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Linkages emerge between individuals, between companies, and between nations due
to geographic, cultural, linguistic, or ethnic connections. The effective use of linkages
is one of the most important success factors for developing a software export industry.
We will also return to the topic of linkages in the next chapter.
Linguistic linkages are illustrated by the success of India which is partly due to
English ¬‚uency in this former British colony. African francophone countries, such as
Morocco and Tunisia, are working for French customers. Companies from Arabic-
speaking Egypt and Jordan are working for clients in Saudi Arabia. Spanish-speaking
projects go to Costa Rica, Argentina, and Mexico. South Africa, where a very old
version of Dutch is spoken, is targeting Dutch clients for its call centers.
Geographic linkages can be used in the case of nearshore outsourcing. Mexico and
Canada have an edge over India in terms of their proximity to the USA. Eastern Europe
is a nearshore source for Germany. Indonesia or the Philippines are logical destinations
for Australia.
Diaspora linkages have been a powerful success factor. These linkages are a source
for knowledge and technology diffusion, they transfer capital and they create business
networks with their home countries. The Indians have made masterful use of these link-
ages. The non-resident Indians (NRIs) came to the USA for advanced education (such
as an MBA or engineering degree), stayed and rose to in¬‚uential positions in high-tech
companies. These NRIs became the biggest champions of offshoring. They were used
217 Building software industries in developing nations


by Indian IT providers to create contacts, to gain initial sales contacts, or acted as mar-
keting agents. About 80% of the Chinese professionals in Silicon Valley came ¬rst to do
either a master™s degree or PhD., typically in ¬elds like electrical engineering or com-
puter science. Together with the American-Born Chinese (ABCs), the new waves of
educated Chinese immigrants are establishing business links back to China.29


Quality of life
The quality of life in a location helps attract foreign clients. Equally important, it will
also help keep the best employees, the talent, from moving away or emigrating. The
American professor Richard Florida calls these people the “creative class” and argues
that locations need to have quality of life in order to draw them or keep them.30
Locations with high measures of quality of life have several common characteristics:
quality of place (natural, recreational, and lifestyle amenities), an abundant supply of
labor, and high levels of environmental quality.
In India, Bangalore has always been viewed as an attractive city. It used to be known
as the “Pensioner™s Paradise”, because ex-civil servants preferred to settle in its rela-
tively temperate climate. This relatively less hectic metropolis has been able to attract
software talent in large numbers. Bangalore is one of the few cities in India with pubs
and an interesting nightlife for Westerners. Other major Indian cities, such as Kolkata,
are less attractive. In order to attract foreign interest, Indonesian software company
Sigma established BaliCamp, pictured in Chapter 1, in the mountains of tropical island
Bali. The estate, located in the middle of rice ¬elds, has a swimming pool and resembles
a vacation resort more than a technology campus. But many developing countries have
not developed the quality of location and have seen some of their top talent leave and
have had dif¬culty attracting foreign activity. We know of Dutch managers, having to
stay in Dhaka, the capital of Bangladesh, who found the city unpleasant for a long stay.


Less important factors
In closing, after presenting eight factors which lead to success in building a software
export sector, we present two factors which we have found to be overvalued by many
observers: intellectual property rights protection and the health of domestic software
demand.
Most developing countries have very high piracy rates and poor enforcement of vio-
lators. For most offshore clients, piracy is not a key factor. The incredible growth of
software exports from high-piracy nations, such as India, China or Vietnam, shows the
irrelevance of this factor.31 Some have argued that piracy spurred development of local
software skills which otherwise would have been impossible, given the high prices of
Western software products. Piracy may have been an incentive for many companies in
developing nations to direct their attention to exports since they could not survive from
218 Other stakeholders


local sales. In the last decade, most developing nations have moved, somewhat grudg-
ingly, to take enforcement actions against the most egregious violators.
Some have argued that healthy domestic software demand is a key success factor for
an export industry. The premise in this argument is that easily accessible customers
help to grow and stimulate the software export industry. After all, domestic demand
can provide much-needed working capital, and helps companies to develop their
processes and technical skills to meet increasingly complicated requirements.
However, we do not see domestic demand as a key success factor. For example, India
developed a strong software industry relying on foreign demand with weak domestic
demand.32 Most smaller developing countries have insuf¬cient domestic demand to
spur the growth of a software export industry.
In fact, a healthy domestic market diverts attention of software companies from exports.
Mexico, Brazil, and South Africa have strong software industries with export potential,
but strong domestic demand led companies to focus their attention on their domestic mar-
kets: these are easier to sell to, they are often less demanding than ¬nicky foreign clients;
and ¬nally, they are often more pro¬table. The top 200 IT companies in Brazil had 2001
revenues of 2.1 billion USD, but less than 10% of that came from exports.33




Concluding lessons

Government™s greatest impact in building a software export industry is in two areas in which


it has clear strengths over marketplace forces: human capital, through investment in
science and technology education, and infrastructure, by creating technology parks.
National policy-makers are faced with four foci in exporting. Offering commodity


programming skills, attracting foreign technology companies to set up software R&D
centers locally, exporting software products, or skipping software and focusing on ITES.
Most smaller developing countries cannot focus on all these niches simultaneously, but
must choose one or two, or risk diluting their national focus.
There are eight principal factors which explain national software export successes. These


can be used as a framework for prescriptive policies and strategies. The eight factors
are: government vision and policy, wages and costs, human capital, the industry
(concentration, competition, and cooperation), capital, technological infrastructure,
linkages, and the quality of life.
11 Marketing of offshore services: the provider
perspective


While much of this book is written from the viewpoint of the consumer of offshore
work (the end-user), this chapter is written from the provider viewpoint. These are the
thousands of small- and medium-sized offshore companies (with a handful of large ones)
that are seeking to market their services to clients in roughly 20 wealthy, industrialized
nations, along with a smattering of clients in mid-tier nations that are also beginning to
shop abroad.
We estimate that there are now some 4000 companies in low-cost countries trying to
capture a piece of the rapidly growing offshore market. A handful of these service
providers, all Indian, have grown into huge and powerful multinational enterprises.
These global Indian ¬rms are competing with ¬rms from the industrialized nations and
are successfully attracting large customers. For small- and medium-sized Indian com-
panies however, growth has proven to be more dif¬cult.
The marketing of IT services is even more challenging if the offshore provider is not
from India. While IT professionals from most industrialized nations are well aware of
the “India brand,” providers from other nations are at a disadvantage. Prospective
clients may often not consider ¬rms from the emerging Tier-2 nations, such as Mexico,
the Czech Republic, or the Philippines. The invisibility is even more problematic for
the “infant” Tier-3 nations, such as Colombia, Egypt, Belarus, or Indonesia. However,
with the continued demand in the global markets for offshoring, there are many business
opportunities for small- and medium-sized providers, even for those from “unknown”
nations. All of this is quite new and little has been written about the providers™
marketing of offshore services, and thus addressing their needs is the objective of this
chapter.
The paradox of marketing a service, such as software development, is that the qual-
ity of the service can only be judged after the service is consumed. This makes the
marketing of services both different and more dif¬cult than the marketing of products.
Products can be described in technical terms, samples can be sent, and they can be
inspected and tested. It is much harder to describe the quality of software services.
While it may be easy for a potential customer to assess the quality of a bicycle made in
China, it is far harder to verify the abilities of a Chinese company to deliver quality
software services. The buyer cannot base the decision on price alone, as different
prices may also re¬‚ect different kinds of solutions or different levels of quality. Hence
220 Other stakeholders


building relationships of trust with potential customers becomes even more important,
since the trust becomes somewhat of a proxy for quality. But building this trusting rela-
tionship requires considerable efforts, especially if the provider is located thousands of
kilometers away.
Another dif¬culty in exporting IT services is the business culture of most of the service
provider ¬rms. Many IT service providers are founded by technical professionals, such as
engineers or programmers. Their passion is not marketing, but developing software and
offering IT services, often with an initial focus on the domestic market. These founders
tend to believe that being a company with smart programmers and a competitive price will
be suf¬cient in order to gain entry into a foreign market. Unfortunately, this is not the case
and many offshore providers have experienced marketing failures. In fact, all ¬rms can
expect to encounter problems before being rewarded with some success.
Perseverance is needed in international marketing. When IndiSpeed (an alias), a
medium-sized Indian software company, set up shop in The Netherlands, the Indian
business development manager said: “We do not want to do marketing now. First we
want to ¬nd some customers.” He did not realize that in order to ¬nd the ¬rst client, he
must do more than try to sell, and he must invest in marketing. He also did not realize
that this would cost a lot of time “ time his company could not afford. IndiSpeed had
to close down its Dutch sales of¬ce after just 1 year “ without ¬nding a single client.
Several other offshore providers, including EPAM, one of the largest Russian ¬rms,
operated of¬ces in Holland for a short period of time before closing them down. Even
Infosys, one of India™s most successful enterprises, was hasty: it opened a marketing
of¬ce in The Netherlands in 1994 and closed it a few years later “ thus missing the
business opportunities resulting from the Internet-hype, the Y2K problem, and the
introduction of the euro currency. Infosys returned again to Holland in 2001, and mar-
keting had to start over from scratch. Even providers from Western countries selling
offshore services face dif¬culties. An example is Xansa, a major British IT services
company with a large offshore delivery center in India. In 2003, it decided to pull out
of continental Europe after several years of disappointing business results trying to sell
its offshore services. Its CEO said: “In continental Europe we do not believe that
the marketplace is ready for large-scale outsourcing of IT and business processes that
leverage our offshore model.”1
It is unrealistic to believe that any sales manager, exploring a new market, will gener-
ate substantial amounts of business in just 1 or 2 years. Providers need to take a long-term
vision and should not give up too easily. They can learn from the long-term view of Indian
software giant TCS: it set up operations in the UK way back in 1975. After 30 years of
business development activities, it now has 3700 professionals working for British clients.
Providers seeking new international clients face a challenging marketplace: potential
clients take time to make a decision, they have many offshore providers to choose from,
but occasionally still need to be educated about the offshore option. Some ¬rms were
lucky when venturing into foreign countries without any market knowledge, perhaps
221 Marketing of offshore services: the provider perspective



A truly international outlook for exporting. They seek out world business opportunities as


they strive to enter selected overseas markets. As they build up an understanding of
international markets they develop an enthusiasm for exporting.
A long-term commitment to exporting. They realize that it takes time to export IT services


successfully and are prepared to wait several years for success. They are ready to allocate
¬nancial resources for selected target markets, they try to establish a foothold, and they
respond positively to problems. They also expect to make some mistakes before achieving
success.
Thorough research into new markets and development of export plans. They allocate a


signi¬cant part of their marketing budget to market research and marketing planning. They
gather as much relevant information as they can ¬rst hand. They make a number of planned
visits to target markets, either by participating in of¬cial trade missions or by attending trade
fairs. They try to study market needs, identify potential customers, assess the competition,
and determine their possible competitive advantages.
An international reputation for quality. Offering low-cost services is not suf¬cient. It is vital


to understand the needs of the client and adopt a total quality approach. It is important to
respond promptly and ef¬ciently to orders and enquiries, and to provide after-sales support if
needed.

Exhibit 11.1 Characteristics of companies successful in exporting IT services. Adapted from
a report by International Trade Center of UNCTAD2


because they had a ¬rst-mover advantage. However, the marketplace has matured rap-
idly, requiring newer providers to carefully prepare their marketing efforts.
What separates the successful exporters of services from those that fail? The four
success factors in Exhibit 11.1 capture the foundations for success: an international
outlook, long-term commitment, thorough research, and a reputation for quality.



Lessons from marketing strategies of the largest offshore providers

Small- and medium-sized companies can draw several useful lessons from the suc-
cessful experiences of the largest offshore providers. These largest IT services companies
are Indian, such as TCS, Infosys, Wipro, HCL Technologies, Patni and Satyam, and
are referred to as the Tier-1 offshore providers. A few of them have already exceeded rev-
enues of 1 billion USD. They offer a very broad range of services and have acquired
deep domain knowledge in speci¬c verticals (e.g. banking and ¬nance, insurance,
logistics, embedded systems, and telecom). Their growth has been so strong that they
now aspire to move into the ranks of the top global IT service providers. Some of these
¬rms employ tens of thousands of staff and attract the best available local talent. The
other important offshore countries, China and Russia, have not grown such large and
powerful ¬rms. As a matter of fact, several of the largest Indian companies have more
employees than the total employment in the Russian IT export sector.
222 Other stakeholders


The marketing and growth strategies of these Indian Tier-1 offshore providers have
proven themselves. Central to the Indian commercial successes has been proximity to
markets. The large ¬rms are represented in the major foreign markets and they hire pro-
fessional sales people, of which many are now local. An example is Wipro, one of the
premier Indian ¬rms. It has eight nearshore development centers in major markets and
some 30 global sales of¬ces. In addition, Wipro sometimes partners with local players,
such as Accenture, to win business. It services more than 300 clients.
In order to grow their business, initially, the large Indian vendors took advantage of the
in¬‚uential diaspora of Indians working in American and British ¬rms to establish rela-
tionships. The providers gradually gained their clients™ con¬dence by having Indian staff
working onsite and were increasingly able to shift more work offshore. Again, perse-
verance was required: it was only since 2002 that offshore work overtook onsite work.3
Today, these Tier-1 ¬rms are respected partners and have brand recognition among cor-
porate buyers. Their company names appear often in magazines and research reports.
There is hardly an IT manager in America that has not heard of TCS or Infosys by now.
Proximity to markets is helping the large Indian providers to anticipate market con-
ditions. Proximity to clients helps them anticipate client requirements and strengthen
relationships with clients. To be near their customers, these Indian ¬rms are even moving
into new territories. TCS opened its ¬rst Eastern European of¬ce in 2001 in Budapest,
Hungary. In 2004, Satyam established its largest global development center outside
India in Melbourne, Australia, and opened its ¬rst of¬ces in Canada and Hungary.
These large providers enjoy other advantages. Much of their new work is on a “follow
the client” basis, where the client, a multinational, decides at headquarters that their
subsidiaries in other countries (e.g. GE Netherlands) should also use the services of the
offshore provider. For companies such as Wipro or Infosys, the 10 largest clients are
responsible for up to 40% of all their revenues. And since customer satisfaction is high,
70% of their work comes from existing customers. These top tier ¬rms are also able to
achieve almost 30% higher billing rates than their Tier-2 Indian competitors.
The Tier-1 Indian ¬rms have yet to win the very large contracts (100“500 million
USD), or the mega-contracts that are still going to the likes of IBM or Accenture, but
this is probably only a question of time. The Indian ¬rms are also moving into the
growth markets of offshore IT-enabled services (ITES), such as call centers or back
of¬ce work. In addition, they are expanding their offerings up-market, by providing
various consulting services. For instance, Satyam started offering services in software
process improvement (e.g. Capability Maturity Model (CMM)). Other companies are
moving to more complex tasks of design and systems integration, or are offering infra-
structure management services.
In order to expand, Indian ¬rms have been buying foreign IT companies. Wipro
acquired the energy system division of American Management Systems. For 26 mil-
lion USD, it got 90 consultants and 50 existing client relationships. In 2004, it bought
American consulting company NerveWire for 18 million USD. Offshore service provider
223 Marketing of offshore services: the provider perspective


Cognizant bought Amsterdam-based Infopulse in 2003, which had clients in the ¬nan-
cial services industry in the Benelux and a staff of 40. The Tier-1 Indian companies are
expected to continue buying more foreign ¬rms since many have no shortage of funds.
TCS, Wipro, and Infosys have stock market valuations surpassing those of American
giants EDS and CSC (reminding us of the in¬‚ated valuations of dot.com companies a
few years before).
This overview of the successful Tier-1 Indian ¬rms provides several lessons for smaller
offshore rivals. There are several factors that contributed to the success from a marketing
and growth perspective. Smaller providers can emulate some of these factors as they
expand their international marketing. First, in spite of the so-called “death of distance,”
the Tier-1 ¬rms made sure to establish proximity to markets and clients. They have
numerous sales of¬ces and development centers outside of India. They built experience
and relationships by working at client sites or close to clients. Their professional staff
in Europe and America is increasingly hired locally, and is often lured from non-Indian
competitors. Second, the Indian ¬rms made use of their diaspora connections at
Western ¬rms. Third, these ¬rms are beginning to differentiate themselves through
specialization. Fourth, they are expanding their client base by buying their clients
through acquisitions and other business relationships. Fifth, much of their business is
through repeat customers, who are also, conveniently, large customers. Finally, Tier-1
¬rms have succeeded in developing brand recognition: their names are recognized by
decision-makers. They are no longer faceless foreign organizations.
Of course, smaller offshore providers cannot replicate all of these business practices.
They cannot have a presence in many foreign markets, or set up onshore development
sites, or purchase local companies. The next section is speci¬cally devoted to small- and
medium-sized companies. What do they need to do if they want to successfully export
their services? Finding new foreign clients, as depicted in Figure 11.1, consists of three




The first steps Local marketing Business
activities discussions


Create a realistic business
Generating client leads
plan Knowing your client
through various ways
Seek business intelligence types
Trade fairs
Define target markets Knowing your clients'
Seminars
Establishing a local base or cultures
Public relations
local representation Ethics and trust
Conducting a SWOT
analysis

Figure 11.1 Major phases when exploring new foreign markets.
224 Other stakeholders


major phases: conducting various preparatory ¬rst steps, followed by local marketing
activities in the selected country, followed by business discussions to close the deal.


The ¬rst steps

An aspiring company is ready to export its IT services: where does this offshore
provider begin its international marketing efforts?
First, the ¬rm must “know thyself.” Several questions should be asked, such as the
following: Is the management suf¬ciently experienced internationally? Can the staff
communicate effectively in English? Is the company culture client-responsive? What
can the company do to be accessible during the clients™ working hours many time
zones away? Is the staff technically experienced in critical areas? Are the project man-
agers experienced in delivery from afar, or can they learn? How can the ¬rm convince
potential customers it is capable of offering quality IT services?
The answers to these questions should spur some internal actions. To these actions
the ¬rm needs to add actions related to professionalism. Clients will not give serious
consideration to your ¬rm, an unknown foreign ¬rm, if it does not appear to be profes-
sional. Two of the factors that create the image of a “professional” ¬rm are quality
standards and, separately, a web site. The widespread adoption of ISO 9001 or CMM-
certi¬cations gave Indian ¬rms not only a marketing advantage over their rivals, but
also the leverage to raise their rates.
A very different kind of professionalism is the website, which should contain abundant
information on the company (pro¬le, history, vision, development centers, infrastructure,
and management pro¬le). In addition, it should describe the range of offshore services and
the speci¬c domain and technical knowledge. The site should also contain white papers,
clients™ testimonials, photographs of the facilities, and full contact details. Information
should be made available in the local languages of the target markets. The web site must
have a “Western” appearance since it is supposed to appeal to potential customers. We
have occasionally visited provider websites that are awful to the foreign taste.4
In parallel to these early actions, the ¬rst steps, which are described in this section,
include the creation of a business plan, seeking business intelligence, de¬ning poten-
tial markets, and discussing market entry strategies. In addition, working through a
SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is useful in order to
assess the strengths and weaknesses of the company in relation to the opportunities and
threats in the market.

Creating a realistic business plan
Breaking into new markets requires a strategic approach and detailed preparation.
Therefore, it is essential to develop a business plan, which considers major marketing
factors and tasks within realistic budget constraints.
225 Marketing of offshore services: the provider perspective


Successful offshore providers start on a small scale and build up their business grad-
ually. In their business plans, they ¬rst identify the types of offshore services required
by the market. Then, after assessing the competition, they de¬ne a small number of tar-
get markets where they feel that they have business opportunities. The companies then
investigate the best ways to enter these target markets. Over time, the business plans
are updated and the marketing results are measured and compared to the original plan,
drawing lessons in the process.
Given the long lead time before any successful international sales are made, the
business plan needs to include a harshly realistic assessment of ¬nancial resources.
Companies are often too optimistic about their sales predictions and the length of time
they will need to generate signi¬cant contracts. It may also be acceptable to lose on the

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