Samsung SDS seeks to expand overseas markets

Samsung SDS CEO Alfred S. Ko

By Kim Yoo-chul

Samsung SDS, the nation’s top supplier of information technology (IT) platforms and solutions, said Sunday it will restructure business lineups with a view to doubling overseas sales until 2017.

It plans to develop more revenue sources abroad, while reducing its dependence on the domestic IT services business.

“We won’t renew contracts with Korean banks or public firms that can’t generate revenue as much as we want. Instead, we will shift our focus toward overseas businesses,” said company spokeswoman Kim Mi-ri.

Samsung SDS was recently named as the most preferred bidder to build Kyeongnam Bank’s advanced banking systems. However, the firm walked away from the deal due to differences over pricing.

The firm is currently collaborating with the Industrial Bank of Korea to construct the bank’s advanced banking solutions, while the Korea Development Bank is using SDS-developed platforms.

Under the restructuring plan, the firm’s two divisions that have so far been handling IT services for public and financial sectors will be dismantled.

The affected employees will be moved to other divisions that manage the company’s overseas businesses or other Samsung affiliates, company officials said.

“The restructuring will be effective from July or August. We are having a one-on-one interview with employees for a position shift,” said the spokeswoman.

It seems that the decision could possibly drag down its revenue and profit from domestic businesses, although the declines will be limited.

Samsung SDS is providing its system management, integration, and control services to almost all Samsung affiliates including Samsung Electronics, Samsung Card, Samsung Life Insurance and Samsung Securities, meaning it is better positioned to compete with its local rivals including LG CNS and SK C&C.

“Samsung SDS needs to find new business momentum as projects to construct advanced systems at local banks are scheduled to be completed soon. Despite that, it’s surprising that SDS will walk away from the local market as the nation’s IT services market is still growing,” said Lee Jae-maan, an analyst at TongYang Securities.

Industry sources say contracts from Samsung’s financial affiliates are valued at between 110 billion won and 140 billion won.

A leading market research firm Ovum claimed the Korean IT services market is now one of Asia’s most matured, and will grow by 7 per cent over the next three years to be worth $16.4 billion by 2016.

Attention is now focused on how SK C&C and LG CNS will respond to Samsung SDS’s decision to scale back its domestic business.

“The presence of the three local players is expected to decrease and the reformist agenda for the new government is also starting to make headway. New entrants will have to impress upon local buyers how they can drive cost savings, efficiencies, quality, speed and productivity,” said Ovum analyst Jens Butler.

New markets

The spokeswoman stressed the restructuring was based on the firm’s plan to boost its overseas business.

Over the next five years, the revenue portion from international markets will be expanded to 60 percent out of the total annual revenue from 35 percent in 2012.

It aims to generate 7.5 trillion won in revenue throughout this year.

“Divisions that manage overseas businesses will receive more resources. We have been consistent in strengthening global business and the stance won’t be changed,” she said.

With the local economy not expected to grow substantially in the near future, Samsung SDS is seeking to expand into higher growth markets, such as China and countries in Middle East.

“Literally, Samsung SDS’s gradual departure from the local market does make sense considering Samsung Group’s ongoing drive to cut its reliance on consumer electronics business and to shift its priority toward healthcare, logistics and non-electronics areas,” said the analyst Lee.