It is quite normal that news and announcements that fall outside of the ordinary day-to-day events of an organisation generate surprise. Sometimes the surprise in turn generates speculation and conspiracy theories. These past few days I have picked up a number of comments which suggest that the news of our exiting from Communications and Healthcare in quick succession is assumed to be part of a big divestment programme in our group. I am glad to use this week's blog to correct any such perceptions and to explain what is going on.
That the divestments of Communications and Healthcare are taking place almost simultaneously is actually a coincidence. Deliberations about divesting Communications have been on and off for more than a decade and the decision to proceed was made a little over a year ago. The sale process to Dimension Data took almost a whole year. The strategic reasoning was that an over-reliance on a single, non-exclusive agency and a single product family might not be sustainable in the long run. Dimension Data's Cisco-centric portfolio is a perfect match to our Avaya-centric product line and the combined business of the two companies is simply better for the future.
In Healthcare the issue was one of critical size. Having once had a presence in four countries, the business is today confined to two countries neither of which has us in a market-leading position. It was imperative to grow in order to remain relevant in the market. Six years ago we took the decision to seek growth through acquisition and over the years we seriously pursued three acquisition opportunities - two in Malaysia and one in Indonesia. We were unable to reach a mutually agreeable deal with the sellers in any of these cases. This then triggered a decision to find instead a buyer of our business who could bring much-needed growth. Getz is just that company. Whereas Healthcare represents about 1% of J&J's turnover, for Getz (a group of equal size to us) the contribution is 50%. Under Getz our Healthcare business has a much better chance to grow and achieve a market-leading position, thus securing its long-term viability. Once we had signed a sales and purchase agreement with Getz, the process took only a couple of months to complete.
It goes without saying that the departure from J&J of a very substantial number people, many of whom have been loyal colleagues and friends for a very long time, is the bitter part of this process. But securing a better future for both of these businesses in new and better homes was of paramount importance and has taken some of the very emotional sting out of the decision. It was an important condition in both deals that every employee would be offered a comparable position in the new company at terms no less favourable than what had been provided in J&J.
So what is the group's future direction? We will continue with a healthy balance between distribution, engineering and manufacturing. For distribution activities, we will avoid dependency on any one supplier or any one product category and work to ensure instead that we offer a wide range of complementary products and that market leadership, ASEAN coverage and deep technical know-how will be important parts of the offering. Furthermore, as I have mentioned in several blogs already, we will seek to be increasingly involved in designing, manufacturing and/or servicing and project managing what we sell. Twelve of the last fourteen investments that we have made in the past 6 years as a group have been in areas that strengthen our own products, brands, IP and technical capabilities. We will in fact shortly be announcing another new acquisition along these lines.
The traditional “trading” focus that we had in the old days, in which we retain a diverse portfolio of activities and approach the market in a nimble, opportunistic and relationship-driven way, is still very relevant in the emerging markets. That is one of the reasons why J&J is in fact continuing with both Communications and Healthcare in Cambodia, Laos and Myanmar.