A majority of Indian IT exports, 61%, ends up in the United States market, though Europe and the Asia-Pacific region offer a bigger opportunity—a market worth over $200 bn, lakhs of potential jobs, and fewer players. Here’s how Indian companies targeting new geographies can achieve the best business, legal and cultural fit

It’s a whole world out there. And it’s largely unexplored. Traditionally, nearly 65-70% of Indian IT services exports have been to the United States. That’s a lot of eggs in one basket and its fallout was most keenly felt as that basket rocked in the last two years of the downturn—Indian services exports rocked with it in tandem, almost quarter by quarter.

Most companies have become acutely aware of this. The larger exporters have been buffeted, the smaller companies even more so, as they are not only dependent on one key geography but on one or two key customers in that geography.

In the last two years, therefore, most companies have said they hoped to change their US-to-rest-of-the-world export ratio. Though overall exports to the US have fallen some in this period, not all companies have managed to make that shift. Apart from the natural barriers in addressing non-English-speaking geographies in particular, further discouragement came when the downturn hit European shores.

There are, however, other geographies well worth exploring—both English-speaking ones like Australia and Canada, and a host of non-English-speaking ones. And the downturn is probably a good time to begin.

Very briefly, here’s why—while the United States is the largest IT services market in the world and will remain so for quite some time, the others are also huge and can only be ignored at one’s own peril. For instance:

• Japan is the second-largest IT market in the world at $108 billion. Its total outsourcing market is estimated at $53.2 billion. Of the software services component, Indian companies have less than 0.5% of the marketshare.

• Language alone hasn’t been the key barrier. Even in English-speaking countries like Canada (the only big customer here is Nortel), Australia, the Netherlands and Sweden, Indian exporters have less than 1% of the marketshare.

• Together, Canada, Japan, France, Germany and Italy account for 27% of the global IT spend (Nasscom figures). Add China, Scandinavian countries and countries in the Asia-pacific region. Together, they account for a good one-third of the world’s IT services market.

• During the downturn, this potential market is more willing to outsource than ever before. There are pockets of resistance—some driven by growing unemployment in host countries, and some by an inability to make the mental shift to offshoring. But if ever offshoring has gained legitimacy and immediacy, it is now. And if ever there’s been a time to get a foot in the door in a new geography, today is it.

Go/No go
Which geography a company chooses to explore will depend on each company’s specific strengths. Entry strategies will, therefore, vary with each company, geography, vertical and even with the kind of services offering.

"Getting down on the table is the first step. And the toughest bit," says Srinjay Sengupta, AVP and regional manger of Europe for Infosys Technologies. He should know... he learnt it the hard way. Six years ago, when the company decided to first enter Europe, it sent Sengupta to London. Just like that. His brief was as vague as "go find prospects in London".

So London he went, and explored all avenues he could think of pretty much indiscriminately. He hit the phones; spoke to commission agents, PR agents and local SIs; if a prospect seemed possible and also had a presence in India, he got his top management to speak to the Indian counterparts, who then spoke to the L ondon counterparts. And he used whatever local India connections he could find. It wasn’t easy.

Today, of course, that approach has changed. The company still does all the same things but in a more discriminate and deliberate manner. The first step now is a pre-entry study of the market, which includes the state of its economy, the size of its outsourcing market, the propensity to offshore and local political conditions. "We no longer enter a market before studying it first," says Sengupta. Post the study, the company takes what is called a "Go/No Go" decision that depends on the country’s profile and the company’s own ability to service that profile. If the management decides on "Go", three to six months are spent in working out a country strategy. And then comes the first step in.

Foot in the door
The introduction—and often, that’s the key and must be tailored to each country’s business and social cultures. If the first contract is built on an Indian connection back home with the customer, things might be relatively easier. If not, and the geography is virgin territory to the company, then it often has to be as elaborately planned out.

Here’s why. There are key entry points to every geography. "In the US, you know analysts carry weight. You know that your potential customer will first check you out with his analysts. So you go to them first. Pitch the company, sell it to them, get referrals and half your entry work is done," says Sengupta. According to Vivek Paul, CEO, Wipro Technologies, "A listing on Nasdaq or the NYSE also really helps if a company can afford it. The progress of your company comes straight on your prospect’s desktop. Recall value, therefore, is very high and he can follow your progress and your figures."

But that doesn’t really work in Europe, where enterprises don’t put such a high premium on analyst briefings. Also, they don’t really appreciate the bull in the china shop approach, finding it too "Americanized and distasteful". When i-Flex Solutions went to Europe with its banking product Flexcube, it found that participating in and organizing industry events was a good starting point. Says i-Flex CEO (international operations and technology) R Ravishankar, "You have to find the banking circles—take part in their events and eventually organize some of your own. They will remember you better that way."

Sengupta agrees. "In continental Europe, you don’t just barge in, give a presentation and ask—so do you want to do business with us? That’s the American way. Europeans don’t like it. Subtlety and the down-played approach is key." So when Infosys decided to go to the continent, it announced its presence with a survey instead. It tied up with Germany’s leading daily and a local market research agency—the equivalent of IMRB in India—for a survey on CIOs’ willingness to outsource. The company’s name was all over the newspaper... the CIOs remembered that.

On the other hand, in Japan, neither approach works. Language is a big issue and the Japanese enterprise segment is extremely brand-conscious. When Mascot Systems entered Japan in 1997 for the first time, it started out with seven people. Nothing moved for a very long time. They couldn’t find too many local Japanese people to join them or find new prospects. Devdas Parakkal has been associated with the Japanese market for 12 years and was with TCS before he came to Mascot. He’s also fluent in Japanese. Now heading Mascot’s Japanese operations, Parakkal says, "The best entry strategy we found was to go to international MNCs or their branches located in Japan. They’re English-speaking and usually would have had some experience with outsourcing. They can make local decisions on outsourcing, but not big ones. So what you get are small-ticket orders which are, however, very prestigious. That’s the foot in the door because you can then use those names to approach local companies." Equally important, says Shreedhara Shetty, Wipro’s head in Japan, "is to pay attention to detail. Japanese companies are obsessed with detail. If you’re planning to do business there or set up a center, do your homework. Go with a clearly defined IP and value proposition."

Setting up shop in none of these geographies is difficult. And perhaps the easiest to do so in is Singap-ore. Most start out in Singapore with a one-man Rep Office (representative office) and take their time before expanding their base. But you can’t run an RO for more than 2-3 years and in any case, it is a very restricted role. Reps can undertake promotional and liaison activities on behalf of the parent company, but they cannot engage in "business activities". A Singapore RO, for instance, cannot close a deal—so all papers have to come from the Indian office on an Indian letterhead and have to be signed off from here. Setting up a subsidiary or a branch office has some catches. Says Shyam Kodavarthi, GM for business development at Sasken’s semiconductor business unit, "Each subsidiary has to have two directors, one of who has to be a natural citizen of Singapore. But compared to the rest of Apac, where a local partner is a must, setting up shop in Singapore is very easy."

Most importantly, says Kodavarthi, who’s had experience with setting up base in Singapore with his earlier employer, "Make it a point to find out about the local rules and follow them to the dot. To-the-dot." Several years ago, the offices of a large software exporter in Singapore were raided because the company was working out of a residential area. Breaking the rules—any rule—in Singapore, can be very expensive.

That first deal
No new geography is easy to break into. "And if the company’s top management doesn’t have the patience, there’s little point in trying," says Sengupta. The move from the introduction to the first deal can happen quickly—if you’re lucky. Mostly though, it can take a really long while. "In Japan," says Shetty, "patience is the key. Building relationships is extremely important. People will sign a deal with you not simply because you have a good proposition, but only if, in addition to that, they are comfortable with you."

So there are some do’s and don’ts of working that first deal. "In Japan, always carry a business card," says Mascot’s Parakkal. "It’s difficult to do business without that. Also, keep their cards in front of you throughout the meeting." Second, learn some basic etiquette on meetings. For instance, you need to know the exact hierarchy before you go to a meeting. The senior-most person has to be given that business card first. In all of Apac, Japan included, that’s also to be done with both hands. One-handed exchange is rude. Ruder still—taking that business card out of your back pocket wallet. "People can walk out on you for that," says Parakkal. In Singapore, an additional must is a tie. "And if the senior-most person walks out of the meeting for some reason, wind it up in five minutes," says Shetty. "Else, it’s considered rude."

Just as Japanese businessmen obsess over details, in Germany, the key is attention to specifics. "It’s important to take extensive notes in a meeting, for one," says Sengupta. "The client needs to know you’re paying attention to what he’s saying." Unlike the US, where relationships can be very brusque, the key in Europe," says Sengupta, "is networking. Don’t push that first deal too hard. Don’t sell a project or your company too aggressively. Be prepared to spend time with the customer in office, and out of it."

Digging the trenches
The first deal might come from pretty much anywhere. It may even be a prestigious but small order. Digging the trenches, however, requires a greater understanding of the market and a clear idea of which segment a company wants to concentrate on. It is key to identify countries, verticals and companies with a higher willingness to outsource and offshore. This is important for all segments, but is imperative for the financial services sector... for multiple reasons.

The banking and financial services sector is traditionally among the most conservative verticals anywhere in the world. More importantly, things like online banking are not only strategic but also critical to the sector’s core business. The fundamentals of outsourcing so far have been based on one simple axiom—outsource what is either strategic to you or critical to you. Do not outsource what is both strategic and critical. By its very nature, banking institutions have to flout that axiom when they outsource.

Which is why when i-Flex decided to target the US, it took a bit of a tangent—it first went to London. From there, it moved to the continent. And only last year, after 30% of all Flexcube installations had begun to come from Europe, did it turn toward the US market. The icing on the cake—London is the financial hub of Europe and a good gateway to the continent. The icing on that is that Germany is vying to be the financial hub of Europe and its financial institutions are opening their doors to outsourcers.

Positioning
Whichever country or vertical a company enters, a key issue is positioning. There is, of course, a default positioning that all Indian services companies have—"good but cheap". But it may not always work.

By and large, it will work where the difference in billing rates is high. Through most of Western Europe, billing rates for local workers can be between $120 and $150 an hour. In comparison, an Indian programmer based overseas is billed at about $60 an hour. In addition, a large portion of the project happens offshore in India at billing rates closer to $24. So yes, the cost proposition is quite unbeatable. In Germany, for instance, an Indian services provider could well do a job at less than 50% of the cost that a local vendor would quote.

But in countries where billing rate differences are not too high—Eastern Europe, Japan and through most of Apac, West Asia and Africa—a cost-based positioning can give you only a marginal advantage. A good example is Japan—the second-largest IT services market in the world. Two good case studies here are Wipro Technologies, which gets 6% of its export revenues from Japan, and Mascot Systems, which has also cut itself a nice slice here.

Because of some key peculiarities of this market, the more successful Indian companies here have positioned themselves on value. The peculiarities include an especially significant problem with the local language; the sate of the Japanese electronics industry, which is among the most advanced in the world; a slower rate of IT adoption; and a comparatively lower difference in billing rates.

When Wipro decided to enter Japan, it took a very focussed approach—the Japanese electronics market had a growing need for embedded software; Wipro had the expertise. More importantly, embedded software is a horizontal where local language capabilities are not key. The company has 120 people working in Japan at various sites, of which even today, only 15 are local Japanese employees. However, of the 700 people in India doing the offshore component of Japanese projects, about a 100 are trained in the language.

Says Shetty, "Before you open a center, the important thing is to do your homework and go with a clearly defined IP. And always try to have a support base locally. Remote management is not acceptable." The positioning was IP. The company carried that position when it targeted enterprises in Japan—65% of its Japanese revenues come from here now.

Says Mascot’s Parakkal, "In the Japanese market, all software—OS, databases, middleware and packages are largely from the US. They are in Japanese but it will be, for instance, the Japanese version of Windows 2000. By the time a new software is released in the US, and to the time the Japanese start using it, there can be a gap of as much as 20 years. The result—a lot of Indian and MNC IT services companies working in Japan use that as a differentiator." So Mascot Systems’ value proposition to its Japanese clients—"...specially to large customers interested in time to market, high technology solutions—a lot of this software was done in India. We know this software—be it WebSphere or eJV." Says Parakkal, "Indian programmers are early adopters of technology. It’s a real value proposition."

Finally, write that fine print
You can never over-define a service level agreement. What’s surprising is that a lot of small and medium IT companies don’t even bother to sign an SLA. They usually proceed on a purchase order that sets out the broad scope of the project. A couple of years ago, for instance, when a small Bangalore-based IT services company decided to do a maintenance project for an existing MNC client, it did a back-of-the-envelope calculation and assigned five people for onsite maintenance. That’s it. No project definition. No timing definition. No project scope. Quickly, it found that it was forced into committing more and more resources to the client’s site as the maintenance issues just seemed to grow endlessly. Till came a point when doing the project was no longer financially feasible. Both parties subsequently ended the contract.

So an SLA is important—for both parties. And a great deal of care has to be taken when committing to one, including on intermediate landmarks. "In Germany," says Sengupta, "the client would not only want to know what you’re going to do, but exactly how you’re going to do it. You have to take him through the process step by step." "In the Japanese market," adds Shetty, "schedule is sacrosanct. If you’ve committed to a time, the project must finish in time. A Japanese client may be willing to cut the scope of a project somewhat, but will never compromise on delivery dates."

The most fundamental question, though—when is the time to explore? And when is the time to consolidate on existing businesses? That’s a question most companies will have to answer for themselves.

Sarita Rani, with TV MahalingaM, in Bangalore Inputs from Shubendhu Parth in New Delhi

Page(s)   1  2  3  4  5  6  7  8