How to turn our telematics world leaders into market leaders

An alliance aimed at making New Zealand's telematics companies world market leaders has led to two members merging to boost their scale.

International Telematics Holdings and Imarda will merge, pending shareholder approval, and form a new entity, Coretex, from July. The aim is to speed up expansion into the US telematics market.

Telematics involves GPS monitoring of anything that moves, with early adoption among truck fleets and car insurers and the market is expected to grow from 14.7 million vehicles being monitored in 2014 to 37.9 million by 2020.

The two merging companies are part of a six-member telematics alliance set up last year under Callaghan Innovation to foster collaboration on research and development and global competitiveness.

Imarda chief executive and co-founder Selwyn Pellett said the merger would have happened but not as fast without the alliance, which had fostered a high level of trust between members.

The other Kiwi companies involved in the alliance include Blackhawk, Smartrak, Xlerate and Telematics Data Systems.

Mr Pellett said New Zealand companies are already world leaders in telematics technology but are not market leaders because they're better at inventing the technology than selling it and are typically too small to take on global markets in a significant way.

"Ultimately I'd like to see fewer companies, doing more," he said.

International Telematics, which is slightly larger, is not a direct competitor to Imarda and both are growing fast, says ITH chief executive Guy Colglazier who will run Coretex while Mr Pellett will be chairman.

ITH's 'ibright' brand targets refrigerated transport fleets in particular and is expanding in the US while Imarda's i360 platform has mainly attracted customers in the construction industry in Australia.

Mr Colglazier said there would be no redundancies from the merger as they wanted to gain talent, which is in short supply, rather than lose it.

"This is not two legacy companies coming together to squeeze costs. We're coming together to try to go faster," he said.

Mr Pellett said their real competitors are outside New Zealand and have scale, which is critical to maintaining competitive costs.

"New Zealand companies need to be bigger to win the corporates they are capable of winning at a technology level. The corporates don't want to own technology orphans and so to win the deals it requires evidence of a substantial balance sheet," he said.

There was a big opportunity in the next year to 18 months in the US with some technology changes coming and new compliance rules that gave "particular urgency to getting into that market in a substantial way.

"If we want to take market share, we have to bulk up now," Mr Pellett said.

Alliance chairman Andrew Radcliffe from Blackhawk said there was a trend in the global telematics industry for small to medium enterprises to be swallowed by bigger competitors and the collective wanted to avoid that happening to the small New Zealand companies.

"We're in a good position to be world leaders in this space. We realised if we work together we wouldn't fall off the cliff and are going to be better than the rest of the world. We're seeing that now with a lot of us getting really good growth," he said.

The opportunities worldwide are huge, with telematics an early application for the so-called 'Internet of Things', where various devices are interconnected. An estimated 50 billion devices and 8 billion people could be connected by 2050, Mr Radcliffe said.

"There is a tsunami rolling over the top of us with the guys in telematics in the best seat to move forward with the Internet of Things. We're little guys trying to pull together to do something a bit special and carve out a niche," he said.

The criteria for joining the alliance includes being export focused and willing to share knowledge and market insights. That doesn't sit comfortably with everyone and listed company Eroad, which like ITH sells technology to manage road user charges and other technology-based services for trucks, was one of the original 10 alliance members to leave before its initial public offering.

Most of the telematics companies are developing 60-70% of the same technology with the remaining unique 30% coming from their intimate knowledge of specialty market segments. The alliance is exploring buying the same basic technology from one member, which would save the others around $1 million in engineering costs in order to better focus on exploiting the bit they do differently, Radcliffe said.

Other collaborative ideas on the table include shared research and development and joint global marketing. Other mergers could also be further down the track, he said.

Another five to 10 Kiwi companies are about to be invited to join the alliance, including those selling technology that connects to telematics, such as sensors.

BusinessDesk receives funding from Callaghan Innovation to assist reporting the commercialisation of innovation.

(BusinessDesk)