Expansion of a Software firm in to New Asian Markets
As time progress, people were able to develop tools that will help them achieve this goal. With the invention computers and the development of the internet, human intervention seemed to become less and less. In due time, businesses were able to appreciate the value of computers in their business activities. Soon enough, computers were standard office equipment. People taught themselves to work with machine in order to be more efficient and productive.
People are constantly on the look out for innovations that will allow them to tackle difficult and complicated tasks with ease. The need to develop methods or processes that will allow people to complete difficult and complicated tasks is important. The need aroused in order to reduce margins for errors. If people can develop methods or process that will enable them to complete tasks with as little error as possible, they will be able to save both time and resources. This means that more tasks can be completed for lesser costs. This is especially important for businesses where both time and resources are invaluable.
However, people and their activities evolve with the passing of time. Business activities required more from the systems that they were using. They deemed that their business would be more productive if their systems were specialized. Thus, the need to develop software that would meet the demands of the market grew and grew into an industry. This industry became the support of business organizations. They provide business with tools that would allow them to improve the products of services that they provide to their respective markets.
Upon entering the twenty-first century, people and organizations alike began to recognize the role that information and technology will play in their present and futures (2000). More and more individuals and organization are realizing the power of technology specifically information technology. People saw that the world can be at the palm of their hands with just a click of a button. Business organizations experienced the efficiency of information technology in the aspects of sales, operations and finance to name a few. True enough, technological innovations are sweeping the world off its feet.
Some examples of specialized software being used by various business organizations include customer relationship management, enterprise resource planning and supply chain management. These softwares allow business organizations to determine trends in specific aspects of their business. In turn, these trends pave the way for the formulation of programs or policies that needs to be implemented in order to maintain or improve the performance of the company.
A concrete example of some of the uses of technology that helps in enhancing the performance of the business organization can be illustrated with the use of both internal and external networks. Communication is very important when conducting business activities. Every aspect of the transaction must be clear in order to avoid costly mistakes. The installation and use of internets and intranets will allow employees to communicate in real time without leaving their workstations and thus saving time. It is also the case that
In light of the globalizing market, business organizations see the importance of having and maintaining a reliable information system that will allow them to consolidate their business activities around the world (2002). However, in the same way that the world and its inhabitants evolve, software that makes the system run gets outdated or obsolete. This means that business organizations must be on a constant look out for innovations that will give them more edge over the competition.
This also implies that the demand for software will be around as long as businesses and individuals see them as important parts of their activities. In this light, software firms have great chances of experiencing growth now as compared to previous years. As technology is being integrated into the daily routines of people and organizations, the need to support these technologies with software is and will still be evident.
Therefore, opportunities for expansion will be available to software firms. As the demand for the products and services being offered by software firms, they will be able to experience growth that will opportunities to venture forth and just domestically but internationally as well. It has stated earlier that markets are going global. This suggests that businesses around the world are being introduced to the methods and processes being used in the west. The opening of the eastern market will prove to be both fulfilling and challenging.
It has been noted for many years that countries in the Asian region are no stranger to technology. Some have the capacity to develop their own technologies and offer it to the world. Japan is one of these countries. The presence of the tradition of innovation paired with the perceived importance of technology in Asian countries can prove to be an obstacle for businesses who wish to expand their operation in the region.
On the other hand, Asia is home to the biggest markets in the world like china and India. The possibilities can be endless for business organizations that will be able to successfully enter these markets and establish a stronghold on the region. Being able to enter big markets and create a consumer base will assure a company of significant profits. These reasons are just some of the points that need to be considered by a software firm that wishes to expand its operation in new Asian markets.
These general characteristics of the Asian market can prove to be helpful in arriving at a decision to enter the Asian Region. Nevertheless, the risks involved in doing so is still evident. The weight of the advantages and the disadvantages of entering the Asian markets seems to be equal, this is the reason why there is a need to dig deeper in order to uncover more specific traits that will ultimately lead to the decision to expand to the Asian region.
The following sections of this chapter will be presenting the aspects that software firms need to be familiar with if they intend to expand their business operations in the Asian region. The general characteristics of the software market in the Asian region will be presented to give an overview of the nature of the market. It will document the claim that opportunities abound in the region for software firms. In addition, the demand for software products and services will be reiterated in order to strengthen the claim.
Furthermore, entry strategies will be discussed. This will serve as the platform in which the discussion of the appropriate steps to be taken will be launched. It was stated earlier that the various entry strategies would be discussed in order to determine the best possible strategy to be used by software firms once they decided to expand their business operation in the Asian region. At the end of this chapter a discussion of the traits of the Asian software market will be used the criteria for determining the appropriate entry strategy for software firms.
Information Technology and the Development of an Efficient Information System
Information technology is spreading like wildfire and it is not just a phenomena being observed in developed countries. Newly industrialized economies in the Asian region are also witnessing the dawn of information technology and its impacts on the business community (1992). According to (1994), majority of the businesses, operating in the industrial world needs computers and software to compete and survive the tight competition. (1995;1996) information technology has become a crucial part of the services and products made available to the consumers.
Therefore, the need to update software and systems must not be taken lightly by any company that wishes to integrate itself into the global business community. In order to compete with rivals, business organization must understand the role of technology in advancing the position of a business. New services and products that are highly dependent on technology are being introduced to the market, which entails that they are also dependent on softwares. To illustrate the point the statements are trying to express, the case of Harrison-Keyes will be presented.
Harrison-Keyes is well-known and established publishing company. They have been around for more than 100 years. In light of the innovations that has been occurring right and left, the company decided to get into e-publishing in order to tap into the internet based consumers. With this, they have implemented an e-publishing initiative. However, early on, they were met with a number of problems that threatens to end their hopes of digitizing their products.
The technologically significant problem that they had to face was the inadequacy of current Harrison-Keyes hardware to support the loads of e-commerce software that will allow them to sell their titles directly from their website. If the problem is not resolved as soon as possible or before the set time of e-book title release, the company will have no other option but to resort to posting or selling their titles through established online booksellers such as Amazon.
This means that the company will once again need to provide the necessary expenditure to pay the third party retailer and to be able to fix the technical difficulty that they are experiencing at the moment. Even though, the option to sell their title through a third party vendor, it is still the case that the expenses for such decision has not been projected prior to the launch of the e-publishing initiative. This can send the signal that a disaster is looming in the horizons.
The case of Harrison-Keyes presented a company who is ready to taken on the challenges of the digitizing market. They recognize the need of the consumers for products and services that are more convenient for them. However, the company itself is not technologically ready to launch such a project. The case showed how failure to maintain both hardware and software can foil a good business project and cost the business organization financial damages.
Harrison-Keyes also presented that as businesses grow, the need to integrate information technology becomes greater. Today, the growth of the business is tied with the growth of their information system. In turn, information technology is developed by business organization along with their information system. There are six identified stages of information technology growth (1979).
– Data administration
It is believed that as businesses pass through the six stages of Information technology growth, they also experience transformation. This transformation affects their business operations both internally and externally. It can also lead to redesigning the business network and the redefinition of the scope of business (1984). This means that information technology does not affect the production process alone but it also influences the structure of a business.
Therefore, the development of an information system is crucial in the realization of the perceived benefits of information technology (Tansey. 2002). Systems analysis is one of the most important processes that need to be undertaken to develop an efficient information system. Systems analysts begin by identifying a problem or an opportunity. Afterwards, the systems analysts along with the stakeholders will have to determine the terms of reference. This is needed in order to establish the boundaries of the investigation. It is also important that the objectives of the system to be developed be defined.
In addition, feasibility studies and cost analyses must be completed. These will allow the systems analysts to investigate the various options available to them relative to its costs. It is also the case that the mentioned studies and analyses will determine the benefits of the available options. Upon the implementation of the new system, the transformation can take place as stated above.
During the analysis of the cost of the new system to be implemented, software is one of the focuses. Along with the hardware, softwares are needed to support or enhance the performance of the new hardwares. Computer software includes the operating system, application packages and programs to name a few. Software provides the detailed instructions or codes needed to guide the operation of a computer system. This means that as newer and newer hardware becomes available to businesses, software must also be updated to maximize the performance and capacity of the hardware.
This brings us to the point that business development in various industries brings about opportunities to software firms. It has been stated above, that information technology has become a huge part of business activities around he world. This means that the progression of businesses from one information technology stage to another brings about the demand for software products and services. In turn, these demands for new software products and services will result to additional business for software firm and thus the opportunity to expand their operations will be around the corner, so to speak.
The next section of this chapter will be presenting the status of the software industry. This will allow the research to present the status of the industry. In addition, the traits that marks the industry will also be presented in order to determine the aspects that affect the operation of businesses within the industry. An example of the aspect that will be presented is competition. This will also give a glimpse of what the future holds for software firms.
According to (2002), the software industry is highly competitive. Software firms are driven by the need and desire to innovate their own products and services. This is the case since innovation is the foundation of the industry itself. Firms who are able to release new products and services in the market have the chance of starting a new trend within the industry. This means that being innovative can catapult a software firm as an industry leader.
This is the reason why software firms are investing more on their research and development. In turn, this focus on research and development causes the industry to be characterized by rapid changes of both new and emerging technologies. The fierce competition and rapid changes where highlighted by the development and proliferation of the internet and intranet for businesses.
There are two economic characteristics of traded software contributes to the dynamics of competition within the industry. The first characteristic is economics of software production (1996). The production and distribution of software is in the same way like that of records or movies. They are ruled by costs of developments that are fixed. Since most software can be sold to the market without or little customization based on market segments, it is very profitable.
The software industry is very lucrative due to the fact that the population of mainframes is less than the installed based of microcomputers (1996). This means that free lance software developers have the encouragement to offer the microcomputer market with application programs that are standardized. In addition, a large market for standardized software was formed due to the diffusion of low-cost microcomputers and potentials for higher profits as well as the association of low entry barriers to software development (1996).
In the past, it is evident that the promises that the software industry holds true in western countries. In the United States for example, computer producers, independent software vendors as well as users have encouragements to produce software. Computer producers saw that software complement their main products and thus the encouragement to develop software ( 1996). This means computer producers doubles their profits since they were able to create the need for another product.
However, countries in Asia are not far behind their western counterparts. One of the forerunners of information technology in the Asian region is Japan. In fact, (1991) commented that they are more productive than their American counterpart. Despite the fact that the Japanese software industry has many aspects that differ from the western software industry in terms of structure and performance ( 1996), they still manage to become players in the world software market.
Parts of the success of the software industry in Japan can be attributed to the help that they get from their government. In the beginning, it was observed that the growth of the Japanese software industry was relatively slow and not as innovative as the software industry in America. Nevertheless, the software indsuty in Japan was estimated to be at 3,457,947 million yen in 1990 and this numbers only reflect the external activities of the software firms (1990).
By 1993, a number of bankruptcies led the Ministry of International Trade and Industry to declare that the Japanese software industry was affected by the recession. In order to help the industry recuperate, they offered special subsidies and preferential treatments.
If one is compare the quality of Japanese software with American made software, it is important to distinguish the product areas. Some of the product areas are defense, telecommunications, finance, gaming, science, and technology to name a few. In the areas of finance, Japanese software is said to be comparable to American software. This may have been brought about by the increasing demand from Japanese banks.
It is also the case that in the area of gaming, Japanese software is showing strength. Some of the major producers of gaming consoles are based in Japan. As stated in the case of the US software industry, computer producers saw the opportunity to double their profits by introducing specific software for their computers. This also happened with the major gaming console manufacturers in Japan. They made sure that their products have unique specifications, which means that only specific or compatible software will run on them.
Because the shares of hardware depends on the sales of software, these companies had to invest on research and development. This move is only natural since gaming console is also proving to be very profitable. For example, since the first family computer was released in 1983, the sales for gaming consoles skyrocketed (1996).
Up until today, the market of gaming consoles as well as their corresponding software has a market base composed of both young and adult around the world. This is a good thing for gaming console producers since some researches have shown that both generations have the purchasing capability to keep the wheels of businesses turning ( 1999).
On the other hand, it is being recognized that on other product areas like operating systems, US software are the ones dominating the market. One of the examples of this is the widespread use of Windows as operating system for most computer. Windows is developed and distributed by Microsoft by Bill Gates. Nevertheless, Japanese software firms are working to catch up once again. They are in the process of developing some original programs. One of these original programs being developed is the real-time operating nucleus or TRON. It might take some time before the Japanese can be even with the Americans since most of their original programs are still in the experimental stage.
Despite, the degree success attained by the software industry, it is still plagued by issues that threatens to hamper both profitability and further growth of the industry. This is especially true for small and mid-sized software firms. It is important to know the various risks present in the software industry. This is the case since risks are part of the considerations that need to be taken when a firm intends to expand their business operations internationally.
As abovementioned, most of the issues surrounding the software industry tends to affect small and mid-sized businesses. This is the case since the small business sector is very unstable and it is a continual failure (1989). Since small business directly affects the combined growth of employment, then it must mean that for every company that failed, along with its’ jobless former employees, new small businesses will take over its place creating yet another employment opportunity.
Furthermore he also concludes that the failure of a small business is inversely related to the size of the business. Bates states, “A straightforward measure of firm size the logarithm of total firm assets-had great explanatory power for delineating failed black-owned businesses from survivors.”
There is also a relation between the business’ size and age; researchers believe that a business that is older and bigger has more chances of surviving. Naturally, it will only follow that if a business or firm has established its self for quit sometime and was able to make the firm grow, it only means that it is already doing a good job. It only a matter of holding on to what has already been set-up. To be more exact according to the finding of Bates, firms that have been in operation for three years or less are more at risk of failing than older firms are.
This also proves that small businesses are following a learning curve of sort. There seems to be an unwritten rule that a certain number of years must be completed before a small business can be cleared of the risks of failing.In addition, there might be some truth to these since as a firm gets older it acquires more knowledge and skill in handling and overcoming obstacles. The Jovanovic model of business growth and survival suggests that firms learn their own efficiency as they operate in there industry. The longer the firm stays in business the more experiences it can gather as well as lessons from those experiences.
In the case of the software market, experts have hypothesized that the increase in product range in order to compete better will also drive software firms to consolidate (2004). This means that the business organizations within the industry will be considering combinations more than ever, since this idea would have been dismissed a few years back. This combinations or mergers will usually happen between small or midsized company and larger more established firms.
According to market observers (2004), since the chances of smaller start-up companies to go public on the stock market, they would have to think of an exit strategy. The natural move that these smaller companies take entail merging with larger companies or establishing close partnerships. In today’s software industry, this trend is very much alive and observable. This is case since new technology solutions have been narrowed down because there are lesser big problems to be solved.
In addition, customers have the tendency to keep the suppliers that have been tried and tested. This means that firms who have been around for a relatively longer time and have managed to establish a customer base have greater chances of growing. Moreover, already large firms will get larger. This suggests that the cycle of merging and establishing partnerships between small and larger firms will continue. When larger firms dominate the market, start-up companies will have lesser opportunities to make a name for themselves and establish their customer own base. Therefore, they would have to resort to creating and maintaining close association with larger firms.
The trend of consolidations that are happening within the software industry is said to be the result of an aging industry. It was stated that the software industry is comparable to the pharmaceutical industry where a few large firms dominate the market. In addition, the matured software industry is characterized by difficult entry for small start-up companies since the control is in the hands of more established firms whose names are resonating in the minds of the large portion of the market.
Another characteristic of the aging software market is the decrease of new licensing revenues. Earlier, it was stated that customers tend to keep tried and tested suppliers, this also mean that they tend to keep tried and tested applications. Therefore, activities that generate income for large software firms are becoming, if not already dependent, on maintenance and consulting services. This shift of focus to maintenance and consulting services makes less valuable entities and thus makes them more prone to mergers (2004).
However, there is no need to fret over the waves of consolidation being observed in the industry as well as its aging. There are actions that the industry can take in order to counter the problems that they are experiencing. One of these actions involves bringing their focus back on developing new technologies and market in order to make customers feel the need to acquire them. In the previous section of this chapter, it has been stated that hardware and software must support each other in other to maximize their performances. This means that software companies can use this as an opportunity to push for their new products.
In addition, to developing new technology for existing customers, it is also important that new markets be created and thus new technology for new customers. Software firms must be able to identify sectors that are yet to be digitized, so to speak, or sectors that do not have the adequate systems based on their needs. Examples these sectors or industries are health care, transportation and security. The creation of new markets will allow the industry to broaden the new technology solution. In addition, the bulk of software vendors will note be concentrated on specific market segments and thus competition will be less fierce. This will also give opportunity for smaller start-up companies to establish themselves within the industry.
Breakthroughs have proven themselves as ways to ease the entry of new companies. For example, the development and widespread use of the web as well as the client/server allowed new companies to create their own customer base. If a shift is not seen in within the industry, the wave of consolidations will not be ending anytime soon.
On the Issue of Piracy
Software piracy is the illegal production and distribution of software. It infringes copyright laws since software are produced and distributed without the permission of the copyright holder (). The presence and persistence of software damages the software industry economically. In 2003, it was estimated that around $50 billion worth of software packages were sold and were installed on personal computers ( 20004). However, $80 billion worth of software were actually installed on computer worldwide. This means that for every $2 of software purchased, $1 worth was brought illegally ( 2004).
In addition, the worldwide piracy rate in 2003 was computed at 36 percent. By region, the highest piracy rate was recorded in eastern where piracy rate was at 71 percent. It was followed by Latin America at 63 percent. The piracy rates in Asia Pacific and Middle East/Africa are at 53 percent and 56 percent respectively. Eastern Europe has the second lowest piracy rate at 36 percent. The region with the lowest piracy rate was the United States and Canada with only 23 percent ( 2004).
It is also the case that many local software firms are being overthrown by imported pirated software. This is the case since imported pirated software are high-quality and can go head to head with locally produced original software. As a result, tax revenues are also being lost to pirates. Job opportunities in the locality are also being affected due to the absence of a legal market. This means the that it is not only the businesses that are affected by piracy but also the society and its people.
The ability of the global pirate industry is being attributed to the fact that there is an overwhelming surplus of optical discs available in the market. The figure below shows that the combined legal demands for all disc formats in Taiwan, Hong Kong, China, Malaysia, India, Singapore, Thailand, Poland and Russia is only 1,675 units. However, the estimated capacity of optical discs manufacturing plants in the said countries amount to 17,400 units. This means that there is a huge nominal difference of 15,725. This means that the estimated capacity of the manufacturers’ exceeds the legitimate demand by 20 percent (2003).
|Current estimated pressing capacity 2002|
all disc formats
|Total Legitimate Demand:
all disc formats
Figure 1: Estimated pressing capacity, by country, 2003 (2003)
One can only wonder where these surplus optical discs would end up. Unfortunately, some people managed to put them into a not so good use. With the continued over production of optical discs and the growing popularity of CD burners, the surplus products are being sold to the public. In turn, this resulted to the proliferation of unauthorized copying and distribution of copyrighted data, commonly known as piracy. In addition, over production of optical drives resulted to the decrease of the selling of the product. This factor made piracy even more profitable since the cost of production is minimal. With this continuing trend, it can be hypothesized that the global piracy market still has room to grow.
Figure 2: Top and Bottom Pirating Countries (First Annual BSA and IDC Global Software, 2004
Based on the figures shown above, many of the presses that are overproducing are located in the Asian region. It was also previously stated that the Asian Pacific region was fourth in the list of regions with high piracy rate. It may come as a surprise that the Asian region only landed in the fourth spot. This could be highlighted by the fact that thee of the top four pirating countries are located in Asia; these countries are Vietnam, Indonesia and China. The may be explained by the fact that two countries with the lowest piracy rates are also located in the region, Japan and Australia ( 20004). This offsets the high-piracy rates of Vietnam, Indonesia and China.
It was also explained in the First Annual BSA and IDC Global Software (2004) that various factors are contributing to the regional differences of piracy rates. For example, the prices of the software available in relation to the strength of intellectual property protection being offered in the region, is one of these factors. In addition, cultural differences also affect the scope of piracy. Poverty, for example, is the excuse by many when asked about there patronage of pirated software as well as video and music.
The proliferation of online piracy is parallel to the development of the internet and other information technology programs and equipments. The promise of a digitized world that the world will shrink with just a click of a button sure went overboard. It is undeniable that the internet has many uses.
However, it is also a fact that the internet is now home to a number of illegal activities including music piracy. Millions of people, on a daily basis, are engaging in piracy over the internet. Sad to say, copyright and other regulating legislations are falling short of monitoring these illegal transactions. The issue of online piracy became well known when numerous individuals as well as known companies are battling it out in the courtrooms. Charges and counter-charges were filed in the hopes of minimizing if not stopping the proliferation of online piracy.
The problem with online piracy was also heightened by the wide utilization of peer-to-peer file sharing. It is the common notion that peer-to-peer file sharing is being used to download music or videos over the internet. However, it can also be used to access programs. This is also the case with compact discs. It is being used to pirate music, videos and applications. Original applications are being copied onto blank discs and sold to consumers at a cheaper rate. This makes them more appealing to the consumers. This is the case since computers are seen as a luxury most especially by people residing in underdeveloped countries where the benefits of computerization are yet to be explain and experienced.
Decision to Expand
The previous discussion discussions showed that there are indeed many opportunities for software firms. It is just a matter of identifying them and planning the appropriate action to be implemented. Even though, the industry is experiencing set backs from problems such as the narrowing the market and piracy on a global scale, there is still hope that this obstacles can be overcome and the industry will once again post limitless possibilities for business. The case of the software industry is just a matter of tapping into hidden resources.
In this case, the hidden resources may very well be the creation of new markets. Earlier, it has been identified that market niches such as health care, transportation and security can bring about new business opportunities for software firms. It is also the case that the ever changing face of hardware would eventually result to current software being obsolete. This will again give software firms to introduce new software to the market. As many people are being introduced to the technology of computer, internet and the web, it is inevitable that the market will grow bigger.
The western market has been saturated with software products and services given that most of the software being used the world over comes form software developers in western countries. It is also the case that computers have already been integrated in almost all aspect of life from refrigerators to cancer treatment machines. On the other hand, the eastern market is just beginning to integrate computers into their systems. For example, most households in the east are not yet equipped with computers for business or personal use.
This means that countries in the east can offer opportunities for both hardware and software firms. If companies in the information technology industry can tap into these potentials then they will be able to create new markets that will allow them to distribute their surplus products and services that the western market can no longer accommodate. In addition, the size of the market in the east most especially in Asia will give them the chance to increase their distribution and eventually production of software products and services.
In line with this, the realization of this promise lays at expanding the software business overseas. Overseas business expansion opens many options for a business organization. All of the options that will be available to the business will come with its own risks, costs and exercisable control, which varies from case to case. The variety of options available to businesses wishing to enter a new market gives the business a sense of freedom in choosing the entry strategy that is appropriate for their case. However, this freedom should not be taken astride. Careful review of the options available must be made in order to ensure that the entry strategy to be implemented is the best for the business.
There are basic issues that need to be resolved before unveiling international expansion. The first basic issue is marketing. This issue pertains to the manner of managing and implementing managing efforts. It is also in this stage that the country or region and market segments are determined. The second basic issue is sourcing. As suggested by the name, this issue focuses on how the products will be obtain; will they be bought from other producers or will be business manufacture them. The third basic issue is investment and control. The resolution of this basic will determine how the business will actually present itself in the international market; will be entering the market through acquisition or as joint or global partners?
As stated earlier, it is important to resolve issues or study the decision before actually making it. This way the business will be able to complete a risk analysis. In turn, they will be able to lessen the costs if any problems arise in the course of implementing the decision. Being able to prepare for the possible problems before they even show signs of affecting the business will pave the way for the formulation of contingency measures that can be readily implemented when needed.
According to (1998), there are five strategies being used by firms when entering new foreign markets. These strategies allow businesses to become familiar with the new business territories. These will also tell them the resources they will need in order to make a successful entry. The five strategies are as follows:
1.) Technical Innovation
Technical innovation pertains to determining the existing products available in the market. As such, companies who wish to make an entry into foreign markets must be able to determine any existing competition. They must know where their products and services stand in relation to the competition. The perception of the market of the competitors’ products and service is also important since this helps in creating brand equity. However, along with the perceived strength of the competition’s products and services, actual performance of competitors must also be investigated. This will show patterns and trends currently applicable in the market.
2.) Product Adaptation
Products adaptation is needed in order to ensure that the existing products of the company entering the new foreign market fit the demands of the consumers. In the case of software firms, it has been stated standardized software are often offered. If a company wants to make an impact into the new market they must be able to offer something new for the consumers. This means that they must make modifications on their applications based on the target market segments as well as the general demand of the foreign software market.
3.) Availability and security strategy
The importance of risk management has been stated earlier. The availability and security strategy is one strategy where risk management is most important. This is the case since availability and security strategy pertains to ability of companies to counter transport risks. This means that before entering a foreign market, businesses must be aware of the available infrastructure in the region. It is important that the existing infrastructure support the need of the business regarding distribution of the products and services that they will be offering. If not, the business may run into issues that will result to the failure of the expansion.
4.) Low price strategy
One of the problems that the software industry faces is that of piracy. Consumers tend to buy products that they perceive gives value to their money. Since most of the pirated software available are of high quality and are comparable to the original, consumers can easily be persuaded to buy the pirated one since it is more cost efficient than the original. The thinking that they only be using the CD, for example, only once, upon installation, adds to the perceived value of the illegal copy.
Therefore, businesses who wish to expand their business into a new foreign market must think of programs that will allow them to introduce their products and services in terms of prices. However, at the same time, they must also be able to make the market realize that the extra price they will be paying, as compared to pirated software, will actually give them more value in terms of quality.
5.) Total adaptation and conformity strategy
As connoted by the name of the strategy, total adaptation and conformation strategy pertains to the strategy that allows the business to conform to the new foreign market.
All of the strategies presented above, will permit a business to investigate all of the aspects of their target foreign market, in which, the investigation to the thorough studying of all the factors that will determine the success of the expansion or cause it to fail. Business organizations must learn to look for ways to ensure that the conditions will allow easier implementation of the strategies.
Knowing the Competition
It has been stated a number of times in the various discussions above that the software industry is characterized by fierce competition. This is one of the reasons why software firms needs to take their business elsewhere, meaning they would need to leave the saturated western market or expand their scope in order survive. Therefore, it is important that businesses analyze the movements of their perceived competition so that they will know how to contend with them.
According to (2000), competition is important since it affects the success of a business venture. Proctor added that competition is more than just producing and distributing products and services that matches the needs of the consumers. Competition is about the company’s capability of positioning itself in the market so that they will stand out among the rest in the perception of the consumers.
Therefore, it is important to know the factors that help in shaping the perception of the consumers towards certain products and services. On way to do this is to implement a PEST analysis. PEST stands for political, economic, socio-cultural and technological forces. These factors affect business through the consumers. Since these factors help in shaping the perception of the consumers, it suggests that it also affects the purchasing behavior of the market base.
For example, the economic damages brought about by piracy can be used to investigate the economic situation of the software industry. this is the case since the profits lost to piracy affects the flow and natural growth of business within the industry. Due to the significant amount of revenue lost to piracy, it cannot be helped if researchers and the legal software itself review the financial impacts of the illegal activities on their businesses. On the other hand, pirates are usually not concerned with the monetary effects of their activities on software firms. This attitude is fuelled by the notion that artists and record labels are already, so a few dollars would go unnoticed. However, if this line of thinking of most pirates, the accumulated “few dollars” that they were referring to would actually amount to billions.
Unfortunately, people are living in a world were everything is interconnected. Every action being performed is ultimately affecting others whether directly or indirectly. The music industry is not a separate entity operating outside the scope of the society. Therefore, the software indsutry is also subjected to this interconnectivity concept. Contrary to the notion that software firms are the only ones profiting from production and distribution of legal software, the software industry in itself is supporting a large number of jobs worldwide.
The next section of the literature review will be discussing the various entry strategies available to businesses who want to expand their operations overseas. The discussion of the entry strategies will pave the way for the evaluation of the entry strategies in the hopes of determining the best choice for software firms. The discussions will include the processes that need to be undertaken in order to implement each entry strategy. In addition, benefits and risks involved in implementing each entry strategy will also be presented.
Since the 1980s, marketing strategies have played key roles in planning to overcome challenges. It is believed that this line of thinking will continue to direct the activities of business into the 21st century ( 1999). In addition, it is also believed that good managers have the ability to formulate and implement competitive strategies. This is the case since competitive strategies have the capacity to make the business organization stand out among the sea of competitors within the same industrial sector. Therefore, competitive strategies can ultimately aid business organizations in increasing their profitability and achieve their goals.
Strategy is defined as the art of harmonizing the resources to achieve the preferred result (1999). This means that companies must be able to utilize available resources like capital and employees in such a way that they will be able to result in the company’s profitability and/or company growth. Paley further defined strategy by dividing it into three levels. The first level is the higher level corporate strategy. The objective of corporate strategy is to be able to use the resources to achieve the goals of the organization. However, the resources must not be exhausted in the process. The corporate strategy is long termed since it being employed for the business organization’s sustainability.
The second level is the mid-level strategies. These strategies are being implemented for a period of three to five years. These strategies are more specific than corporate strategies. This is the case since they have specific targets that need to be reached. There are four definitive objectives to the mid-level strategies (1999).
- enter present markets utilizing readily available products
- spread out markets by utilizing readily available products
- create new products for present markets
- create new markets for new products
The last strategy is the lower level strategies or tactics. In Contrast with the first two strategies, tactics are short termed in nature, around a year. They are usually included in the agenda of the business organization’s annual planning. However, the nature of tactics must not result in non-conformation with long-term strategies and goals. Tactics cover aspects of the business such as (1999):
– product launch
– product packaging
– selection of market segments
– sales force deployment
These strategies are one of businesses’ most valuable tools in ensuring their survival in their respective industrial sectors. This means that the formulation of the suitable strategies for the company can result to a competitive advantage. Therefore, it is important to know the aspects that need to be considered when formulating strategies.
Some of the most important strategies in the business world are entry strategies. The start of any endeavor is crucial in the life cycle of a business.
This type of entry strategy is as simple as setting up an office in the locality. It primarily depends on the mere presence of the company in the area to attract clients. This type of strategy can be related to the establishing a branch which is the basic premise of the strategy.
Local office is advantageous to the mother company in such a way that it will allow the mother company to have access to the capital of local business enterprise and the business will be closely working with the locals. However, it will also prove to be of a disadvantage once the cost of establishing the local office is taken into consideration. Since the local office means that, the mother company must start from scratch in building their presence in the locality they would have to invest in space where the office is to be situated as well as filling the staff positions.
A Joint venture means that the mother company will be teaming up with a domestic company to form a new incorporated company. This type of entry strategy may prove to be beneficial since the mother company will have the expertise of the domestic company in terms of the local market and the possible solutions to possible problems the incorporated may face.
However, as with all strategies, there are also some disadvantages in utilizing this kind of strategy. By entering in a joint venture, partners have to deal with the fact that they will not full control over the company and that they may be difference in views and expectations that can result to future issues.
According to (1991), the decision process to enter in a joint venture is time consuming, messy and understudied. This results in delays in carrying out the decision. Furthermore, the lack of through investigation of the ventures results to lack of pertinent knowledge regarding opportunities and cost.
Forging a business relationship is the key aspect in making a successful entry using the franchising strategy. By opting for this strategy, the investor is assured of a market base and a known product. In addition, the franchisee can expect some level of assistance from the franchisor, and in a stage where an investor is still trying to get use with the new market they would need all the help they could get. This means that all the investor has to do is maintain the business and acquire newer clients.
In relation to the entry strategies presented above, there are a few other strategies that can be incorporated with the main entry strategy to better outline the conditions under which the expanding company will operate as well as the chosen partner if applicable. These additional strategies include counter trade and licensing.
Counter trade is the largest indirect method of exporting. In this strategy, a business organization can expand to markets were competition is less fierce, like new foreign markets, but exchange based on currency is not possible. It is being used to stimulate industries or counter the effects of inadequate raw materials. Counter trade can be perceived as the modern day version of barter. The difference between countertrade and barter is that counter trade uses currencies to underpin the value of the commodities to ensure fair exchange. However, the contracts involved in counter trade are not legal and are not covered by GATT.
There are two forms of counter trade. The first one is the delivery and payment of products and the second one is the purchase and payment of the products. As stated earlier, exchange in based on currency is not possible when counter trade is chosen to be implemented. This means that the payment for the purchased products will have to in other forms aside form money. One good example of counter trade is the case of Albania. In 1996, Albania started to offer various products including chrome ore, spring water and tomato juice. In exchange for the said goods, Albania demanded for $60 million worth of fertilizers and the construction of a methanol complex (1997).
As in any strategy, counter trade also has its disadvantages. Since GATT does not cover the agreements under counter trade, the chance of dumping is great. It is also the case that the goods being offered in counter trade are not international quality; therefore, they will be more costly for consumers and traders. It is also difficult to set the prices of the products being offered as well as the quality of the services. Because of this, it may be difficult to revert to currency trade and hence after counter trading the products may be more difficult to market.
In order to counteract these disadvantages, (1988) proposed that the benefits of the trade will offset if not outweigh the disadvantages. Since one of the parties involved can be easily exploited through counter trade, it is important that the systems politics and regulations of the trading partner be thoroughly studied. Lastly, it must be made sure that the payments to be made are not under import controls.
Licensing is giving a trading partner in another country the permission to use the company’s expertise, trademark and skills in manufacturing and processing of a product or services. This means the products or services of the licensor will be manufactured and distributed legally by another company in another country. It is also the case that there is very little expense to be shouldered when entering a licensing, practically only the signing and implementation of the contract. Many known names in the business world is engaging in licensing. One of the best examples of these companies is Coca-Cola.
Licensing is a good way of entering a new market since the expanded operation will under a company who is emerged in the domestic market. This means that the licensee is familiar with the trends and factors that will affect the local operations of the licensor. This is similar to the advantages of a joint venture.
On the other hand, licensing is disadvantageous since there is limited participation on the part of the expanding company. In addition, since licensing involves passing on knowledge and skill, it is possible that once the licensee acquires the needed knowledge they will become competitors.
All of the entry strategies presented above are available to business who wish ti enter the Asian software market. However, it is important that before choosing the strategy to be implemented, the resources and capacity of the expanding company be matched to the requirements of the entry strategy to maximize success rates.
In summarizing the discussion on the nature of the software industry, it is evident that fierce competition and narrowed market characterizes the industry. Companies in the western market are attempting to escape the vortex that is threatening to close the doors of the industry to new entrants as well as relatively small forms. Because of this, they have seen the need to look for opportunities off shore. This brings them to the potentials of the Asian market. Even though, competition is already present in the region, they are willing to risk some in order to gain some. Moreover, this confidence is partly because of the size of the Asian market.
In order for the entry into the new market to be successful, it is important that entry strategies be studied in relation to the resources and capacity of the expanding company. In addition, the specific conditions of the target market must be investigated in order to minimize the effects of the risks on the venture to be set-up.
In the end, it can be said that the end of the software industry is far from being realized. As long as people as innovative and demands are coming the industry will continue to exist to deliver expected services and products needed to improve various aspects of human living.