Expansion the logical move for Omnilogic

Although the IT industry has shrunk by 50 percent over the past two years, Gabriel Marin, founder and general manager of Omnilogic, has managed to cushion the decline of his company. Now he intends to extend the business to several countries in Europe and to gain a larger market share in Romania

March 2012 - From the Print Edition

I read today in the international press that General Motors had the biggest profits in its history: approximately USD 10 billion in the last quarter. The reason is very simple: first the company was in bankruptcy for a year, taking advantage of the insolvency law. It shed probably 30 percent of staff, closed factories and came up with another cost structure, an extremely useful series of actions,” Gabriel Marin, founder and CEO of Omnilogic, one of the largest IT companies on the Romanian market, began his interview with The Diplomat – Bucharest by commenting. “Actually, the firm restructured a company and staff structure that used to unprofitably manufacture and sell more than USD 150 billion a year (2007-2008) into a more compressed structure for an addressable market of USD 120-130 billion per year (in 2009-2010), and afterwards set up a profitable growth strategy going back to EUR 150 billion, plus this incredible profit rate. I think that almost every company should do this in times of recession. Even we at Omnilogic are in a period of comprehensive restructuring and cost analysis, based on the market evolution and perspectives.”
Holding a PhD in Economics and Computer Sciences, Marin started the company in 1992, with an investment of USD 500 and five employees, its basic activity being business with IT components. “Over time I think that we anticipated the evolution of the market and we made some very good strategic changes, mainly when we went out of the commodities business and moved into networking in 1999, in 2006 when we entered the software market through an acquisition and again in 2009 when we started our foray into the cloud-services market. These were those market shifts that we anticipated and capitalized upon,” said Marin, adding that the current period is another challenge to overcome.

A market cut in half

According to the Omnilogic founder, the Romanian IT market registered a decrease of 55 percent in 2010 and in 2011 fell by another 30-35 percent. Currently, the market is worth about 40 percent of the 2008 level and is still falling. “Over 2,500 IT companies have closed. Looking at these changes and also at the redundancies at other large companies it is quite clear that the market does not currently support this internal structure. But before reducing your personnel (at Omnilogic we consider our employees our main asset), you have to look to carry out major cutting in all the other costs categories,” said Marin, adding that he has improved the cost structure at Omnilogic in recent years. However, the company is now at the stage where it must streamline its cost structure further, in part because the future of the Romanian IT&C market is far from promising. Currently, the company has 180 employees and posted around USD 160 million in 2010 and USD 100 million in 2011.
“Generically, we were far more profitable in 2011 than in 2010 (which means that some of our restructuring actions were successful). Our gross margin increased by 40 percent, but the firm’s revenue fell by 35 percent, due to market compression,” said the Omnilogic chief. The main reason for the decrease in business is that Omnilogic’s main business vertical is in the banking and financial industry and lately banks have either downsized or pulled most of their IT operations out of Romania. Many large lenders have decided to ditch their local IT structures and move to a centralized structure located in the mother country, leading to significant layoffs in banks’ IT operations and a significant decrease in the addressable market by local companies.
The firm’s second pillar, the Telco sector, still wants to capitalize and make money from previous 3G investments, and therefore the launch of the new investment cycle for the development of LTE will not happen in 2012, but perhaps late 2013. And the third pillar, the public sector, is pretty much frozen due to Government austerity measures.

Cloud gazing

“As I mentioned before, our business dropped about 35 percent last year, but I think we have decreased by far less than the market over the last three years. However, 2010 was still the best year in the history of the company in terms of revenue and 2011 was our best year ever in term of gross margin. The main reason is that our operational and financial structure allowed us to absorb some of those shocks. Even more, when other firms have gone bankrupt or became insolvent, we have taken market share from them,” said Marin. The only good thing that he has noticed lately is that outsourcing and cloud services have started to increase since last summer.
“People no longer have money to invest. Their approach is: ‘if I don’t have money for IT products to buy and depreciate, I’ll buy services, which are deductible expenses and spread over a few years. That was the only segment that has grown,” says Marin. The disadvantage is, however, that in this segment the sales cycle is around three-four months and the profits are not great.
“Enterprise and Telco declined. The public sector, which supported 2010, was absent. This year we have no major projects on the market, and European money for IT is pretty much finished until 2013. So we are forecasting more insolvencies and closures among local IT companies. We are waiting to see who will disappear from the market and how to proceed in the remaining space. We hope to benefit from this market consolidation process,” said Marin.

Looking outside the borders

“I hope we will adopt President Obama’s slogan: ‘There must be a change, not of form, but of substance’. If not, there will be no capital, no business confidence and no consumer confidence in the following years. Since there will be no money for investment in the IT market there may be a shift towards outsourcing, to find alternative solutions, but there are very few players. If you don’t already have a completed investment in a data center, you cannot get onto this market, but we have it, so it is an opportunity for us,” said Marin, adding that firms will likely go aggressively into the increasingly IT outsourcing segment.
In the near future the company will expand in the Adriatic area, and is in advanced talks with one of the major IT manufacturers worldwide for a VAD contract (value added distribution). “We selected that area because it’s closer culturally and logistically. We are already working in Moldova, Serbia and Croatia and we hope to get access to pre-accession regional funds. We hope business in those other countries will be a little more profitable than in Romania these days. Our domestic business problem is that the market has dropped dramatically and we don’t expect an improvement within the next three-four years,” Marin told The Diplomat – Bucharest. Last year, Omnilogic had a turnover of USD 100 million.
In 2012, the founder wants to be able to make a very accurate estimate of the market, to know exactly what and where he can expand and to see the segments with growth potential, so he can restructure the company to make it flexible enough for the market. “We built the company for a market that was worth about EUR 1.2 billion a few years ago. Now we are part of a market that is under EUR 500 million,” sums up the Omnilogic chief.

Who is Gabriel Marin?

Gabriel Marin, 52, is the founder and CEO of Omnilogic. He graduated from the Academy of Economic Studies in Bucharest in 1984 and got a PhD in Economics and Computer Science in 1996. He established Omnilogic in 1992 with only USD 500 and has turned it into one of the most visible success stories of the Romanian market economy. One of Marin’s main objectives is to transform Omnilogic into a billion-euro company and position it among the top European IT&C firms. Marin received a certificate of membership from the Alexander Hamilton Institute in recognition of his continuing efforts to acquire knowledge of modern management practice through the Executive Skills Program.