CA is not leaving SA

By Candice Jones, ITWeb online telecoms editor

Johannesburg, 30 Jan 2009

Despite the lack of financial backing and a direct South African presence, international IT management business CA is adamant that its SA investment has not been pulled.

In interview with ITWeb yesterday, CA SA country manager Gary Lawrence said a deal signed and announced yesterday with JSE-listed technology business EOH does not mean that CA is leaving SA.

According to the terms of the deal, CA International will no longer be the parent company. Instead, EOH will take up the mantel of the financial responsibility. EOH will also absorb all 50 local CA staff and book assets into the unit.

While Lawrence admitted that the timing of the deal does make it appear as if CA internationally is removing its investment from SA. The global economic crisis has had many international businesses cutting jobs and pulling emerging market investment.

Analysts say many international companies are now bringing most spending back into core business, if they are spending at all. This, for the most part, means taking investment out of foreign countries and investing more on local business.

Like many other international IT companies, CA's financial report for Q1 and Q2 of this year, compared with last year's report, has indicated that the company is showing weaker margins. The company's revenue growth dropped from between 8% and 10% in 2008, to 6% in Q1 and an outlook of 4% for Q2 this year.

However, Lawrence said the handover to EOH is a decision that will enable the SA arm to make relevant local decisions and expand its presence. He explained that he had been part of the decision-making process from the beginning, and he expected the handover to boost the company's capability in the South African market.

Become SA relevant

Lawrence stressed that the partnership does not include the sale of the local arm to EOH. “The company has not been sold to EOH. In many ways, we will be the same company, except now we will get out paycheques from EOH,” explained Lawrence.

According to Lawrence, there are several reasons the decision has been made, none of which include the global economic situation.

He points to black empowerment as one of the motivating factors in the transfer. “We have been looking at how to grow our BEE footprint. There are many models in SA currently where local arms of international business have managed to improve BEE rankings. These, however, were not suitable for us.”

Under EOH, CA will gain a reasonable BEE rating. According to the EOH Web site, the company sports a 25% empowered ownership structure, backed by broad-based employee participation. The staff compliment is currently at 35% HDI and the company says its procurement structure ensures it purchases 40% from empowered businesses.

Like many other local offices of international companies, CA SA has had a tough time explaining to its Nasdaq-listed parent the South African BEE requirements, telecoms infrastructure costs and the power crisis.

“Under EOH, we can now build a good BEE structure and work under South African terms and conditions.”

Partner concerns

The move also had industry watchers concerned that EOH would become the sole distributer of CA products. However, Lawrence said while EOH will be the holding company of the CA brand, the partner model will remain intact.

The change of financial responsibility will not alter the way the company goes to market, added Lawrence. “In many ways we will continue to be CA. We will maintain the CA brand and will use the partners as we always have done. Now the difference will be that our partners will essentially be working with us as an EOH business unit.”

Lawrence believes that this model will become more popular with international businesses over the next few years. “It is the right way fro international companies, like CA, to do business in SA. It is a practical and usable model.”

Yesterday's announcement had many industry watchers surprised, however, Lawrence said that the deal has been a year in the making. “We have been working on a model that will help CA expand its African reach for at least 12 months.”