Small and medium enterprises (SMEs) form the crucial ‘middle of the pyramid’ in geospatial ecosystem. They are vital and critical to the development and deployment of cutting edge technologies. In the backdrop of difficult economic situation and changing landscape of geospatial industry, SMEs are getting ingenious in reorienting to the new business order to survive and move up the value chain. Here is a low down on the continued relevance of SMEs in the geospatial industry..
ROLE OF SME’S IN GEOSPATIAL INDUSTRY
Small and medium enterprises (SMEs) play a vital role driving innovation, job creation and competition in the industry they serve. They also promote entrepreneurship, economic dynamism and creation of value chains through linkages with large firms, contributing directly to the growth of the industry. SMEs play a key role and form the crucial ‘middle of the pyramid’ of geospatial ecosystem, forming an interface between technology MNCs and end users (Figure 1).
Several technology companies which are in the toprung today, started as small enterprises/research institutes in the 1960s and 1970s. From the beginning, these enterprises focussed on providing software and hardware tools to build applications in a variety of vertical domains. Over a period of time, these companies started working in various geographies around the world through a network of partners, distributors and re-sellers, acting as extensions of the principal companies in their respective geographies. Several or most of these are small and medium enterprises (SMEs)
Today, SMEs constitute those ‘seeds’ scattered throughout the industry providing vital and critical growth through the development and deployment of cutting edge technologies. They understand local sensitivities, administrative nuances and prevalent tax and policy regime. They often are the outsourcing partners in executing significant amount of maintenance and modernisation work on the nation’s infrastructure (roads, airports, highways, railways) as well as utilities and land records on behalf of the technology companies, opines Bryn Fosburgh, Vice President, Trimble. Government agencies often outsource their work to SMEs rather than opting for big companies, primarily because SMEs understand their needs better. The flexibility that is on offer and the ease of handling small companies is an added advantage.
Figure 1: Small and medium enterprises form the interface between technology MNCs and the user segment in the geospatial industry pyramid
For many multinational companies, SMEs provide local support, training and services. Technology companies often see SMEs as the heartbeat of relationships with mutual customers because they live and breathe customers’ daily challenges. In addition, they also provide feedback to manufacturers on the local requirements of a region and market. This information enables companies to develop innovative solutions to meet customers’ requirements and transform the way they work by improving productivity and reducing rework. Another feature specific to geospatial industry worldwide is the loyalty and commitment SMEs bring, both to the end users and to the principal companies. Though many principal companies expanded geographically in emerging economies and now have hundreds of employees in some markets, their personnel continue to support SMEs in the region. These companies believe in a collaborative sales model and SMEs are part of that sales, service and support process.
Table 1: Categorisation of SMEs based on their activities
Table 2: SME matrix in various regions (in %)
SME categorisation –
SMEs play a variety of roles in the geospatial ecosystem. However, for the purpose of this article, SMEs are categorised into four broad segments (Table 1). The article limits itself to analysing the dynamics of SMEs in emerging regions/economies including China, India, Middle East, Latin America, Africa and South East Asia. Table 2 gives the region wise distribution of various SMEs based on the following categorisation.
Technology SME: These SMEs develop technology to build products for principal companies and operate on a variety of geospatial and business platforms. They also plough their own furrow in technology and build products to suit customer needs.
They actively work on radically different set of technologies including open source technology in a market dominated by MNCs. Regions like Europe and countries like China and India, which are rich in geospatial talent pool, have hundreds of such small and medium enterprises (Table 2) creating innovative products and solutions catering to the MNCs and in some instances competing with them. China leads India on the manufacturing side though.
Solution SME: These SMEs create value-added products and solutions that can be sold and deployed within a variety of vertical markets. They also customise products/ solutions of principal companies to suit the users’ needs. With growing use of geospatial technology, these solution SMEs are active in non-traditional domains as well. Countries like China and India have a good share of solution SMEs compared to regions like South East Asia, Middle East or Latin America.
Service SME: These SMEs address specific customer needs on behalf of the MNCs. These companies engage in digitisation of paper records, create data using varied technologies and process the same.
Trading SME: This set of small and medium companies act as the distributors and resellers of the products and technologies of principal companies. They also cleverly package, configure and customise these offerings for a specific market (both regional and vertical). These SMEs dominate the total SME segment in regions like Latin America, Africa, Middle East and South East Asia (Table2).
Over the past 10 years, geospatial industry evolved into a full-fledged industry. A substantial credit for this goes to the entry of new business entities, which cut through legacies and opened up newer market opportunities. This evolution may be termed fast and dramatic yet positive for the overall growth of the industry. In the course of this evolution, the industry witnessed several acquisitions and mergers. These can be categorised under the following heads –
To create end-to-end solutions: One of the important trends that dominated the industry in the past few years is the solution centric approach adopted by technology companies. This opened up ways for the integration and convergence of several core and peripheral technologies and their applications across the entire workflow of an enterprise and/or a government department.
Building integrated solutions requires huge investments into open technologies and more interoperable environment. They also require better understanding of the strengths and features of each component of an enterprise solution and the willingness to give up on non-essential components. It is difficult to achieve an increased level of integration when the tools are developed and managed by independent companies with heavy focus on their own business objectives. Existing partnership network and approach was inadequate to deal with such a situation as partners were more protective and sceptical about their own business interests. As a result, large geospatial companies started acquiring complementing technologies which enabled them to offer more comprehensive products and solutions. Hexagon AB is one fine example following this trend. Within seven years of its existence in geospatial industry, Hexagon acquired a complete range of geospatial technologies including GIS, surveying, photogrammetry, scanning, machine control and imaging with an aim to create end-to-end solutions.
To gain competitive advantage: Acquisitions in this space are also happening to gain domain specific competitive advantage in a particular business domain. Tom Tom, which was once a user of Tele Atlas, chose to acquire the company to provide dynamic content for navigation and location based services. Nokia bought over Navteq to provide maps, navigation services and LBS on its smartphones. This was touted as a strategic move to gain an edge in smartphone market at a time when Google was anticipated to enter this fiercely competitive market.
For consolidation purposes: The acquisition of Sokkia by Topcon, in a way, is a move to consolidate the individual strengths of these two Japanese companies to build one strong company offering complete solutions including optics, GPS and scanning. The move also leveraged on individual companies’ regional strengths (Sokkia strong in Asia while Topcon is strong in US and other advanced markets).
Table 3: Primary and secondary objectives guiding acquisitions in geospatial industry
To add value to existing technology and solutions: Recently, Bentley acquired UKbased Pointools Ltd in order to integrate point cloud processing in innovative ways throughout its product portfolio. Similarly, Esri bought Procedural to allow ArcGIS users to create and design 3D urban environments leveraging their existing 2D data. These acquisitions successfully added value to the existing products and solutions of these technology companies.
To have direct presence and provide local support: Several emerging economies in Asia, Africa and Latin America present immense business opportunities to the geospatial industry. Keen on having direct presence in countries offering promise, technology MNCs are buying their distributors and SME partners who have been supporting them in those geographies for long. Hitachi bought out Sierra Atlantic who were agents for Inpho photogrammetric software as well as MATLAB. Inpho is now part of Trimble. The buying of Elcome Technologies by Hexagon in India is one such example. Trimble bought its distributors in India and Brazil.
To increase market share: Strategic moves to gain a larger pie of the market are also driving acquisitions. The acquisition of Intergraph by Hexagon can be termed as a move to have a bigger market share. Also, as the market is becoming price sensitive, MNCs are acquiring companies that would add low end variants to their product basket. For example, Trimble has Nikon as a low-cost brand.
For diversification of products/solutions: Companies are seen buying out diverse products to increase their footprint and improve their performance in non-traditional domains of geospatial technology. For example, Hexagon, with businesses in meteorology instrumentation, chose to diversify by buying 180-year old Leica Geosystems which is into the business of surveying and mapping solutions.
In short, acquisitions and mergers in geospatial domain are happening for a variety of strategic reasons. Table 3 lists out a few important acquisitions in geospatial domain in the recent years based on the above categorisation.
These acquisitions and mergers brought with them an altogether new business dimension for geospatial industry and its stakeholders. One of the most affected and less-talked about stakeholders in this changing ecosystem is the SME. Earlier, SMEs’ businesses were aligned to that of their principal partners and were heavily reliant on the partnership network of the principal companies. But in this acquisition age, SMEs have been affected in multiple ways owing to the realignment of the partnerships networks of their principal companies. Let us examine the changing matrix in the geospatial industry across the emerging markets of the world vis-à-vis SMEs.
RELEVANCE OF SME’S IN NEW GEOSPATIAL BUSINESS ORDER
The evolution of geospatial industry brought in the necessary technical, managerial and financial capabilities. However, this evolution brought in by the buyouts had huge impact on the prevailing conditions in the market, taking the ‘middle men’ (SMEs) by surprise. They also brought in a set of opportunities and challenges for SMEs, unique to different regions and verticals. Ironically, there is no single pattern here. Let us analyse the changing role of SMEs in the new business order of geospatial industry.
Affect on the partner network
The recent mergers and acquisitions disturbed the SME applecart significantly. The partner network of the acquired company got impacted as per the acquirer’s strategic plan and on whether the acquired company is allowed to operate as an independent business unit after acquisition or not. A few trading SMEs were confused and finding it challenging to quickly reorient themselves to the new business reality while others were buoyant with the prospective gain in terms of economies of scale as the cost on extensive R&D for vertical integration is being borne by the principal technology companies. For instance, the Topcon-Sokkia deal and the Hexagon- Intergraph deal had tremendous impact on the existing alignment and partnership network of the industry.
These deals left the distributors and resellers confused as competitors turned into allies overnight. Distributors were at a loss understanding the nature of future association with the partner until a clear picture emerged. This was the case in regions like Middle East, Africa, South East Asia and Latin America, where a majority of SMEs are trading SMEs as depicted in Table 2. To avoid such situations, SMEs favour a participative, consultative approach by the principal companies to alleviate the affects of the situation.
Increased value proposition
Prior to the consolidation of geospatial industry, the partner network was primarily reselling the products and was instrumental in implementing the solutions. While these objectives continue, there is an increasing expectation on SME partners to innovate and develop solutions by applying their expertise in their respective domains to add value and better exploit the technology, tools and functionality advances that geospatial products now offer, says Raghu Ganeshan, President, Avineon India Pvt Ltd. For some, the mergers were an advantage. Geoscope, a distributor in UAE, who was earlier selling Ashtech products, is now dealing with a wider range of products in his portfolio after the acquisition of Ashtech by Trimble. However, the distributor is now facing increased competition resulting in lower margins. To avoid internal competition, technology companies are segmenting their dealers by verticals (GIS, surveying, construction etc). This is enabling the companies to minimise the monopoly of the dealers while improving the value proposition of individual distributor.
Solution centric approach is a major driver for improving the business potential of most of the industries. It is more relevant now in the geospatial industry than ever before because of the advances in technology that is allowing greater interoperability with other technologies. Improved access over the Web is also creating significant room for innovation towards solutions. This trend is turning to be a blessing in disguise for SMEs with strong domain knowledge. Such SMEs are being acquired by technology majors.
Alternately, such SMEs started providing solutions being outsourced by the principal companies, says Ramesh Sojitra, Chairman and Managing Director, Scanpoint Geomatics Ltd., India. However in some cases in India, solution and service SMEs are finding themselves marginalised as most of the government contracts specify CMMi-L5 and turnover in excess of INR 100 crore (20 million USD) that virtually puts SMEs out of the running. In a bid to get business, SMEs are tying up with large companies that are offering lower rates to mitigate their execution risk and increase their profitability. The cost of servicing the account in such cases is more than the business margins. Also, due to lack of contractual binding between SMEs and big companies, there are instances where the latter replaced the SME after winning the contract, informs SD Baveja, Managing Director, Ridings Consulting Engineers Pvt Ltd.
Principal companies setting up own infrastructure
In a move to increase their footprint, principal companies are strengthening their local presence by setting up their own technical and sales infrastructure in emerging economies. This is to ensure better implementation of their products and solutions drawing on their rich global experience and complementing the SMEs’ abilities. With a belief in a collaborative sales model, principal companies are vouching by their local business partners as they directly maintain and nurture customer relationships while providing the local knowledge needed to build value-added solutions for joint customers.
However, a few see these moves as direct competition to the SMEs, threatening their sustenance. If an SMEs only value proposition is its strong sales channel, wide spread local presence and selling expertise, this is proving be a matter of concern, says Raghu. This is non-beneficial if the local personnel are unable to support SMEs due to lack of expertise or some strategic reasons, opines Mohd Ronizam Ramly, Head of Geospatial Dept, GeoInfo Services, Malaysia. Randolf Vicentre, President, RSV Geoconsulting & Management Services, a service provider from Philippines, opines that this condition is contradicting the ideal industry pyramid and is disregarding the rights and privileges of SMEs. He adds that these moves are affecting SMEs in terms of market share, profitability and sustainability among others. He however adds that SMEs are getting ingenious in crafting solutions to address these concerns. Concurring with this idea, Dr Hussein Harahsheh, General Manager, Global Scan Technologies, UAE, feels that this move will eliminate the role of the distributor, especially in a market like the Middle East.
Taking a diametrically opposite stance, a few trading SMEs distributing survey products see business value in the local infrastructure being set up by their principal partners. With local support, these SMEs are able to boast or even up sell products and promise the clients that with local support, there will be shorter down times, improved turnaround times and generally are able to work on a more efficient pace than other competitors who do not have local support and infrastructure. According to Neo John Ji, Sales Manager, Kodi Engineering Services, Singapore-based agent of Sokkia, this easily translates in the minds of the customer into a ‘higher’ value product which is invariantly ‘fuss-free’. This also helps them reap the benefits of faster, better and more efficient after-sales rapport with the customers.
Developing components and utilities to support platform tech
In addition to distributing products, SMEs are playing a key role in developing and customising components and utilities on top of principal companies’ solutions through APIs. This added functionality is proving to be a competitive advantage over other solution providers, argues Bryn. This is also positioning the distributor as a local expert and trusted advisor as they gain deeper insight into their customers’ workflows and needs. In addition, SMEs are also providing industry specific solutions complementing to those offered by their principal partners.
With the changing dynamics of geospatial industry, apprehensions are ripe over the continuity of this trend and the continued relevance of SMEs. However, several industry experts opine that this trend will continue to prosper and improve the SMEs bottomline. Technology is constantly changing and emerging technologies will constantly feed the need to develop solutions on top of platform technologies. In fact, SMEs have the uphill task of staying abreast of emerging technologies and as long as they recognise it, prepare for it and invest in it, they will have the advantage of being the right choice to solve their clients’ business-specific problems. This capability is essentially is turning out to be the unique selling proposition of SMEs in catering to specific vertical markets.
Also, the principal companies developing platform technologies will always seek out components from SMEs if they see value both in terms of features as well as cost, says Sanjay K Agarwalla, CEO, Integrated Digital Systems, India. They will clearly leverage on the capabilities of SMEs, integrate SMEs’ technologies into their core platforms and positively establish win-win business models with the SMEs, infers Mladen Stojic, Vice President, Intergraph.
SMEs as ‘off-the-shelf’ companies
SMEs have traditionally been providing value added components to geospatial industry and supporting the users with specific solutions. As technology companies started acquiring and/or partnering with companies offering complementing solutions/technologies, it is increasingly observed that SMEs are becoming ‘off-theshelf’ companies. They are developing their businesses with a targeted buyer in mind (often their technology partner) and are getting readily sold to that specific buyer or its competitor for lucrative offer. A few technology companies maintain that their strong relationship with SME partners is ensuring a regular and vibrant conversation for business planning. Bryn believes that Trimble’s SMEs are creating businesses that are ‘ready to grow and prosper’ and are not ‘ready-to-be-sold’ businesses.
Table 4: Affect of acquisitions on SMEs
Acknowledging the trend, a few other technology majors however beg to depart from this opinion. Identifying this to be an unhealthy trend, Mladen believes that the spirit and philosophies that made SMEs successful to begin with (having customer focus as their mainstay) is deteriorating. The unique understanding of a specific customer is exactly what larger companies look for when considering an SME to acquire. It is critical for SME’s to continue to focus on solving customer problems with leading-edge technologies. If they keep themselves focussed on the customer, they will clearly become visible in the eyes of larger organisations that also seek to solve the same set of problems. By modifying their business models to that of being sold, financial ripples will occur. Spending in R&D and application development will suffer, thereby hampering the unique value proposition that the SME once had.
Developing a business process on top of a primary product and selling it out to the primary product players – SMEs are terming this as a strategic business call to ensure their survival. In doing so, SMEs are taking into consideration many factors such as their investment capacity to push the product to market on their own, ability to scale and reach out to clients across the globe, ability to maintain the product and keep up with newer versions and releases of the primary product. However, designing business process to suit large partners will hamper the multi-dimensional growth of the SME, thus leading to loss of identity in the long run, surmises Nikhil Dakshindas, Associate Vice President, ADCC Infocad Pvt Ltd, India.
Geospatial functionality is a horizontal capability that provides value to a variety of industries. While technology majors are providing the software and hardware solutions with significant geospatial capabilities, knowledge and expertise of solution SMEs are helping to mix and match various products, integrating different technologies and adding value to suit the workflows and needs of customers in different vertical industries.
As this trend continues, SMEs are also looking forward to provide customised solutions in local language and develop customised workflows based on specific country requirements. While uncertainty prevails both in the economy and in the industry, SMEs are working on acquiring as much knowledge and skill as they can, so that even if they lose certain products or if they have to align themselves with a new technology partner, they can adapt quickly and survive, argues CS Lim, GPS Lands, a Singapore based Trimble distributor.
In a bid to commoditise geospatial technology, a few technology majors are coming up with innovative plans to split their products into hundreds of small utilities and make them available on devices like ipad and smartphones. The increasing permeability of the cloud will act as a catalyst in this process. For this scenario to take off, solution SMEs will be increasingly roped in and this will push them up the value chain of geospatial industry. However, trading SMEs, which constitute a chunk of SMEs in the geospatial ecosystem, may not find great prospects coming forth in this proposition.
Technology majors are growing and moving into new industries creating significant opportunities for SMEs. The onus is now on the SMEs to work in the domain and industry they enjoy and take the advantage of working closely and growing with these global companies, exhorts Bryn. This will create a new paradigm for success for the SMEs and the technology majors alike in the future.
SMEs are innovating at a very fast pace and breaking the rules of what was once considered impossible. They typically are beginning as young, dynamic start-ups with passion for technology and success, combined with a recipe for accomplishing tasks quickly, cost-effectively and with high quality. They are turning to be the trailblazers on a mission and are instrumental in increasing the awareness of what is now possible with geospatial technology. Under difficult economic circumstances and changing dynamics of geospatial industry, some of these SMEs are strained and under tremendous pressure. But with indestructible spirit, these SMEs are turning the challenges into opportunities that were previously unimagined and breaking down the walls of traditional thinking. The way forward for these SMEs is to make investments to move up the value chain; from being traders to creators of knowledge and business value.
The authors would like to acknowledge colleagues Deepali Roy, Aditi Bhan and Vaibhav Arora for their valuable support to the article.
The authors would like to thank the following companies for sharing their valuable inputs: Americas: Trimble, Intergraph, Alezi Teodolini; Middle East: Global Scan Technologies, Global Technologies, Sigma Enterprises LLC, Dutco Leica Geosystems and Geoscope; South East Asia: GeoInfo Services, Astronautics Technology SB, Geo Millennium System, Barata Technologies, Pt. Duta Astakona Girinda, Global-Trak Systems, RSV Geoconsulting & Management Services, GPS Lands, Kodi Engineering Services and Innovative Mapping Solutions; India: Avineon India Pvt Ltd, Integrated Digital Systems, ADCC Infocad Pvt Ltd, Scanpoint Geomatics Ltd, Ridings Consulting Engineers Pvt Ltd and Sumadhura Geomatica Pvt Ltd.