Atos Origin has made its first acquisition in the Chinese/Asia-Pacific market, acquiring one of its regional Chinese partners, Shanghai Covics. The deal is a smart move for Atos. The acquisition enables it to strengthen its presence in China, which will become a major market for IT services providers over the next few years, and offers potential early mover advantages. However, to fully benefit from the deal Atos needs to ensure that it retains Shanghai Covics` local-facing culture and brand identity, which will be crucial for its continued success over the near term.
A well-timed acquisition
The deal is well timed since it coincides with Atos`s broader strategy to grow its SAP business. In April, it announced the extension of its partnership with SAP and its intention to develop new low-cost offerings for clients in Europe. Meanwhile, the acquisition of Shanghai Covics will further exploit the emerging opportunities in China, where Atos has plans to establish a SAP Competency Center for the Asia-Pacific region. This is a good move since SAP implementations are on the rise as Chinese and Asian enterprises build their first-generation infrastructure and systems.
Atos kick-started its SAP business in China with the China National Chemical Corporation (ChemChina) deal back in 2006. However, Atos`s ability to do more business in China had hitherto been restrained due to limited capacity on the ground. Although Atos has a 1,000-strong workforce in the Greater China region (including Beijing, Shanghai, Hong Kong and Taiwan), the acquisition of Shanghai Covics adds over 100 SAP consultants to Atos`s workforce on the mainland, which effectively doubles its local-facing SAP presence.
However, the remaining half of the business, Beijing Covics, is not included in the deal. This division has a good presence in the SAP-based enterprise mobility solutions business in the Chinese telecoms sector, and would have presented further opportunities to Atos.
Beijing Olympics helps build Atos brand in China
Atos is the worldwide IT partner to the Olympic Games, and it was the lead IT integrator at the Beijing Olympics in 2008. This enabled the company to work with a number of local Chinese IT partners in the delivery of the infrastructure and services to support the Games. As one of its partners here, Shanghai Covics already has an established working relationship with Atos locally, so this will no doubt help in the integration process ahead. The high-profile nature of the Olympics will also have given Atos a significant boost to its visibility in the region, which it no doubt intends to exploit following the deal.
Atos should retain the Shanghai Covics brand locally
In Ovum`s recent report Demand for IT services in the domestic Chinese market we found that Chinese enterprises often prefer local vendors over foreign ones due to their ability to provide customer-facing support and services.
Atos will therefore need to exploit Shanghai Covics` local presence to win business in the enterprise segment in China. Shanghai Covics has a solid reputation in the country, so we would advise Atos to retain the `Shanghai Covics` brand name over the medium term while it continues to grow its presence in the market. Atos ought to look at targeting the small and medium-sized business segment in China, which is rapidly emerging as a major driver of SAP demand, and the acquisition should provide a good base on which to achieve this.
SAP consolidation on the rise
This acquisition is part of a broader consolidation occurring within SAP services internationally. Fujitsu acquiring the Australian and South East Asian operations of Supply Chain Consulting in April 2009 and HCL buying Axon last year are other examples of international players broadening their coverage in local markets with front-end SAP skills. Key to this is the ability to break into new markets and customer accounts, which can be further exploited by the wider group. We see the Atos acquisition following this logic, albeit in the Chinese market.
Demand for IT continues to remain more buoyant in emerging Asian economies such as China, India and Singapore, and this is a factor that will continue to drive expansion in these markets. It therefore makes sense for international vendors to expand in these regions through strategic acquisitions.
A well-timed acquisition
The deal is well timed since it coincides with Atos`s broader strategy to grow its SAP business. In April, it announced the extension of its partnership with SAP and its intention to develop new low-cost offerings for clients in Europe. Meanwhile, the acquisition of Shanghai Covics will further exploit the emerging opportunities in China, where Atos has plans to establish a SAP Competency Center for the Asia-Pacific region. This is a good move since SAP implementations are on the rise as Chinese and Asian enterprises build their first-generation infrastructure and systems.
Atos kick-started its SAP business in China with the China National Chemical Corporation (ChemChina) deal back in 2006. However, Atos`s ability to do more business in China had hitherto been restrained due to limited capacity on the ground. Although Atos has a 1,000-strong workforce in the Greater China region (including Beijing, Shanghai, Hong Kong and Taiwan), the acquisition of Shanghai Covics adds over 100 SAP consultants to Atos`s workforce on the mainland, which effectively doubles its local-facing SAP presence.
However, the remaining half of the business, Beijing Covics, is not included in the deal. This division has a good presence in the SAP-based enterprise mobility solutions business in the Chinese telecoms sector, and would have presented further opportunities to Atos.
Beijing Olympics helps build Atos brand in China
Atos is the worldwide IT partner to the Olympic Games, and it was the lead IT integrator at the Beijing Olympics in 2008. This enabled the company to work with a number of local Chinese IT partners in the delivery of the infrastructure and services to support the Games. As one of its partners here, Shanghai Covics already has an established working relationship with Atos locally, so this will no doubt help in the integration process ahead. The high-profile nature of the Olympics will also have given Atos a significant boost to its visibility in the region, which it no doubt intends to exploit following the deal.
Atos should retain the Shanghai Covics brand locally
In Ovum`s recent report Demand for IT services in the domestic Chinese market we found that Chinese enterprises often prefer local vendors over foreign ones due to their ability to provide customer-facing support and services.
Atos will therefore need to exploit Shanghai Covics` local presence to win business in the enterprise segment in China. Shanghai Covics has a solid reputation in the country, so we would advise Atos to retain the `Shanghai Covics` brand name over the medium term while it continues to grow its presence in the market. Atos ought to look at targeting the small and medium-sized business segment in China, which is rapidly emerging as a major driver of SAP demand, and the acquisition should provide a good base on which to achieve this.
SAP consolidation on the rise
This acquisition is part of a broader consolidation occurring within SAP services internationally. Fujitsu acquiring the Australian and South East Asian operations of Supply Chain Consulting in April 2009 and HCL buying Axon last year are other examples of international players broadening their coverage in local markets with front-end SAP skills. Key to this is the ability to break into new markets and customer accounts, which can be further exploited by the wider group. We see the Atos acquisition following this logic, albeit in the Chinese market.
Demand for IT continues to remain more buoyant in emerging Asian economies such as China, India and Singapore, and this is a factor that will continue to drive expansion in these markets. It therefore makes sense for international vendors to expand in these regions through strategic acquisitions.