Software Marketing Strategy for IT Outsourcing Firms in Vietnam - Assignment Example

 Software marketing strategy for IT outsourcing firms in Vietnam Country Overview According to the Gartner Group, the Vietnam economic and trade environment is suitable for the establishment of the software testing market. In less than eight years, the software testing market in India has produced more than $1 billion, and has produced more than 40,000 professional jobs. However, India has barely been able to penetrate the surface of a market which has a potential of more than 6.1 billion US dollars per year. It has been for years the recommendation of business consultants that companies should channel substantial sums of investments into information and communications technology, in the effort to develop and keep a competitive advantage. The momentum of this message has now become more prevalent during the advent of the global competition and in a business environment where change is the norm. These variables have brought about a forward thinking attitude among businesses, and compelled them to introduce new methods and practices to augment more productivity in operations. IT outsourcing is one of the new strategies, and it concerns itself with moving IT assets and resources to a third party.(Gilley and Rasheed,2000).In its purest form, outsourcing is merely taking a specific aspect of ones business, and contracting it out to agents.(Lacity and Hirschheim (1993). The term is probably best dealt with by Loh and Venkatraman,(1992) as the significant contribution of external suppliers in the physical and human resources associated with the extra or specific component of the IT infrastructure in the user organization.(p.9) The software testing markets survival is dependent upon a number of variables; government intervention, economic and political stability, protection of intellectual property rights, and IT graduates skilled in English. At present Vietnamese possessing high end software methods and automation technology, are more advanced than skills found in either China or India.This posture is being perpetuated by the establishment of training programs, to accommodate the large number of available young Vietnemese workers. The Hanoi University of Technology, signed a memorandum of Agreement with Microsoft to establish an IT research center. Bill Gates, in commenting on the wisdom of Microsofts involvement intimated that he had never met students who were so enthusiastic about the study of technology. At present professional skills amongst Vietnamese staffs in software testing is around six thousand persons, and this figure is close to only fifteen per cent of that found in India, this number will appreciably increase by 2011 to 25,000 plus.From the government’s perspective, there are talks afoot to form an IT triad with the Vietnamese Ministry of Education and Training, Hanoi University of Technology and Microsoft. The chief representative of Microsoft in Vietnam, Mr.Desriac, stated that he recognized the potential of Vietnam in the Software market when he met with Vietnamese government officials and businessmen, who are currently involved in the software industry. In 2007, the software industry in Vietnam, grossed more than $350 million, of this total more than $110 million was in exports.In The Vietnam software market, there are more than 750 companies, who provide jobs for a little more than 35,000 persons. The IT market in Vietnam today, is in a position parallel to that of where India was 20 years ago.While low labor costs is a feature which is inherent of the Vietnam IT business environment, the building and growth of the market can not and should not be based upon this item.This thought is offered, due to the siruations which currently beset India; the competitive nature of the employment market in India has resulted in a considerable amount of employee pirating, leaving some companies with vacancies which are not easily filled. The heated competition between firms and its impact upon the available labor pool, has culminated in rising labor costs. Additionally, the educational infrastructure is not producing the needed technical labor pool at a rate commensurate with the demand. One of the hallmarks of the Vietnamese system, must be its development and training of its human resource component. What is Segmentation According to Kotler ( ),Segmentation involves the analysis of groups of customers who have distinctive differences in demography, needs and behaviors to define the company’s market segment that it will compete in..(p.163). Market segmentation is a two-step process of: naming broad product markets, and segmenting those markets in order to select target markets. A market consist of a collection of likely customers who possess comparable needs and are committed to procure goods to accommodate those needs There are four basic types of market opportunities: Market Penetration, Market Development, Product Development, and Diversification.(See Appendix “A”) When one is approaching a mass market, it is important to break the mass down into two basic markets. These would be generic and product market. The market which will be dealt with here is generic, in that the customers whom will be targeted have similar needs, which can be satisfied in a variety of ways. Defining the Market In the effort to define potential market opportunities, a definition must be established which will be a tad outside one’s existing perimeters. Caution must be adhered too, not to state the definition so broad until your firm will not be capable of handling the demand which it will eventually generate.(See Appendix “B”) There are four guidance aspects by which a reasonable result can be achieved.(See Appendix “C”) The first of these aspects is what is the product type; IT Services To meet the customer needs; provide services external of core business Who are the customer segments; Companies, or B2B, and Where is the geographic location; United States Market Mapping   Considering the four types of market opportunities, this paper will concern itself with Market Development in the effort to increase sales by selling current Vietnam IT products into new markets. It has been the experience of many companies in Vietnam that success in market development, is closely aligned with the growth which was being enjoyed by companies in China and India. Of the two countires which are the prime IT locations in Asia, Vietnam possesses the capability of competitively demanding a lion’s share of the developing market The soft-ware industry in Vietnam is anticipating a five year growth rate of thirty five to forty percent. This will increase industry earnings from $800 million to one billion dollars per year. Concerted tracking on this course will catapult Vietnam into the top 15 countries in the area of outsourcing and export.(Vietnam, 2007) In the ensuing five to ten year period, India will not be able to produce a sufficient number of professional workers to absorb the projected work load, employee turnover rates in India are higher than in China or Vietnam.Also, the cost of hiring and maintaining an employee is less intensive in Vietnam than it is in India. In India, an engineer having at lest seven years of experience, will cost a company approximately $30,000 per annum. Take the same guy, place him in Vietnam, the rate dips to $800 to $1,000 per month (Tucci, 2008). Additionally, Vietnam is beginning to gain favor over India, because of Indias’ unstable political climate, and its heavy leaning toward corruption.The prevailing perception amongst many American Corporations is that Vietnam represents a much healthier business climate, at a cheaper price. Who specifies what While it is clear that the company itself makes the ultimate decision whether they will participate in outsourcing, However, the decision itself is driven by a number of external variables which play a large part in the who and where.According to Favreau (2007), more than 27 American based companies who currently engage in outsourcing stated a variety of reasons for their decisions, which are all centered around, customer price satisfaction, gaining a competitive edge, lower labor costs, desire to enhance margins and profits. Product cost reductions.Broaden product lines by engaging in labor intensive versus substantial investment of manufacturing equipment.(p.). Whenever a product is labor intensive, this affords justification to outsource. These are some of the many variables which drive the decision. One could safely assert that a companies’ willingness to outsource are basically driven by the three C’s; Customers, Competition and Cost. Key Discriminating features The industry which is of focus is IT Services, consequently the broad market which will be viewed will consist of those US companies who engage in outsource contracting for comprehensive IT solutions and services, including systems integration; software application development and maintenance; research and development; and business consulting. Why . Due to the substantial investment which a company makes in its outsourcing decision, they are prone to conduct an intensive research effort to answer some of the unknowns. The answers which are needed can be garnered from the decisive buying criteria from Appendix “D”, which can be instrumental in determining why a company may select a given country and vendor. Segmenting One should bear in mind that the perimeters for the establishment of variables in B2B markets can be exhaustive, but we will use some of the more common dimensions in the depiction of our market. The latter dimension is of course a guiding dimension, because if the reason falls within one of three reasons,(to increase revenue, to maintain the status quo, or to decrease existing expenses) and it or they can be accommodated, then the company holds a reasonable chance for consideration of securing a long-term contract. Homogenous sub-markets Company #1 name: Fidelity National Information Services, Inc.Type of Industry: Financial Sector Products: mortgage loan processing, credit cards, check verification Number of employees: 30,000 Annual sales volume: $14.758 billion USD (2007) Location: Jacksonville, Florida Company stability: Operating income $1745.641 million USD (2007) Decision maker(s) Gary A. Norcross - President & COO Transaction Processing Services Reasons for service purchase: concentrate on core business, decrease expenses.Profile of Decision maker: Gary A. Norcross, serves as president and chief operating officer, he is the senior most executive responsible for market segments.He has led the division from less than 100 clients, to more than 9,000, since he took the helm in 1996. He believes in establishing a well-focused business strategy, and staying the course to actualize the objective.His goal was to catapult Financial Information Services into the number 1 position of provider of banking services, a milestone which he achieved in 2007, when Financial Insights and American Banker, named his company as the number 1 overall financial provider in the world. He began his career in the mortgage business, he joined Systems Inc., in 1988, and eight years later he was named, senior vice-president of the comapy’s community banking segment.(FIS,2009). Company #2 name: Rockwell Collins Inc. Type of Industry: Aviation and communications electronics, Products: flight control and flight management systems, Number of employees: 15,800, Annual sales volume: 3.4 Billion USD Location: Cedar Rapids, Iowa, Company stability: Decision maker(s) Robert K. Otberg, Reason for service purchase: concentrate on core business. Decision maker profile: Robert K. (Kelly) Ortberg is executive vice president and chief operating officer for commercial systems, a position he has held since 2006.He joined the company in 1987 and has held a number of management positions . A native of Dubuque, Iowa, he has a Bachelors degree inmechanical engineering from the University of Iowa. He serves on the boar of the Rockwell good government committee, University of Iowa engineering advisory board,Bucyrus International Inc, and the Board of Directors of the Hawkeye Area Council of the Boy Scouts of America.(Leadership 2009) Economic Upside Both of the companies are substantially large and possess economic viability. Operational The segment dimensions are specific enough to provide help in identifying and understanding customers and assisting in the marketing mix decision making. This is of course a critical element of the process, this component must be functional in the facilitation of the process. Marketing mix Product The target market has annual sales in excess of 14 billon USD per annum. This is definitely a market worth pursuing.This company is in the business of providing Information services, and our product will be the offering to provide that intangible need. Price The market is already quite large and the company has an aggressive posture, both in the area of acquisitions and sales.Our position in Vietnam affords us with the opportunity to present the company with a quality English speaking workforce and a cost saving proposal. Place It currently maintains the position as the number one community based bank provider in the world, and this serves as a distinct calling card for new sales and the prospect of mergers and acquisitions.In Vietnam, we have the luxury of a young well trained labor pool, with low turnover, and a government which is both stable and supportive of our industry. Promotion While the headquarter office is situated in Jacksonville, Florida, there is also an office in Melbourne, Australia. Lines of communication will be established with all of the company’s regional offices; and letters of introduction will be accompanied with our statements of capabilities, along with letters of introductions and statement from our existing customers. We will seek out sources who know of, and are familiar too, the decision makers to offer subtle promotions on our behalf. In the event that these efforts are fruitful and we receive favorable feedback, we will then be ready to afford them a closer internal expose of the company and its actual operation. Compatibility The market represents an opportunity to enter a market which is amenable to long term contractual commitments. Our entry mode into this market will be the single market approach. Positioning There is no question that China and India would under normal circumstances, given their long history of securing and servicing long term outsourcing contract, are immediate competitors in this market. However, China and India are currently in untennable business climates if they are compared with Vietnam. In the case of India, they have at least two delimmas as it pertains to labor. They can no longer assure the market that they are capable of providing the numbers of people for the extended period of a contract; this has come about from both an economic and human relations standpoint. The market in India is at a saturation point because the large numbers of workers are no longer coming forth. The educational infrastructure is no capable of keeping up with the demand. Additionally, people are leaving positions with company A to work for company B, and the positions at company A are not being filled. One of the primary reasons why people are causing high turnover, which is affecting productivity, is because they are jumping ship at the prospect of higher wages. This in and of itself, precludes India’s ability to offer the market low wage costs.It has also come to pass in India, that the instability of governments, coupled with an attitude of non-cooperation, and widespread corruption,is causing a number of companies to thinks of other venues for their long term contracts.As for China, companies are concerned about home office staff turn around time, when they visit local vendors. There is also concern regarding infrastructure, which causes delays in factory to port finished product. The most compelling situation in China which is ordering a rethinking of the vendor paradigm, is the current position of the Chinese government. It is anybody’s guess as to how long the government will be amenable to remaining as it is. The horrifying thought is if the situation with the government changes dramatically, there will not be sufficient notice and time to salvage resources.When we stack the situations in India and China up against the climate in Vietnam, we can see a totally different picture. Vietnam is currently in the process to brace itself for the type of market growth which was bestowed upon India, twenty years ago. However, in Vietnam there is a move about to establish a viable infastructure which will be conducive to supporting growth of the market. At the outset, one must caution the Vietnam government to work deligently in the establishment of intellectual property rights. This will represent a glaring advantage over it two most prominent competitors in Asia. On the other hand, the Vietnamese government has recognized what can occur if they have not adequately prepared all of the direct actors for the market surge when it inevitably appears.The government is involved in promoting technical education and training which will assure sustainable development of the market. The government is working in concert with acadame , the business community and with foreign company executives to assess the need and make the necessary arrangements to accommodate the short term need and prepare for the long term continuance. In Vietnam, businessmen can confidently approach companies with the gem which they are primarily seeking in their outsourcing efforts; lower labor cost, which will sustain a reliable English speaking labor market. In Vietnam, one can not through caution to the wind as far as the human resource is concerned. The business men and the government must collaborate to devise a sliding incremental scale of income escalation. Otherwise, the same malady which presently affects India, will eventually beset Vietnam. As previously stated, the system should be incremental, and it must also be regulated. It must be regulated so that there is a minimum chance of exploiting the workers. As India has learned, and Vietnam must take heed, if the wages, or even the demand of the workers for additional wages happen to get ahead of the contracts, this will only result in a demoralization of the workforce. Employers must also be vigilant in monitoring and contributing input at the very least, to those individuals and institutions whose responsibility it is to train and prepare the labor force. It would certainly be beneficial for vendors to conduct the necessary research which would enable them to response favorably to the issues which are contained in Appendix “D’ of this proposal. It will provide them with a clear idea of what the market is desirous of. Bibliography Gilley and Rasheed (2000), Making more by doing less: An analysis of out sourcing and its effects on firm performance, Jpurnal of Management No. 4 763-790 Lacity MC, and Hirschheim (1993) Information sysytems outsourcing; myths, metaphors, and realities, John Wiley and sons, Chichester, UK Loh and Venkatraman (1992) Diffusion of information Technology Outsourcing; influence sources and the Kodax effect; Information Systems Research 3, pp.334-358 Kotler, Marketing Insights from A to Z, VietNamNet Bridge, 2007 Tucci, L. (2008) Offshoring in Ho Chi Minh City promising, retrieved on line on June 15, 2008, from www.SearchCIO.com Wikipedia, Fidelity National Information Services Favreau, MK,(2007), An evaluation of American companies that outsource manufacturing; decision making and performance Norcross, G, (2009) Ridelity Information Services Inc., Exedutive Biographies, Retrieved on line on June 15, 2009, from www.fidelityinfoservices.com/FNFIS/aboutus/ExecBios/FaryNorcross.hltm Ortberg, RK, (2009) Rockwell Collins, retrieved on line on June 15, 2009, from www.rockwellcollins.com/about/leadership/page2168.html . . Appendix “A” Appendix “B” diagram also summarizes the segmentation process and includes the market map. Appendix “C” Appendix “D” Benefits due to factors research by U.S. companies Anticipated Benefits The abundant supply The low hourly cost for The low cost of raw Elimination increase in improvement in focus assistance from of production workers production workers materials for of mfg'ng overall prod on company's core Vietnamese gov't Research Factor in Vietnam in Vietnam production overhead revenue functions on assisting oursource production worker supply in Vietnam Overall production cost of manufacturing in Vietnam The time required to manufacture a product in Vietnam The nature of the manufacturing of your product The hourly cost of workers in Vietnam The cost of raw materials for productio in Vietnam The ability to control production in Vietnam The ability to achieve quality control in Vietnam The cost of choosing a vendor in vietnam The cost of production inventory for Vietnam The cost of freight from Vietnam The time required to transport products from Vietnam The bottom line revenue of the outsourced item The change of market presence in Vietnam The change in your company's core function The manufacturing overhead cost The protection of intellectual property The stability of the vendor management in Vietnam The cultural differences between Vietnam and the US The stability of the vendor of the Vietnamese government The assistance of the Vietnamese government to assist in outsourcing Read More