Driving forward a business start-up
A Marconi case study

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Page 4: Repositioning the business

Marconi 6 Image 2The nature of a modern Information and Communications Technology business is that it is highly competitive and to survive and prosper in this field, organisations have to think globally.

Marconi CEO Lord Simpson has pursued focus. He has built a business in the converging areas of telecommunications, software and information technology. His aim is to reap the rewards of explosive demand for broadband infrastructure. This is the electronic plumbing through which ever increasing volumes of data are pumped around the world.

One of the most important early steps for the new business has been to establish a strong presence in the US market. The Marconi business, until recently, was only widely known in the UK and Europe. Marconi has therefore made a series of acquisitions in the United States coupled with extensive advertising. The United States accounts for about half of the global communications market which is most rapidly expanding in the US. In 1999 the US based Reltec Corporation was acquired to harness new technology, particularly access to the Internet. FORE systems was also acquired for its leading edge broadband switching capability.

Marconi recognises the importance of establishing rapid growth in the US market. Through acquisition, Marconi has become one of the largest players in the global communications market. Economies of scale are important in this market - the better integrated a service that a provider can supply to its customers, the easier it is to win customer support - hence the importance of growth.

While in early 2000 Marconi had a global market capitalisation of $50bn, the largest competitor Cisco had a market capitalisation of $450 billion. Right from the start, therefore, Marconi focused on buying compatible businesses that were at the leading edge of communications technology. In a fast-moving field Marconi recognises the importance of identifying the sorts of businesses that are creating the changes that need to be incorporated under the Marconi umbrella. These initiatives have had tremendous success and saw the share price of Marconi soar from a steady £3.50 for much of the early 1990s to above £10 in early 2000.  By generating increasing profits Marconi is able to focus on organic growth.

Marconi | Driving forward a business start-up