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6/27/2006
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IBM Bets Big On Chinese Startups

One Chinese company in the location-based services market has been able to grow its customer base by 30% and increase revenue by about five times with help from IBM.

As part of IBM Venture Capital Group's effort to partner in emerging markets, the company revealed Wednesday that by working with a Chinese startup in the location-based services market it has helped the company grow its customer base by 30% and increase revenue by about five times.

IBM began working with Lingtu, a provider of digital mapping and location-based services, in 2003, and used its relationship with regional venture capital firms and other businesses to help Lingtu expand its reach in China and other global markets, says Drew Clark, director of emerging market strategies for the IBM Venture Capital Group.

The effort is part of a strategy IBM began in 1999 when it exited the applications software business and redirected its efforts to build revenue by working with an ecosystem of partners to expand its hardware and services business.

A specific focus for IBM is the emerging countries of Brazil, China, India, and Russia, with a particular emphasis on China, which is the largest and fastest growing market, Clark says.

"China increasing is turning out to be a source of great innovation," he says. "And this innovation is not just about products, but innovation in new business models to use and deploy the technology."

Working with Shanghai-based venture capital firm Gobi Partners, which with IBM has also made limited monetary investments, IBM learned about Lingtu. Lingtu had acquired an exclusive license from the Chinese government to create a mapping database of more than 300 cities in China. That database has been used to create offerings that include personal navigation systems, mobile navigation and location-based services, online map search, and local search services.

IBM assisted Lingtu in building an infrastructure based on IBM technology, and IBM introduced the company to one of its largest customers in the region, China Unicom. With support from IBM's sales consultants, Lingtu won a contract to supply its services to China Unicom in five Chinese provinces. Since that time Lingtu has increased its revenue from several thousand Yuan Ren Mi (RMB) to more than 20 million RMB, or about $2.5 million U.S. dollars.

The Lingtu effort is typical of how IBM likes to direct its efforts to build new relationships with startup companies, Clark says. Rather than invest directly in an equity position with the companies, IBM works with local venture capital firms and with its other customers and partners to create new business opportunities.

"We trust our relationships with the venture capital firms and their judgment on the companies they fund," Clark says. "That lines up with our expertise in knowing how to go to market, our extensive network of enterprise customers, and making the introductions as well as integration of their technologies."

In China, IBM Venture Capital Group has established relationships with more than 250 startups in China over the past 18 months, he says. Overall IBM has worked with more than 1,000 venture capital-based startups in the past two years.

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