Can you give us a brief historical background of Intesa here in Venezuela, and the synergies that led Intesa to enter a joint venture with PDVSA.
Intesa was started in 1997 as a partnership between a US based company, Science Applications International Corporation and Petroleos de Venezuela. SAIC is one of the largest employee owned companies in the world, it is a diversified research engineering company, heavily involved in telecommunication and information technology. In 1996, PDVSA was looking at how to upgrade their technical infrastructure to provide a common approach towards positioning themselves in a technically competitive position with other multinational energy companies. When they sought a world-class technology partner that they could team up with they also looked at the organizational structures of the potential partners. They found SAIC and I was fortunate enough to be able to meet some of the people in PDVSA at that time. A partnership arose and what today is called Intesa emerged. Right now Intesa is one of the largest employee owned operations in Latin America. We think it is significant that our people own our company. No one can own more than 2 percent, so 1 or 2 people do not own most and everybody else owns the rest. We try to distribute the ownership of the company to everybody that works in it. Up to date Intesa has been rated the top technology service company in all of Latin America. We received specific recognitions from several organizations such as the Gartner Group, and Strategic Management Inc., who have rated our integrated services operations as a world class operation. It is the first designation of the kind in Latin America. We were also a finalist in the Beacon Award, which is the IBM Lotus Note global competition, and we finished second in 3 categories. It is the first time a Latin American technology organization achieves such awards.
Our vision was to create information technology in telecommunication, culture and market in Venezuela, and then be able to expand throughout the region and create the talent and capability here to be able to export. We want to export not only intellectual capital and property but also human resources. We are trying to establish Caracas as the Boston, or the San Francisco of Latin America. To get the universities to concentrate on curriculums, to upgrade the engineering and technical capabilities and at the same time create processes in a market to be able to expand throughout the regions.
Besides the fact that you enter this joint venture with PDVSA, is there any other reason why you chose Venezuela as the center of your operations, what are the advantages you see in this country?
SAIC believes in having strong local partners. In 1997 PDVSA was rated the best run company in all of Latin America by several institutions, one being the Institute of the Americas. SAIC had a strong capability in the energy, oil and gas market place. They wanted to extend and grow in those areas, that is why a partnership with PDVSA became a natural fit. PDVSA had a lot of experience from the last 20 or 30 years in the energy marketplace and the partnership was from PDVSA´s perspective. They helped us expand, go to other markets and open up other opportunities in Latin America so it made sense from the synergy perspective.
Whenever we go to other countries we always look for that strong local partner to be able to tell us how to deal with the culture and advise us and get us involved with the community, we think that is important. PDVSA provided us with that partnership.
Could you give us some figures about Intesa´s operations here in Venezuela - you pride yourselves on having more than 1700 IT specialists - could you give us figures, number of employees, turnover, you mentioned the shareholding structure?
Right now Intesa in Venezuela is about a 290 to 300 million dollar business a year, we have about 1500 employees and offices in about 30 different locations throughout the country. We have corporate expertise, information technology telecommunications, knowledge management and transformation. We like to refer to ourselves as the transformation company of Latin America, because we think it is important to help companies and institutions to be able to transform, to position themselves to be more competitive from a global perspective and this requires a lot of different skills. It requires transfer of knowledge, it requires business process reengineering, it requires strategic planning, it requires implementation of technology to be able to facilitate the demands, and finally it requires flexibility to adapt. We have a lot of experience with that because since 1997, our primary client in Venezuela has been PDVSA and they have probably gone through 2 transformations in that short period of time. We have been there helping them during the whole process.
Intesa in Venezuela has about 40 clients. The companies range from telecommunication companies to banks, oil and gas, energy operations, manufacturing, we even have some consulting companies that use our services. It has been an interesting market place. We have moved from being focused just on PDVSA in early days to having a broad range in the market place now.
Have you already seen the profits and benefits of the employee ownership program that you started in 1997, the connotations of the program. What was the philosophy behind it?
Employee ownership is a key philosophy that we have inherited from SAIC. We believe that those who contributed to the success of the company should take share of the company and own it. It has been a fundamental reason why SAIC is one of the largest, highest quality technology companies in the world today, because the people own it. They take a lot of pride in the quality of their work, they are very concerned about their customers, and we have that same mindset in Intesa. People are very concerned about their customers, they are very committed to the quality of work that they deliver, we are very proud to be able to bench mark what we do and then measure ourselves against not only Venezuela and Latin America but the rest of the world. So the key benefits there are the culture and the style in which our people operate.
We have a different culture than what you find in other types of organizations in Latin America. I truly believe in a distributed, federated approach to leadership, management, and progress. I am really proud that since 1997 our employees have increased their personal wealth by about 18 million dollars, because of the increase in the value of SAIC stock during that time. That is the security they have. Last year the stock went up over 170 percent, so that kind of incentive really gets a few people motivated. It has been really important for our people to not only recognize the quality of the work and take a lot of pride in it, but also to share the benefit of it, from a commercial perspective.
Out of the 4 major areas in the economy, you are involved in oil, gas, mining and telecommunication. What are the shares of those sectors in your business, and in which of those areas do you forecast a major growth within the next few years?
Right now the majority of our work is in the energy sector; oil, and gas utilities. Probably about 85 percent is in the energy related private market place. Probably about 10 percent is in telecommunications and the remaining 5 percent are distributed between financing and manufacturing. We have a limited experience with the government here, being a transformation company I tell you this government and just every other government in Latin American has to transform and address it's client base, which is the citizen.
I think E government, electronic government, will become the next step. Big projects and programs will develop over the next 10 to 15 years in Latin America. Being able to register for identification papers online, and to automatically be able to be integrated with bio records will be a big opportunity throughout Latin America. I think telecommunications will be the big market for the next few years in Venezuela. The markets are deregulating and competition is entering the market place. Many of the energy companies that do business here are multinational companies and they need enhanced quality of service, access to broadband wireless. I think we will see the broadband wireless and the mobile economy grow considerably in Latin America.
New multinational players are expected to arrive to Venezuela shortly. Are you already holding negotiations with those other companies?
We continue to have a lot of discussions with a lot of different multinationals, because one of our alliance companies is Telcordia, whose specific market place is telecommunications companies. We continue to talk to Bell South, Telefonica, Bell Canada, Southwest and Bell, Corporation SBC and several others. There are also companies like Global Crossing entering the market place that really provide interesting possibilities.
The key thing for us is to be able to integrate all of our services for all of our customers, and the ability to provide them access to appropriate telecommunication services, whether be voice, data, video or what we call the knowledge asset, which is combining those things in a multimedia approach in the way to do business. We continue to talk to those. I think you will see in this market place companies like Telefonica taking more active roles, Bellsouth, Bell Canada, all of them are looking at how to increase their participation in the market place.
Governments in Latin America have long been accused of being corrupted and inefficient, now that we held interviews with some Governors and that you have offices in different parts of Venezuela, I would like to ask you how could you help those states in Venezuela to improve their efficiency?
There are several key areas that the government really needs to concentrate on and improve. One is tax collection, the ability not only to recognize tax-based revenue in the country, but also to be able to collect it. You need accurate accounting and accurate systems to be able to monitor and give reports so that municipalities, states and the federal government are able to collect the taxes. Key sources of taxes are of course on the import side with the customs areas being able to move more goods and products in and out of the country in a more rapid fashion, that involves investment in telecommunications and information technology combined with other forms of technology. The states need to work from within to identify what diversification they have in their economies in order to promote, track and promote different kinds of investment.
I am on the board of the Institute of the Americas, and Venezuela has always been a pride and joy for me, I have been trying to get different members of the institute to come and invest in Venezuela. I think that as far as state government is concerned the technology community could really help in automating the police and communications with the public health so that they can provide a better service to the citizens in the various states. The key is telecommunications, wireless mobile, records and being able to have access to data and information.
You mentioned before your alliance with Telcordia technology but you also finalized alliances with other companies such as Mincon for the purpose of the 2000 issue with the CA, Saga and other companies. Are you still seeking new alliances, and what would be the profile of that company that you are looking for, and the purpose of that alliance?
We have several different kinds of alliances, one type of alliance is the alliance that we need to address our customers' requirements, so those would be technology partners. Some key ones that we are working at now are EMC2, Cisco which is a global partner for SAIC, Nortel; these are some key technology providers. We have some smaller companies that we are working with, for instance Verisign, which SIAC owns 10 percent of, so we are working with their subsidiaries in Latin America's information security, which is a big issue in Latin America. We are probably the best in the continent on providing information security services.
We look for alliances and partners, in the countries that we do business. So, for instance, here Petroleos de Venezuela is a key alliance partner for us. They actually own part of the company. When we go to other countries there are some key alliance partners. Oracle is a very important one because as technology evolves the way that we deliver our services and technology changes almost every 3 to 6 months. Right now the big trend is application service provisioning. At the moment there are not many people in the world making much money doing application service provisioning because they have not broken the code yet or know how to do it. We have teamed up in a partnership with Oracle so that we can take some of their products and offer them as an application service provision. What we are really doing right now is providing applications hosting services and then the next step would be to take that to a regular, full, speedy type of model. Those kinds of technology partners become very important, and then one is the telecommunications partner.
We view ourselves as an international company, and we have multinational customers that expect us to service them wherever they do business. That is why telecommunications partners, carriers, and operators are critical alliance partners.
Do you think the market is mature enough for you to succeed in providing application service provisioning and maintenance in Venezuela and the Latin American market?
The market is segmented a lot more in Latin America than it is in other places. The market is mature enough if you are addressing multinational or globally oriented companies. We have key clients here on the ASP side, for instance Vengas. Their thinking is that they have to be able to position globally, that is a methodology in the way they are going to do business. The same thing is valid for BP, we are helping them to do the ASP hosting worldwide. Most of the work in application service provisioning is outside the US.
| The whole ASP market place worldwide right now is fluid, nobody has broken the code yet on exactly how to provide an ASP service in a broad range of applications and make money. There are a lot of people that start up and that are trying to provide the service but they are losing their shirt. We manage an incremental process with our clients who want to be able to leverage economies of scale. What we are saying is that oil and gas, telecommunications, and banking and finance are three verticals that will have their own ASP approach. The economy of scale comes about by a group of banks sharing the cost of an application. Customer relationship management may be an example. In oil and gas several companies can share the cost of a reservoir simulation package and an ASP model, then that will definitely be an advantage to that industry.
A wave of merges is sweeping all over the banking systems in many Latin American countries. Does it give you a greater opportunity to increase your business in those particular sectors that will be in a position to invest more in developing their E tools?
Yes, I think that the banking and financing industries spins more on information and technology and telecommunications than any other sector. Second is telecommunications of course, but there is a tremendous challenge because they have to be able to leverage the benefits of those merges, acquisitions, and consolidations which means transformation, and transformation is taking something complex and making it simple.
A transformation process takes a complex environment and simplifies it. You can imagine if one large bank acquires another one all of the sudden you have a duplication of everything, so you have two of everything on most of the time. Two general ledgers systems, two approaches to email, two approaches to CRM. A lot of times if left to their own devices, these two would compete with each other to see who will win out. The result is generally that not much progress is made, so banks and other types of companies ask us to come in and bring those two together in order to simplify the environment and leave the operation in a more functional as opposed to dysfunctional state. So yes it is a tremendous area for us.
I was just reading the Mede group profile on banking and financing, and I think they said that banking and finance industries will spin about 19 percent of the revenue on technology high team telecommunications as opposed to 2 percent for energy companies. That is a sizable market place too, that is an interesting environment. They have to figure out how to keep their customers because what is a bank? A bank is different today, we always thought of banks as these brick and mortar buildings but the Internet is changing banking around. All of the sudden we can now have a banking relationship with our credit card company, or we can have a banking relationship with our stockbroker. My only relationship with my bank is through Internet for example. When I am traveling throughout the world I want to be able to move money around. In fact I have not spoken to any bank officer in probably 6 years.
I know you have very ambitious plans for international expansion. Can you tell us about those plans and what are the countries that you are targeting?
I think we are targeting the most obvious countries in Latin America, which hold 70 percent of the market. Brazil alone represents about 50 percent of the entire market place. The other countries are Argentina, Chile, and Mexico. We currently also have operations in Colombia, and an interesting option right now that we have a lot of hope for is Trinidad and Tobago.
Trinidad & Tobago has the opportunity to become the tiger of the economy in the Caribbean. They are one of the most interesting small countries because of the tremendous opportunities they have. I am working on a thing that is called the Tiger Group and the idea is to digitalize everything in Trinidad, to give them access to market places that they do not currently have access to. They have 2.4 million people there, the idea is to put a PC and internet connection in front of everybody that is 12 years of age or older, give them free internet access, start simulating e-government, e-commerce, e-business processes and start attracting high technology types of ventures and companies to Trinidad along with banking and finance. They have the opportunity if they change their legislation around, they will have a really interesting story in the Caribbean. Those are the main markets that we are looking at.
Our primary focus as far as revenue markets are energy, including oil and gas and utilities, and telecommunications. We think telecommunications will be the largest market place for the next 5 years for us, and then by the end of next year we expect telecommunications revenues to surpass those of energy, oil and gas and then banking and finance. We believe that we should contribute to the enhancement of education and health care in any area where we do business. We are trying to look for ways to help improve the access to education and the access to health care. That will be an interesting thing to watch in Latin America, because all of these health care systems need to be reformed. Health care is the biggest social responsibility the government has in Latin America. I Think Chile is probably the most advanced right now in getting there, but every single government in Latin America needs to reinforce health care access.
In fact some of the values of Intesa are high ethical standards, professional integrity, entrepreneurial spirit and social responsibility. Please give us some examples of the social programs you have committed to.
It is important to give back to the communities where we do business. I believe, for instance that here in Venezuela we have worked hard to help kids have access to scholarships so that they can attend secondary schooling and universities. I am on the board here of an organization called AVA, American, Venezuelan Amistad Association, the whole purpose and mission of that is to generate scholarships for Venezuelan kids both in Venezuela and Europe or the US. For them to have access to higher education, we coordinate work with Full Rights Scholarships program, to be able to try to get some full rights scholarships for kids. We have in the past years had the Books for Venezuela program, were we got publishers to give surplus educational books to be distributed throughout the country for free.
We work very hard with local programs. In one community that we worked with we created Internet access. The parents of the community came and they wanted their children to have access to Internet so we worked to get the technology put into place. Telcel and CANTV put the telecom links in and provided the ISP, we put in the computers and provided access to the application. The whole idea is to give children the access to that big world outside of their ranchitos. These are some of the programs.
Another example of the program is in Colombia where we founded a research center for astronomy and we look at trying to help universities and colleges enhance their curriculum by volunteering our time to teach or speak. The Americas is one of the key areas that we work on. We try to provide a broader access to health care and education for people in Venezuela and Latin America.
Going back to Intesa´s international programs I would like to know what the share of international operations is in the whole of your business today? What is your forecast for, lets say, five years time?
Today the international operations as of November 1st, let's say year 2000, 10 percent of our business comes from outside of Venezuela, by January 1st or March 1st, I expect at least 30 percent of our revenues to be coming from outside and by the end of next year I expect 50 percent of our revenues to be coming from outside. By the end of 2002 I expect Venezuela only to be about 20 percent of our entire revenue in the region. We decided to start the company in Venezuela and expand internationally. A lot of companies go straight to the major markets, which are Brazil, Mexico, I mean those are the broader markets. But we decided it was the established processes and procedures in capabilities and then go to markets, so we are just now starting to address the broader market place.
Could you provide us with the information on how much is the worth of the market you are working in and what is the share you have presently and the one you would like to have in the future.
We have about 1.5 percent of the addressable market, we are looking at a expanded market view. We think currently that the addressable market for us in Latin America is 50 billion dollars a year, and we would like to get to 10 percent of that within about 7 years, we would like to be about 5 billion dollar company in Latin America in the next 5 to 7 years. That is a tremendous amount of growth so we have to do it both through organic growth and acquisition. In our business we do a lot of outsourcing, a lot of companies just ask us to take over their operations. This whole e-sourcing, e-commerce, e-business, ASP, knowledge sharing and stuff, it really increases the capability to expand in the market place at a rapid pace.
You are a good example of a joint venture company that has succeeded; you have been able to achieve a fast growth in Venezuela but also to expand on a regional basis. Now that some international investors are rather reluctant to invest in Venezuela can you give them some reasonable arguments why today it would be worth to invest in this country.
This country is in the process of diversifying its economic base. One of the things that people here know is that they cannot continue one market type of approach to their economy. This economy needs to be and is moving towards more diversification, economic diversification from a market perspective. That opens up tremendous opportunities for service companies, for technology companies, for manufacturing. Manufacturing could be a key boom and growth market here in Venezuela, I think the legislative environment and the labor situation will continue to improve, and provide an opportunity for people to invest in Venezuela.
Finally lets think of the company that is now willing to expand the business on the net. What would be your recommendation for that company since you claim to be an expert in company transformation?
All of those companies need to ask themselves one fundamental question: Who is my customer? Where are they? How do I keep them? The way that we have to keep them is to create an intimate relationship with them. For instance you mentioned Internet banking. How do you keep customer loyalty, when personally we are not going to see each other in our relationship? The key thing that people have to do is they have to sit down and ask themselves the question. Are we E ready? Because what is happening in the market today, and I think we are seeing adjustments on Wall street because of this, is that people are jumping out there and doing everything in the name of e-business. I think that not enough of them are stopping to think about why they are doing that and what they need to do, who is their customer and how are they going to keep their customer.
I think that companies really need to take a look at whether they need to position themselves defensively or offensively, I do not think that there is enough thought that goes into that. We have talked to several of our clients and we have spent a lot of time warning them about being e-ready, and thinking about whether they want to be offensive or defensive, these forwarded and reversed actions are going to kill some industries. It is going to change the ways of some of the industries that now exist. In some markets in the world people are already buying cars from the Internet in fact they are buying everything. What does that have to do with the showrooms, and the dealerships structures with automobiles, how are all these things going to change?
My advice is to figure out how you are going to have an intimate and close relationship with your customer using an electronic medium and whether your organization is e-ready, and then determining with all will in the organization a commitment to your customers by leveraging the electronic media. I think that is true for government also, governments need to ask themselves those same questions. What are we doing to get closer to our customers who are our citizens? By leveraging the tools that we have available to us we have access to an exiting world that is going to change dramatically in the next 5 to 7 seven years because of the Internet and World Wide Web.
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