Entering Foreign Markets in the Software Industry – 2
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.
This series of posts discusses how to manage the business model when planning to enter foreign markets in the software industry.
The posts exclusively deal with B2B software business models requiring sales and support people in the field and thus some sort of local operation in the individual markets.
Will the channels change as we go global?
However, this is where many software companies make their first and biggest mistake.
Most software companies have built a successful business domestically by serving their customers directly. As they go global they change the channel from direct to indirect.
The issue is that they don’t realize the requirements for fundamental changes in the business models and they don’t realize that independent channel partners cannot be treated like their own sales force.
Please see our whitepaper “The Software Partner Channel in a Business Model Context” and “The Software Partner Channel and the Customer Value Propositions” for a full explanation of the issues arising from using independent channel partners as your Go-to-Market approach.
This series of posts assumes that we use the same channel approach globally as we use domestically.
Will the types of revenue streams change as we enter foreign markets?
Unless we change the business model (the channel, the value proposition and the customer relationships) we should maintain the same types of revenue streams we enjoy domestically in new foreign markets. Forces outside our business model may provide us with opportunities for asking higher prices or force us to accept lower prices, but the revenue architecture should remain the same.
Will the key activities change as we enter foreign markets?
In principle no, but we will have to deal with longer chains of commands and different market requirements, competitive challenges and languages. Localization issues will need to be included in our product management, planning and development activities.
I will get back to this later in a future blog post.
Will the key resources change as we go global?
In principle no, but again we need to have the resources to deal with a larger market and a bigger variety in market requirements, competitive challenges and languages. Mastering the English language will become a requirement in all corners of the organization as we shift our internal language to English.
The more markets we have to serve and the longer the command lines are the more we need structure and well defined processes. We have to shift the balance from rapid agility towards reliable structures and processes.
Will the key partners change as we go global?
In principle no, but we may need to replicate some of our key partnerships in the markets where we choose to operate.
As we expand globally it becomes important to show up on the radar of the industry analysts. We may need new sources for market intelligence and we may need new partners for certification purposes. We will most like have such key partners in our domestic market, but they may not extend into the new markets where we choose to operate.
Will the cost change as we go global?
Entering new markets requires changes in our tactical organization and investments in building a presence in the new market. Serving foreign markets requires staff with different qualifications, additions to all our organizational units and budgets for travelling.
Some of these changes and investments must be made up front and equity funded, as it is highly uncertain when revenue will begin to flow. For most B2B software companies requiring people in the field, the time to first revenue is typically no less than 12-18 months.
Many software companies grossly underestimate the magnitude of investments required and are also completely unprepared for the unpredictability associated with entering new markets. It always amazes me that software companies, having spent 10-15 years getting a reasonable market share domestically, embark on entering 5 new markets simultaneously with a different business model and with a half-hearted commitment. No wonder they fall flat on their face.
Other Posts in this Series
Entering Foreign Markets in the Software Industry – Part 1
Entering Foreign Markets in the Software Industry – Part 3