How Logicalis embraced OPEX in Asia

How Logicalis embraced OPEX in Asia

System integrator leverages Cisco Capital as customers align with as-a-service

Chong-Win Lee (Logicalis)

Chong-Win Lee (Logicalis)

Credit: Logicalis

As the expenditure pendulum slowly swings in Asia - transitioning away from CAPEX to OPEX - Logicalis is laying the groundwork in a market preparing to embrace a new way of consuming technology.

Early days perhaps, but the system integrator is sizing up the potential of a customer base switching business models in the pursuit of greater efficiencies, leveraging a long-term partnership with Cisco to streamline financial value propositions.

“Customers are now more open to OPEX,” observed Chong-Win Lee, CEO of Asia at Logicalis. “Previously, the line of thought was that customers just wanted assets off their books, which was usually the main reason behind embracing OPEX.

“But that’s no longer the case. It’s more focused on what’s in the monthly recurring charge and the quality of the service they are consuming.”

Speaking to Channel Asia on the sidelines of Cisco Partner Summit in Las Vegas, Chong-Win acknowledged that a straightforward lease of equipment is not a compelling enough reason for customers to change buying behaviours in 2019 and beyond, with the focus instead shifting to value-added services.

“The key is blending your own mix of services within the value-add offering, and then include the equipment leasing and ongoing subscriptions, that’s a lot more compelling,” he explained. “Winning the OPEX war is not just about CAPEX vs. OPEX, it’s more focused on what you can offer in terms of monthly recurring services.

“Our focus is around creating value and making that available to customers through an ongoing model to ensure a higher chance of them continuing the partnership.”

The shift in focus for Logicalis - first executed upon Chong-Win taking charge in November 2017 - is well-timed in a global managed services market valued at US$166.8 billion in 2018.

With spending expected to reach $319.5 billion by 2024 - at a compound annual growth rate of 11.5 per cent - the direction of travel is clear as customers turn to outsourcing providers to execute on the potential of digital technologies.

Closer to home in Asia, the adoption numbers are currently not as high given the slower pace of adoption across the key locations of Singapore, Malaysia and Indonesia, but the market potential is evident. And when that pendulum finally does swing at speed, Chong-Win said Logicalis will be waiting.

“We’re transforming our mindset internally to capitalise on this change,” he added. “We’re seeing changing expectations from our customers now that they are exposed to subscriptions and some already prefer this model of consumption and commercial billing structure.

“We must be prepared for that and we’re continually looking at the services we can bring to market and the value we can wrap around technologies such as Cisco."

The market move from Logicalis comes as Cisco calls upon partners to embrace managed services through the deployment of security, SD-WAN and collaboration technologies.

Whether an established or aspiring managed service provider, Cisco is directing partners towards subscription revenue through three core product sets.

“We know that managed services is at the heart of delivering an outcome to the customer,” said Ruba Borno, vice president and general manager of managed services at Cisco. “Most of our partners are thinking about managed services and for those that have established practices, they are already reaping the rewards.”

Borno said customers are now spending 2.3x more on managed services delivered through the channel, representing an “attractive market” for value-added resellers assessing whether to make the transition.

Leveraging Cisco

Central to Logicalis’ success has been Cisco Capital, a flexible payment solution designed to help partners transition to as-a-service through “total solution financing”.

Chong-Win Lee (Logicalis) taking home the Management Excellence (Region) honours during the Channel Asia Innovation Awards 2019Credit: Channel Asia / IDG
Chong-Win Lee (Logicalis) taking home the Management Excellence (Region) honours during the Channel Asia Innovation Awards 2019

“We first started down this commercial model path based on the problem statements our customers were sharing,” Chong-Win recalled. “For example, regional and global deployments proved challenging for customers engaging with a range of local integrators across multiple countries.

“Not only was the process painful, there was inconsistency in terms of pricing and quality of service and after the technology was deployed, there was no ownership or management of the service levels.”

On top of quality and performance issues, Chong-Win stressed the difficulty of negotiating 10 separate maintenance contracts, alongside tracking expiry dates, end of life, upgrades and refresh cycles.

“These were ongoing problems for customers which slowed down their ability to execute in the field,” Chong-Win added. “In response, we worked with Cisco Capital to address these problems which allowed us to leverage a more streamlined commercial modelling structure.

“We could then bundle our services into the monthly recurring charge and wrap our offerings around as a total solution. From a customer point of view, the value proposition is compelling as it offers one single point of contact to negotiate the overall scope of work.

“We can now manage overall deployments across multiple countries and from experience, it works best to bring in Cisco Capital from the start of the engagement. We are always thinking of an OPEX model.”

With annualised revenues of $1.7 billion, Logicalis’ expertise spans Europe, North America, Latin America, Asia Pacific and Africa, housing more than 6500 employees across the world.

“We’re not the largest system integrator by any measure but we’re by no means small,” Chong-Win said. “We’ve been working with Cisco for more than 20 years and are strong enough to take on large digital transformation projects due to our global reach and financial muscle, but we’re also nimble and agile enough to adopt to market changes as they arise.”

Asian approach

In Asia, Chong-Win - recently recognised with Management Excellence (Region) honours at the Channel Asia Innovation Awards - is tasked with shaping the go-to-market strategy of Singapore, Indonesia, Malaysia, China, Hong Kong and Taiwan.

As CEO, the industry executive has pivoted Logicalis from a traditional reseller to a solutions provider, with a strong focus on multi-cloud, cyber security, network infrastructure and application modernisation.

“We work with customers in the small business segment all the way up to the enterprise,” he added. “We have different solutions which we target for different customer sizes. In some countries, we’re more focused on SMB than commercial but we also work with the top-tier banks in Indonesia and the top-tier manufacturers in Taiwan, so it’s a mix.”

Within Southeast Asia, Chong-Win identified Singapore as a key growth market for the business in 2020, driven by a wave of new technologies adopted from the government down.

“Singapore is a small country with a small population but the government has been leading the way in terms of adopting technology,” he outlined. “We’re seeing government agencies and top-tier banks adopt digital transformation strategies, alongside many organisations setting up regional headquarters in Singapore.”

As the fourth largest country in the world from a population perspective - housing more than 270 million citizens - Indonesia represents ongoing potential in the year ahead for Logicalis, according to Chong-Win.

“Indonesia is experiencing a growing middle class and higher education rates,” he said. “We’re seeing people graduate, start work and begin applying for bank accounts, credit cards and mobile phones. This all drives technology deployments across multiple industries, particularly in banking, telecommunications and retail.”

Under President Joko Widodo - known as Jokowi - the country is also planning to move its capital city from Jakarta to East Kalimantan, on the island of Borneo.

If parliament approves the bill, construction of the yet-to-be-built city is expected to begin next year on a plot of 40,000 hectares, according to The Guardian. The 1300KM move of key bureaucrats and civil servants is expected to follow by 2024.

“Basic infrastructure such as buildings, roads and highways will be required and then we have an opportunity to contribute from a technology perspective, each step of the way,” Chong-Win added. “Alongside ensuring we’re prepared for the capital move, we’re looking at 5G trials and believe SD-WAN represents a good opportunity in not just Indonesia but also Malaysia.

“In more developed markets such as Singapore, we’re continuing to accelerate our application modernisation conversation and help customers embrace hybrid cloud solutions.”

James Henderson attended Cisco Partner Summit 2019 in Las Vegas as a guest of Cisco

Tags ciscoManaged ServicesLogicalisCisco Capital

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