SMB ADVANTAGE How cloud computing is helping smaller companies compete globally
For decades, the high cost of computer hardware and software put small and medium businesses (SMBs) at a competitive disadvantage, especially as they sought to expand beyond their home countries. But cloud computing, which allows SMBs to access hardware and software on a pay-as-you-go basis, is leveling the playing field.
Arthur Léopold-Léger dreams of creating a global aircraft company in La Rochelle, a seaport on France’s Atlantic coast north of Bordeaux. That his dream is becoming fact speaks volumes about how the emergence of cloud computing has altered the business world’s established order.
Léopold-Léger’s small team of engineers at Elixir Aircraft is designing two-seat aircraft that take advantage of the state-of-the-art technology used in America’s Cup racing and incorporating carbon fiber composite materials made in Japan.
Léopold-Léger predicts that the end result, when sales begin in 2017, will be aircraft that are sleeker, safer and less expensive than anything else on the market. Elixir’s first target is Europe, followed by South America, South Africa, Australia and New Zealand. In the final stage of expansion, Léopold- Léger expects to start selling in Asia and North America.
“WE’RE SEEING ADOPTION FROM A BOTTOM-UP PERSPECTIVE – SMALLER COMPANIES ARE ADOPTING CLOUD SOLUTIONS BEFORE SOME LARGER COMPANIES.”CEO, ELIXIR AIRCRAFT
Tiny Elixir can have such aggressive global dreams because cloud computing enables the firm to tap the software and computing power it needs, when it needs it, from its technology supplier, without massive upfront investments in computer hardware and software. Designing an aircraft, of course, requires significant design and simulation computing power on a robust platform. “But we don’t have to invest in hardware or administration,” Léopold-Léger said. “That’s one employee we don’t have to hire for perhaps €50,000 a year. For a small company like us, that’s a huge percentage of our budget.”
His designers also have the flexibility to use software programs for a finite period of time and then shift to other software tools as needed. “Whenever we have something to do we know we have the tools,” Léopold-Léger said. “And if we don’t have it, it’s one phone call away. We can use it for just a few months and switch it off.”
Elixir is breaking the long-standing paradigm in which small and medium businesses (SMBs) worldwide have been at a disadvantage relative to their larger multinational counterparts when they attempt to expand globally. Smaller companies may be nimble and fleet of foot at home, but relatively few can afford to build the complete information technology (IT) infrastructure required to support robust international sales and operations.
Today, however, after years of often empty hype, cloud computing is transforming the competitive landscape for SMBs worldwide. These companies no longer have to build an expensive IT infrastructure to support inventory, supply chain, customer relations, human resources and other functions required by any modern business, particularly a global one. They have access to collaboration tools that enable them to operate across national boundaries in ways that only large companies could once afford. SMBs can, in effect, rent the services they need, à la carte, when they need them, from giant players that include Amazon Web Services and from smaller, specialized cloud computing providers such as Outscale, which is based in Saint-Cloud, France.
An added plus is that most cloud-based systems help translate currencies and languages at multiple geographic locations 24 hours a day,
365 days a year.
Being able to expand a company’s IT infrastructure quickly and to cherry-pick precisely which functions are needed allows CEOs of smaller companies to take on global risks they might not have contemplated even five years ago. Flexibility in “scaling” – the ability to add or shed resources quickly at low cost – is particularly important for smaller companies because they can’t always anticipate a surge in orders. With cloud computing, companies can achieve scale almost immediately rather than taking months to place orders, receive equipment and hire the right people to make it all work.
“WE DON’T HAVE TO INVEST IN HARDWARE OR ADMINISTRATION. FOR A SMALL COMPANY LIKE US, THAT’S A HUGE PERCENTAGE
OF OUR BUDGET.”
“We’re seeing adoption from a bottom-up perspective – smaller companies are adopting cloud solutions before some larger companies,” said Christopher Holmes, Singapore-based managing director, IDC Insights Asia Pacific, and international head for IDC Manufacturing Insights, part of global industrial consulting firm IDC. “It’s affordable and they often don’t have an internal IT team. They can rely on a cloud vendor.” By contrast, Holmes said, larger companies have big, expensive legacy systems implemented over the course of decades, which can make it difficult to migrate those functions to a cloud services provider.
The United States and Western Europe have been at the forefront of helping smaller companies go global using the cloud, but Asia appears to be catching up, said Craig Downing, senior product marketing director in charge of global cloud strategy for San Diego, California-based Epicor Software. Epicor is considered a second-tier cloud services provider; such providers tend to work directly with customers rather than through channel partners.
Asia has lagged, Downing said, because some Asian governments have resisted efforts by Western technology companies to build the technical infrastructure that supports cloud computing in their jurisdictions, due to concerns about transferring data across national boundaries. “But now we are starting to see them start using cloud,” Downing said.
Cloud computing is advancing for smaller Asian companies on two major fronts. First, many Asian companies are suppliers to large Western companies that insist on doing business via the cloud. “The Asian companies are participating as part of the supply chain of larger customers embracing cloud systems,” Downing said. “If you are a vendor to Raytheon or Boeing or Bosch, you’re being pulled into that customer’s supply chain and you’re interacting directly with their cloud-based ERP systems.”
On a second path, Asian subsidiaries of Western companies are creating locally based cloud operations that link to their parent companies’ global cloud-based systems. “Their operations in Thailand or Vietnam don’t necessarily have the same level of complexity or scale requirements” to justify adopting large, expensive systems from major cloud providers, Downing said. “So we’re seeing them roll out second-tier solutions.”
The use of cloud computing has changed the very nature of how some smaller Asian enterprises function, especially where profit margins are razor thin. One example is Australia- and Singapore-based Ghim Li, a group of companies under the umbrella of GLG Corporation Limited, which supplies textiles and apparel to large US retailers including Macy’s, Sears, Walmart and Target.
Previously, Ghim Li invested a great deal of time and money in sending samples of fabrics back and forth from its factories in Southeast Asia to customers in the West. Quality control inspectors also spent a great deal of time traveling from factory to factory.
In January 2013, Ghim Li implemented a hybrid telephony and audio-video conferencing platform, located both on the cloud and on premise, to better connect employees in disparate locations and communicate fabric designs via video. “We needed a solution that gave us a competitive advantage,” Chief Information Officer Timothy Ngui said. The system, Ngui said, saves Ghim Li tens of thousands of dollars a year.
IDC’s Holmes said he is also seeing smaller Chinese enterprises use the cloud to develop a global footprint, allowing them to leverage the best resources regardless of location. “A Chinese shoe manufacturer can put its design functions in Italy, yet the manufacturing is done out of southern China,” he said. “They can leverage the cloud capability and discuss everything in real time.”
Of course, like any technology trend, cloud computing sparks debates among CEOs about the best way to use it. Some CEOs believe they should retain any sensitive data or information in their on-premise systems to better protect it from hackers, but other CEOs argue that their secrets are best protected by large cloud suppliers, which continuously update their software and have the resources to mount the best digital defense.
Others note that over a five- or 10-year period, relying on cloud services may prove more expensive than building one’s own systems. The vast majority of SMB CEOs, however, must overcome acute short-term challenges; if they fail to seize opportunities quickly, they will be blown away by more agile small rivals or by large competitors with deep pockets.
“The cloud isn’t a silver bullet but it’s pretty close,” said Stéphane Maarek, vice president North America at cloud services provider Outscale. “Not having to invest a tremendous amount of energy, resources and capital in building teams and setting up a commodity infrastructure really helps CEOs focus on their core business activity. They can reinvest money that was originally spent on infrastructure toward achieving their key business goals.”
Bottom line, cloud computing is helping SMB executives achieve global strategies that once would have been inconceivable. ◆Back to top