Siemens Strikes a Partnership with Netlink

On September 2, 2009, Siemens Enterprise Communications Group (SEN Group) announced a partnership with Netlink, one of the fastest growing U.S.-based providers of IT solutions. As part of the arrangement, Netlink will acquire SEN Group’s product and service portfolio in 27 countries around the world.  The agreement is valued at €204 million ($308 million) and includes Netlink’s acquisition of SEN Group’s local assets in the following countries:  Estonia, Latvia, Lithuania, Finland, Sweden, Ukraine, Greece, Switzerland, Turkey, Ireland, Hungary, Bosnia, Bulgaria, Croatia, Slovakia, Slovenia, Serbia, Romania, Singapore, Malaysia, Thailand, Ecuador, Peru, Portugal, Venezuela, Chile and Canada.  

According to the press release “customers will enjoy full continuity of service while benefiting from the broader portfolio of capabilities that the relationship delivers”. The understanding is that SEN products will still be offered under the SEN brand, but Netlink will acquire any local SEN legal entities as well as all inventory, staff and other assets, and will take over the delivery of services for SEN’s products under its own (Netlink) brand. 

According to Ross Sedgewick, Director of Global Marketing for Siemens Enterprise Communications, the partnership is part of SEN’s global strategy of improving SEN’s market reach via channel partnerships and driving revenue growth while ensuring customers are served effectively.  

Most likely, SEN’s penetration in some of these markets has been less than satisfactory. Netlink’s market positioning and global structure are expected to enable it to more successfully market and support SEN’s products in these countries. Netlink’s existing product and service skills will be complemented by those of local SEN staff, thus ensuring a certain degree of business continuity. By partnering with a single entity, rather than multiple resellers, SEN expects to more cost-efficiently transfer the assets and also ensure that the selected partner will be more engaged and can fully develop the operations without worrying about competition. 

Ever since the Gores Group acquired 51% stake in SEN, the new entity has been committed to growth. Many analysts, including myself, believe that for Siemens to be able to get on a faster growth path, it needs to make some changes to its services strategy and grow its indirect channels. From that point of view, this partnership seems like a move in the right direction. As is seen from the list of countries included in this partnership, these are mostly emerging markets, many of them small countries. For a global vendor such markets typically present a challenge. Building local presence takes time and investment; yet, the return is limited and it’s difficult to gain economies of scale.  

For a vendor such as SEN seeking to grow in a down economy and in a consolidating market, it seems prudent to find a partner that can take over parts of the business that are not run as efficiently as desired. In the event that Netlink is indeed successful in growing the business in these 27 countries, SEN can expect to realize some benefits as follows: 

• Grow its brand awareness and installed base in a number of currently under-penetrated countries
• Grow product revenues
• Retain some control over product and service delivery through a master partnership with a single, more engaged entity
• Focus on primary target markets such as Germany (mature, yet key for SEN), USA (maybe its top growth objective), Brazil, China and some countries in Central Europe and APAC

The biggest disadvantage to SEN is the foregone opportunity to develop these operations on its own and generate greater revenues and margins, while retaining full control over its brand. Obviously, the worst outcome would involve Netlink failing completely in all these markets, which is somewhat unlikely since Netlink will have a vested interest to generate return on its investment. Further, Netlink is a fast-growing company with a structure and processes in place that make it a suitable master partner for a communications vendor such as SEN.

What should customers expect? There may be some bumps during the transition, but SEN products and related services will continue to be offered in these countries and, most likely, they will be marketed with renewed vigor and maybe even more consistency than before. There is always a chance that, in some countries, Netlink may be less successful than in others and maybe even less effective than SEN used to be. But I believe that Netlink is more likely to commit efforts and resources to develop the business. 

What could make Netlink more successful? Thorough knowledge of SEN’s product portfolio and a deep understanding of its overall market positioning in view of evolving market trends will be critical for its success. Marketing SEN’s solutions will have to take into account the communication vendor’ shifting focus towards delivering applications and services for comprehensive, end-to-end unified communications (UC) environments. Proper training of all local resources will be key in ensuring that they are prepared to address customer concerns both throughout the transition and going forward. Given its product portfolio (IT, business applications, etc.) and specific expertise, could Netlink be well positioned to develop CEBP solutions for business customers leveraging SEN communications technology? That could make a compelling value proposition if the technologies are in place and a strong marketing message is sent to the market.