Big investment in little Malta
Four international banks have invested US$35 million in a locally-based company, iWorld. CEO ANDREAS W. GERDES spoke to David Kelleher about the company, its target market and the changing world of mobile communications
At the turn of the millennium a new corporate structure is forming globally, hinting at the way businesses will operate within the early decades of the 21st century.
Business models have changed so much that the conglomerates operating at the beginning of the 20th century would hardly be able to survive in today's market environment.
Companies are no longer solely interested in setting up and making a profit. No. That is not the way business models work in today's day and age. This has, in part, led to the birth of what are known as incubators. Their aim: to incubate Internet companies, generate the ideas, develop and turn them into viable companies, accelerate them in the market, and prepare them for highly-lucrative IPO offerings.
Incubators have taken off for two main reasons: the Internet and Internet-based applications are the future and, secondly, there is enough equity cash available and more than willing investors ready to fund these start-up companies.
As incubators increase in number and as hundreds of companies are spawned worldwide, attention is shifting from e-commerce to another highly lucrative business scenario, that of m-commerce - mobile commerce. And not surprisingly either!
The European m-commerce market is expected to grow from euro 323 million last year to euro 23 billion by 2003. Europe is also nearly two years ahead of the US in development terms.
Although still in its infancy and with equipment vendors over-hyping expectations, research shows that m-commerce will boom by 2002. According to Durlach (www.durlacher.com), a research institute, mobile advertising will be the number one mobile commerce application (23 per cent) by 2003.
"The mobile device provides unrivalled one-to-one marketing capabilities, which the direct marketing industry will exploit moving forward. Mobile financial services, for example stockbroking, banking and payment (21 per cent) as well as personalised, often location based mobile shopping services (15 per cent) will also contribute significantly to market development. Mobile entertainment will become a major driver for mobile commerce only after 2003 using EDGE and UMTS," the report states.
These facts, even though expectations are being over-hyped, has led incubator companies to focus specifically on the future of mobile commerce.
"This is the way forward. One must take stock of the situation and act now," according to Andreas W. Gerdes, CEO of a locally-based incubator, whose company, iWorld, has recently attracted the interest of four large international investors.
"You just have to look at the present market. There are more mobile users than Internet users. More people have a mobile telephone than a personal computer. The mobile base is growing at eight times that for Internet. It is therefore clear that the future of business lies in mobile commerce," Mr Gerdes told The Malta Business Weekly.
The company will be venturing into the applications market for mobiles such as allowing a mobile user to order tickets via his or her phone, or else download material or articles from the net prior to a business meeting.
"These are all possibilities that can be turned into profitable ventures, and that is the main role of iWorld - to generate ideas and spawn individual companies," he said.
iWorld already has identified around 30 areas that could be incubated and transformed into profitable companies. His company has attracted a large amount of interest from international investors who want to reap the benefits of a future boom in m-commerce.
However, he is cautious when it comes to choosing investors.
"For our companies to succeed you have to act globally. Therefore it is important that your investors have a global presence and the expertise to work in global scenario," Mr Gerdes said.
Last week the company sold 10 per cent of its shareholding to four major investors - Bank of America (www.bankofamerica.com); Deutsche Bank AG (www.deutschebank.com), Hikari Tsushin Capital Inc. (www.hikaritsushin-capital.com), and PaineWebber Inc. (www.painewebber.com) - in a deal worth US$35m dollars.
Mr Gerdes said that only 10 per cent of shareholding was offered because that was the amount of investment required at this stage and secondly, he wanted to allow more equity to be allocated to staff and future expansion.
"We wanted enough potential to be able to give staff equity. At present 22 per cent of equity is available to key team members," Mr Gerdes said. He does not believe in a hierarchical style of management either.
"Each member of staff is important and we run the company according to one's expertise. If a person is an expert on one particular area, all the others are responsible to him or her, even if they have more seniority. I also want our staff to be inquisitive and willing to learn. Just as computer software requires regular upgrades, our brains need constant upgrading as well," Mr Gerdes emphasised.
Mr Gerdes' expertise and business connections have played no small part in attracting investors, and he is not a newcomer in the market. The 40-year-old German businessman founded his homeland's first mobile service provider (ABC Telekom) at the age of 20 in his parent's garage in 1987.
Four years later he successfully sold the business to Li Kashing, Hong Kong's wealthiest entrepreneur and was instrumental in integrating the business into Hutchison's European telecom operations, which today includes the Orange Group.
He then founded ABC Telecommunications Consultants, which assisted major national players in establishing their multi-billion dollar international operations. He advised telecom power brokers, such as Dutch PTT and Telefonica of Spain, on investment decisions in mobile communications. He was also adviser in talks between Deutsche Telekom and DeTeMobile in Asia.
His wide-ranging career has now brought him to Malta, a sharp change from the high-rise building in the major capital cities of the world. However, Mr Gerdes believes that many underestimate the strengths and possibilities that Malta has to offer.
"The mentality has to change. Many companies and investors believe that Malta is only good as a back office and nothing else. They cannot visualise the island as the centre of operations. While many believe that Malta should be the 'feet', I stress that the island can be the 'head', the focal point of all activity," Mr Gerdes explained.
However, it was not an easy task. Convincing major global players that the head office in Malta is the most suitable location and not London or Berlin, for example was not easy.
"It was a new experience, but we enjoyed swimming against the current. In Malta people have the spirit to lead and change. The island offers an excellent location, possess the multi-lingual skills and provides very good financial services," he said.
"The location obviously created a certain amount of curiosity and it was certainly thanks to PriceWaterhouseCoopers and the Malta Financial Services Centre (MFSC) that the deal was struck in Malta," he added.
Mr Gerdes also believes that Malta's small size allows business to be carried out at a faster rate.
"In Malta you only have a small group of people whom you have to speak to. That done, you are close to concluding your business deal. Abroad it is a completely different picture and much more difficult. Malta has a unique identity and a unique opportunity," Mr Gerdes said.
"Malta is now in a position to take a lead in digital commerce. Now the top companies in the US know about the island and what it has to offer. There is a need to convince the people that this can be done.
At present iWorld employs 30 personnel from 14 different nationalities. "To be a world leader you have to have a cross-cultural identity to be able to do business in any region. This is every important," Mr Gerdes said.
iWorld will also be opening an office in Germany and another in Asia. The German office will be the first purpose-built incubator in Europe and is expected to be opened later this year. The Asian office is still in the pipeline, pending the choice of location - Taipei or Hong Kong. The company has been described as one of "the most promising investment opportunities in Europe" during the German Tech Tour organised by the California government in February in Munich.
This statement, coupled with the interest shown in the company, augurs well for the future - not only iWorld's but also Malta's.
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