Choosing the right market (pt 2)

You’ve made a preliminary market selection based on sound criteria. Like all major decisions it’s important to confirm it is the right choice. Here are some further factors to consider.

How competitive is the market?

The tech industry is global and your competitors can sell anywhere in the world. Understanding the strengths of the competition in your target market is one of the keys to having a successful entry. Is there a local player who is well respected and attracts considerable customer loyalty (e.g. SAP in Germany)? Alternatively, are there many vendors in the market or just a few? Do vendors go to market directly or is it their partners who own the customer (if so, then the partners are potential competitors)? In each of these cases the market dynamics will be different so a different approach will be required to establish your unique position in the market. The question you should answer prior to market entry is how easy will it be for us to beat the competition?

With start up and scale up companies, there is often a view that our offer is unique, so therefore we do not have a true competitor. This may be factually accurate, but will your potential customer see it that way? The customer will be looking at their business problem and which suppliers might solve it. So, assuming that your potential customers regard the business problem which you solve as one that they need to solve, then your competitors are whoever has customer mindshare with respect to the problem.

Doing your research as to the nature of the competition prior to market entry means you will have a better idea of what to expect in the market, leading to faster market acceptance of your offer.

What is the cost of doing business?

There are several factors involved in determining the answer to this. Here are six elements of cost that are often hidden costs but need to be considered.

1. People and premises

The cost of people and premises vary according to country and, in larger countries, within the country. Costs of people are not just the wage costs. Different countries have different requirements on holiday entitlement or the amount of notice required to terminate an employment. Do you need to be in the centre of a major city, or are other locations acceptable?

While none of these costs are likely to be a deal breaker on entering a new market, they should be factored into the business plan, so that the plan is fully resourced.

2. Law and policy

The legal and regulatory environment differs from country to country. This can provide significant barriers to the acceptance of your product. For example, certain features of Microsoft’s Office365 product are not available in Germany as they run the risk of violating Germany’s very strict personal data regulations. It is essential to check that there are no legal hurdles to the use of your software in the target market, as this can be a major barrier to entry.

Similar variations exist in the requirements of setting up a legal entity. Many countries require a non-trivial capital deposit in the new company. Again, this is unlikely to be a deal breaker, but needs to be factored into the business plan.

Government policies vary from country to country as do the incentives to either attract foreign software companies or support local ones. For example, the French government actively supports home grown software companies. Other countries provide tax breaks (e.g. Singapore) and entrepreneur routes to citizenship (e.g. Portugal) to encourage foreign software companies to set up business and employ local staff.

3. Business culture fit - doing business with foreigners

It is a natural human trait to prefer to do business with local suppliers. The degree to which this affects your ability to do business in a new market varies according to how open the market is to non-national companies (e.g. by contrast the UK is very open, France much less so) and the length of time it takes to establish a ‘know, like and trust’ relationship within the culture. This depends on where the culture is on the spectrum between transactional relationships and trust relationships. A useful contrast here is between the US – where business relationships are largely transactional and so the issue is does your offer solve my problem – and China where business relationships are entirely relational. In the US you can fly-in, pitch the offer and have an expectation of a reasonably quick decision whereas in China you will need to invest a long time building the relationship before you can realistically expect to sell.  Clearly, in societies that are heavily relational it makes sense to have local partners and local staff. 

4. In-person or online

The cost of doing business is impacted by the cultural expectations of doing business in- person or on-line. For example, in the US and UK, it is quite acceptable to contact customers and partners through a combination of telephone calls and emails and have virtual meetings while both parties are qualifying each other to decide if there is common ground for a purchase or a partnership. This may extend all the way to doing online product demonstrations and evaluations. A face to face meeting is expected later in the sales process to show commitment to the customer/partner.

While the pandemic of 2020 has accelerated the move towards greater use of virtual meetings, in many European and Asian countries business is still expected to be done face to face. Initial phone calls or emails are used to schedule a face to face meeting at which the offer would be presented. Typically, demonstrations and evaluations would also be done face to face.

5. Resourcing the first meeting

Availability of technical pre-sales staff is often a significant bottleneck to growth and therefore there is significant organizational pressure to ensure they only attend meetings where their presence is considered essential.

Given this, it is necessary to know at what stage in the sales process you should involve them. This is going to depend on the business culture of the target market. In the US, for example, customers and partners expect the sales approach to be led with business value propositions so technical pre-sales will engage later in the sales process. By way of contrast, in Germany the product’s technical merits will be high on the agenda for the first meeting so early technical pre-sales involvement will be a key part of building credibility.

6. Localization

In some countries where the English language is not native, such as in the Nordics and Singapore English is the business language and it is acceptable to offer the English language version of the software. These regions tend to be the exception. In most countries where English is not native, even if English is generally understood, the software has to be localized – which can add considerable cost.