Cracking the Outsourcing Market

Successful entry into U.S. markets is difficult for outsourcing companies operating within North America. For call center and business process outsourcing (BPO) firms seeking to gain initial market entry or to expand their market share from offshore locations, it is even tougher.

The steps to market entry presented here focus on how to avoid the most common pitfalls made by information technology enabled services (ITES) companies in India and Pakistan, but are relevant to domestic companies and those from other international outsourcing destinations.

Vicious Circle

Firms that do not properly execute one of the four steps outlined below may still survive, especially if they can find clients willing to invest in training and institution-building efforts to strengthen an outsourcer’s capacity to implement projects.

However, instead a vicious circle often results. Companies that cannot mount effective marketing campaigns also find that their services do not meet client standards.

Companies with underfunded and poorly implemented marketing efforts find it harder to acquire clients. Once they acquire clients, it is harder to retain them. They end up with the clients that nobody else wants, or no clients at all.

Standard practice at small and mid-size software firms and call centers in both India and Pakistan is for the chief executive to be responsible for all of the following:

• Obtaining clients;
• Preparing scopes of work (SOW);
• Directing the implementation of SOWs;
• Managing the handover of deliverables to clients; and
• Obtaining new projects and new clients.

Whereas CEOs may hire local offshore assistants to help with sales and marketing, they are generally starved of resources to meet their sales and marketing responsibilities, and they are consequently unable to do so.

There are two common variations on this theme.

The first variation is to use friends of the owner who live in Western markets to help with sales and marketing. The second entails organizing sales visits to Western markets. Neither variation has been found to produce positive results on a consistent basis.

Owners’ Friends

Friends of the owner who are already living in the U.S., UK or Canada may be designated as sales representatives and compensated on a 100 percent commission basis for work that passes through their offices.

Although well-intentioned, these representatives rarely bring value to the relationship besides serving as an answering service. Their use can raise warning signs to potential clients that they are dealing with a company that is attempting to appear to be something that it is not.

Owners’ friends usually lack sufficient working experience to be able to contribute to SOW development and quality assurance (QA).

Without sizable marketing budgets or the authority to negotiate binding agreements, they become liabilities.

American clients may fear that an offshore IT facility that lists a North American representative will not provide the same value for money as a facility that operates directly from their home base overseas.

Sales Trips

Some smaller companies in India organizesales trips to the U.S. or UK as a reward forfavored employees, says Kurian James, CEO of the ManipalInformatics call center and the CTO of the software firm Zeta CyberSolutions in South India.

“Most unorganized sales efforts involve sending oneperson from India to the U.S. for a few months. It turns out to be ajunket for the guy from India. The guy usually doesn’t have a plan,doesn’t focus on one industry segment or geographical area, spends afortune and then lays the blame for lack of performance on someone elsewhen he returns,” he explains.

James’ advice is to either buy a large but stumbling firm in the West and shift the work gradually offshore, or to hire Western salespeople and monitor them to make sure they are not goofing around. Then expect results, he says, but only after a reasonable time.

Market Entry Strategies

Four strategies that need to be pursued as part of market entry:

• Secure a brand;
• Define service offerings;
• Decide on target markets; and
• Develop a marketing plan and budget.

To save money and reduce risk, those four steps should ideally be undertaken before any facility is built or operations staff are hired.

Conventional wisdom for domestic U.S.-based high-tech firms dictates that sales and marketing budgets should receive slightly less than half of all funds raised to support a start-up operation.

The Mitchell Rule

A different rule is needed for non-U.S. based firms, which for rhetorical purposes is known as the “Mitchell Rule.” It holds that in order to achieve escape velocity, IT and IT-enabled services companies from competitive-labor destinations outside the U.S. need to raise twice the amount of investment funds for marketing and sales activities than for all other activities combined.

The availability of funds is neither the sole nor the most important initial factor determining the outcome of marketing efforts.

Entrepreneurs in a boot-strapping mode usually go through each of the four market-entry strategies prior to attracting the full amount of venture capital needed to make their enterprises a success.