Advices to company owners
Last week I had a discussion with several companies’ owners from China when they attended my executive seminar at CMU. An owner asked: “We want to expand our business to provide Information Technology (IT) services to larger global companies. However it is very difficult as they require us to provide so much paper works. Is there a better way?”
I explained: “What do you think global companies feel about working with local companies like yours? There are so many risks since they do not know you. They have no information about your company so they have to ask for a lot of paper works to make sure that they are dealing with a professional company and not a small amateur company. That is why the size of company is very important. If your company is having less than a thousand employees, you may not have much chance. Your competitors such as Infosys, TCS, Wipro, Genpact, and HCl, all have hundred thousand software workers. Their big size is a guarantee that they are stable and will stay in business for a long time.”
Another owner complained: “Even we have met their requirements but global companies only gave us small projects that did not worth much. How do we increase the business and get larger contract?”
I explained: “To compete in this business, you need to have patient. No global companies would outsource big projects or large applications to a first-time service company. It is too risky so the first few projects are always small because they use them to determine the skills and capability of the new supplier. As long as you can deliver what they need within time, cost, and quality then they will continue the business with larger contracts. Although most global companies already have business with other suppliers; they always evaluate new suppliers to make sure that they have several to choose. It also reduces their risk of over-reliance on only a few suppliers.”
“Many companies often have high expectation when working with larger global companies. If they put in a lot of efforts and paper works to be selected as suppliers, they want big contract as soon as possible. They may not know that big project could overwhelm them with many things that they do not know. Instead of starting small to learn and over time build better relationships, some are eager to get big contract as it pays more but they often fail. To integrate projects into IT systems of large global companies, you need to understand the way they do business because each company operates differently. Without knowing it, you may make mistakes. If your project fails, you will never have second chance. The failure result will also be known among other companies and that could be the end of your expand into global market.”
“The question you should ask is why would large global companies want to work with smaller companies? The answer is simple: Global companies need the innovation and technology from smaller companies because they do not have those skills. Smaller companies often have certain domain expertise or new technology. For example, today mobile applications and tablet applications are “Hot” and global companies need to have many apps developed quickly. They are looking for new suppliers who can deliver them because other large outsourcing suppliers may NOT have these skills. Today, India’s companies have NOT been able to dominate the mobile area yet because they cannot change fast. Therefore it opens new opportunity to smaller companies who have that expertise. If you look at the mobile domain area, 75% of the contracts did not go to the top India companies but to hundreds of smaller companies all over the world. In this competitive market, new skills in emerging technology are very important. Small companies are more aggressive and can implement new things faster than bigger companies. Their productivity and creativity give them competitive advantage.”
An owner asked: “Beside these special skills and technology, what else do we need to succeed?
I answered: “Communication is very important in global business. The reason India was so successful in IT outsourcing because their workers can speak English very well. This is a disadvantage for Chinese companies. Some of you may speak English well; your Sale and Marketing people may speak English well but if your software developers and testers do not speak English well then you will have problems. In outsourcing business developers need to interact with users all the time. Communication is also a key factor that global company will evaluate new suppliers before engaging with them. A lot of people often think low cost is the advantage but that was ten years ago. Today the rule has changed from low cost to high skills. Most large companies outsourced projects based on their skill needs because they do not have those skills. To compete for business, you have to demonstrate that you have the skills to perform certain thing first and be very good at it. Cost is something that can be negotiated as part of the contract later. If you do not have the skills that they need, they do not even talk to you.”
Another person asked: “What else do we need to succeed in this global business?”
I explained: “Traditionally smaller companies often contact the IT organization of the global companies to discuss business. That is a mistake as IT organization or CIO often does NOT make outsourcing decision. You need to look beyond the IT group or the CIO’s office. What you need is to convince the business leaders and the procurement people. This is a major challenge as many small companies do not have the skills to communicate with the top management of large global companies. You need “special people” who can communicate in this business environment, people who have good reputation, someone who was former executive to represent your company so he can instill confidence in other executives. Executives will talk with other executives, not technical people. This is where professional consultants may be able to help.”
“In this type of executive meetings, you must focus on business values which are important to other executives but it has to go beyond cost. Do NOT use cost as the advantage as you may easily get undercut by other established competitors. They can reduce their cost to eliminate you from getting into business with their customers. Instead you must focus on something such as your special skills, your expertise in certain technology that other competitors may not have.”
An owner said: “That is something we do not know but what technology and skills that my competitors may not have?”
I answered: “You must look at the emerging technologies and train your workers on it. Today coding and testing are no longer a competitive business. Indian companies have hundred thousand of these skilled workers already. Today cost is no longer a competitive business. Established and large Indian companies can “undercut” any price to keep anyone from getting into their business. The best way is to anticipate coming technology trends and prepare for it. Today Mobile application development is “Hot” as it can be applied to many areas. Demand on this area is still growing but this is an area that many established companies are working on it and competition is fierce. However, you may go beyond that into new emerging area such as Big Data analytics and Business Intelligence. Today few companies have these skills but it requires investment in training for your workers. If you have special skills that few companies have then global business is within your reach. If you have these skills, you will be surprised of how many global companies want to work with you.”
“To expand from local to global business and get bigger contracts you need to have something that meets customers’ needs. You must use your strengths in innovation, domain expertise, skills, productivity rather than something that others already have such as low cost or low testing skills. You must compete based on your strengths not on your competitors’ strengths. You must have a global strategy to lead you to succeed. It may be tough but it is the best way to compete in the global business.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
