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| Subject: ERG funds its own research and development activities | |
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Author: & licenses its technology to othercorporations(equity interest) |
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Date Posted: Monday, February 10, 04:49:41am http://www.noie.gov.au/projects/casestudies/ict/erg.htm ------------------------------------------------------------ When commuters in Hong Kong walk out of their rail stations to fumble for change, they could give thanks to a global smart based in Australia. ------------------------------------------------------------ ERG, the second largest player in the fast-growing global market for automated fare collection, or mass-transit ticketing systems, is well positioned to build on its success in Hong Kong and scores of other cities, driving the company’s sales at an impressive 40 per cent compound annual growth rate. ------------------------------------------------------------ In a move to focus the company on smart cards in transit systems and the development of multiple- application smart cards, ERG recently sold off its telecommunications business which manufactured mobile phone base stations and exited an alliance with Motorola. The strong emphasis on smart card ticketing positions the company in a market that is expected to grow at 20 per cent per annum as cities adopt the technology for mass transit. ------------------------------------------------------------ ERG, based in Perth in Western Australia, operates globally with 18 offices in 13 countries. It employs around 1,000 staff including contractors. The company is capitalised at around $1 billion, which makes it one of Australia’s largest technology companies. Its two main operating divisions are ERG Transit Systems and ERG Card Systems. ERG Transit Systems is a major player in automated fare collection (AFC) while its Card Systems division works closely with the AFC business to develop smart card technology for transit applications. ------------------------------------------------------------ One standout example is the Octopus smart card system in Hong Kong, designed and installed by ERG for Creative Star, a joint venture of six transport operators in Hong Kong. Millions of Octopus cards are actively used by commuters on all major Hong Kong transit operations including heavy rail, light rail, underground trains, buses, peak trams and ferries. The cards can also be used at 7-Eleven convenience stores, Maxims Fast Foods, Starbucks, Wilson Parking, public telephones, parking meters, public leisure facilities and more than 3,000 vending machines. ------------------------------------------------------------ Ian Allen, the chief financial officer at ERG, says spending on research and development is extremely important for the type of industry ERG operates in. “We have spent $300 million over the past ten years on R&D,” he says. “Typically this represents between 8 to 13 per cent of group turnover and at some times it has been as high as 19 per cent per annum.” ------------------------------------------------------------ The total spend on research and development in the last financial year was $58.4 million, up from $14.5 million in the previous year. This was a result of the ramp-up of operations to accommodate the new contracts in Rome, Singapore and San Francisco. ------------------------------------------------------------ ERG’s core intellectual property is MASS (Multiple Application Smart card Solution), which is an evolution of the Hong Kong Octopus system developed in 1997. When ERG won the Hong Kong contract it didn’t have the technology in place to provide the solution, so the Octopus system was developed from scratch. “This is when our R&D spend really peaked,” Allen says. ------------------------------------------------------------ Rob Noble, the chief executive of Creative Star, says the organisation is pleased with the security and reliability of ERG’s system. “It is the most advanced contactless smart card system in the world,” he says. “A huge number of transactions get processed overnight and we are taking huge volumes. It has a proven capacity to handle up to ten million.” ------------------------------------------------------------ ERG funds its own research and development activities and licenses its technology to other corporations, although usually only to those in which it has an equity interest. ------------------------------------------------------------ Allen says that having highly educated employees is critical for ERG’s business. “Of our 1,000 employees, about 90 per cent are software engineers and technology consultants or hold other forms of tertiary qualifications,” he says. Australia’s highly educated workforce is a key advantage. “We have a multi-national workforce and source skills from offshore if needed,” he says. “For example, at the moment we have many employees from India and the Philippines.” ------------------------------------------------------------ ERG offers a share option plan to its employees when they join. “After the shares are granted they cannot trade them for two years,” Allen says. “Employees own around 5 per cent of the company and the plan has been a good incentive for attracting and retaining staff.” ------------------------------------------------------------ The Asian market is ERG’s second most important after Europe. “Some countries leap-frog technologies and Asia has done this in several areas such as in its take-up of mobile phones and in Hong Kong with its adoption of smart cards for its transport applications,” Allen says. “In Hong Kong, 7.2 million smart cards have been issued and 6.5 million transactions take place using them every day.” ------------------------------------------------------------ ERG has won a number of major contracts in recent years and has bid for numerous new transit projects including in Bordeaux, Gothenburg, Oslo, Montreal, Rio de Janeiro and Seattle. It also plans to bid for contracts in Ankara, Atlanta, Berlin, Guadalajara, Lisbon, the Netherlands, Paris and Washington D.C. Management has targeted a 60 to 70 per cent success rate and has also identified 25 contracts to be tendered globally over the next six months to two years. ------------------------------------------------------------ To assist with its business, ERG has received some government support over the past five years. “In this time we’ve received about $5 million from the government.” Allen says. “To receive the grant, we have to demonstrate a number of things including our export capabilities. This has not been a problem as around 60 to 70 per cent of our revenues are generated overseas.” ------------------------------------------------------------ Allen says one of the challenges facing ERG is handling its growth rate. ------------------------------------------------------------ “We have a minimum annual growth target of 20 per cent but our compound annual growth rate is around 40 per cent,” Allen says. “How to handle this growth rate is a challenge and we have approached it by upgrading management and making sure we have access to capital to allow our expansion.” ------------------------------------------------------------ Allen says ERG is happy to keep its headquarters in Australia. “Australia has a great lifestyle and Australians have a good ‘can do’ attitude,” he says. “They are also traditionally excellent innovators.” ------------------------------------------------------------ www.erg.com.au [ Next Thread | Previous Thread | Next Message | Previous Message ] |
| Subject | Author | Date |
| ERG’s core intellectual property is MASS (Multiple Application Smart card Solution), (NT) | evolution-Hong Kong Octopus system developed in 1997 | Monday, February 10, 04:51:30am |