Choosing Foreign Markets in the Software Industry – 1
Entering a foreign market in the software industry is a very strategic decision. Finding, winning, making, keeping and growing customers in foreign countries requires establishing infrastructures, which can drive the marketing and sales processes as well as the implementation and support activities.
Customers in foreign markets will be reluctant to do business with us unless we can demonstrate a solid commitment for the long haul.
A competitive product is not enough.
A B2B software company with small market shares in many countries will suffer from economy of scale disadvantages until they have grown these market shares past the 20% mark in each market. The lion’s share of the value generation of B2B software takes place inside the foreign markets and not where the programmers of the software core are located.
This series of posts is an introduction to the selection process and to those sources of information, which can help software companies make informed decisions for entering foreign markets and thus prevent very expensive and sometimes “deadly” failures.
In Which Sequence?
The software industry is by nature a global industry.
Just make an inventory of the software you use personally and in your business. You will see that it comes from all over the world. If you look closer you will realize that a lot of the software products you use are based on other software products, which have even many more countries of origin. Hidden from the small print in the “about” note or the Software License Agreement (that none of us reads) we find the nationality of the people who actually wrote some or all of that software and the list of countries grows.
However, a Finnish software company using Estonian programmers or a piece of code written in New Zealand doesn’t make the Finnish company an international company. Selling the software or the services that the software enable as an independent brand in foreign markets is what we consider “internationalization.”
In my whitepaper “Entering Foreign Markets in the Software Industry” I explain why the software industry is global and why software companies in the long run cannot survive serving a local market only.
Most software companies are fully aware of this fact and one of the first questions we get in our consulting work for software companies is: “Which markets should I choose?” Over this series of posts, I will provide the framework for identifying and ranking those markets that most likely will provide the best profit/investment ratio in a 10-15 year perspective. What about the short term?
Entering foreign markets is not a strategy for short-term growth.
Entering foreign markets to stimulate short-term growth is bound to fail. As we describe below any ambition behind a global expansion strategy must be based by achieving market leadership.
Be systematic and patient: Rome wasn’t build in a day.
The Level of “Touch”
The software industry makes it possible to run business models with no or very low “touch” customer relationships. No or low touch refers to the absence of individual and physical contact with the [slider title=”customer”] Please note that customers and users are not the same. Customers always pay for a service, while users may not pay. Facebook have 1.2B users not paying for the service they receive. Facebook’s customers are primarily advertisers and Facebook must have local offices servicing these advertisers.[/slider]
No or low touch software (and Internet) based business models may not be concerned with internationalization in the traditional sense until they have saturated their English (or Chinese or Spanish) speaking markets. Having done so they have normally gained enough momentum and cash to take on other markets. This series of blog posts are not about the “no or low touch” business models that represent only a small fraction of the software industry.
These blog posts are about high and very high touch business models, where engaging with customers requires localized products, local marketing, sales and support infrastructure.
Such business models have long sales cycles (>6 months) and the “whole product” [slider title=”“whole product” ] A term invented by Regis McKenna: A whole product is a generic product (or core product) augmented by everything that is needed for the customer to have a compelling reason to buy. Source: http://en.wikipedia.org/wiki/Whole_product [/slider] is a typically a combination of our software, of other (software) products and of customer specific services. Such business models represent the vast majority of companies in the software industry.