Entering Foreign Markets in the Software Industry – 1

Posted May 7, 2014

The software industry is by nature a global industry.

As the software industry is blessed with low cost of entry and simple value chains, international growth comes much easier in the software industry than in most other industries.

Starting a software company can be done with very little investment. Bringing software to international markets requires no investments in factories and logistics infrastructure. A software business model is primarily dominated by development and sales. This structure enjoys tremendous economy of scale benefits, motivating software companies to grow globally as fast as possible.

As the mainstream customers always favour the market leaders, those software companies that do not make it in global market leadership are severely penalized. The global market leaders such as Microsoft, Oracle, AutoDesk, Adobe and SAP have made it virtually impossible to run a local business in competition with them. Customers prefer to be served by the globally recognized brands rather than by the smaller, local brands irrespective of whether their products are on par with those of the giants.

Thus, the rule of thumb in the software industry seems to be “grow globally or die.”

Although growing a software company globally is easier than for most other types of companies, many still fall flat on their faces when trying.

This series of posts provides some guidelines, which should help software companies become more successful with their international growth activities.

What is different abroad?

Software companies who are successful in their domestic markets should take a close look at their business model and ask:

“What changes when we go global?”

The answer should be:

“As little as possible!”

Let’s take a look at each of the business model building blocks.

Customers

Will the ideal customer profile change as we enter foreign markets?

Hopefully not.

Changes to the customer segments we choose to address globally as opposed to locally may require reengineering the entire business model. That is a huge endeavour and introduces increased uncertainty and risk. Entering foreign markets may mean that we become even more specific in our ideal customer profile definition and start out with a more narrow focus on just the best-validated customer segments.

Value Propositions

Will the value propositions change as we enter foreign markets?

Hopefully not.

Changing the value propositions will also require complete reengineering of the entire business model. Again we may need to be even more specific in spelling out how we provide value to the best-validated customer segments.

Customer Relationships

Will the customer relationships change as we go global?

Hopefully not.

Why should we change the way we find, win, make, keep and grow customers in Germany from the way we do it the Netherlands? By all means Germany is not the Netherlands, but the generic approach should remain the same for all markets.