network providers Vodafone andTelefónica, the owner of O2, announced a plan toshare their network infrastructure in Germany,Spain, Ireland and the UK to generate hundredsof millions of pounds in cost savings over the nextApril 2009© 2009 CFO PUBLISHING CORP.