Bringing a small software company into the international market Selecting an entry form

Transcription

1 A Work Project presented as part of the requirements for the Award of a Masters Degree in Management from Faculdade de Economia da Universidade Nova de Lisboa. Integrated Work Project in Strategy Small and Medium Enterprise Competitiveness Bringing a small software company into the international market Selecting an entry form Student Number 202 A Project carried out on the Management course, under the supervision of: Professor Paulo Gomes and Professor Sónia Dahab January 2009

2 Table of Contents Acknowledgements... 2 Executive Summary... 3 Purpose of the IWP in Strategy... 4 The Business Issue... 4 Company Background... 6 AnubisNetworks, SA DNA... 6 External Scanning... 8 Corporate or Standard Market... 8 Service Providers or Customized Market Security Industry Attractiveness Anubis Pin Point Internal Scanning Distinctive Competences Capabilities Gaps SWOT Analysis Summary General Problem Choosing an Entry Mode Uppsala Model - Exporting Methodology Anubis approach towards internationalization The Network Model Application: Germany & Brazil The Uppsala Model Application: Spain Analysis and Proposal Target Market Conditionings The Scope: Brazil Direct Exports vs. Office Facing the Issues Concerning Exporting Implementation Plan I. Minute II. Men III. Materials IV. Money Appendix Appendix References

3 Acknowledgements I would like to express my recognition for Francisco Fonseca s, AnubisNetworks, SA CEO, contribution for this work project. Francisco was always available and his cooperation was unparalleled and was determinant for understanding AnubisNetworks, SA s internal and external environment. Also, a special thank you note to Professors Paulo Gomes and Sónia Dahab who, with their guidelines and advices, have contributed for the improvement of this work project. 2

4 Executive Summary A small Portuguese software firm is the subject of this Integrative Work Project (IWP), which aims at analyzing an organization s internal and external challenges in order to identify a competitive weakness and to develop a proposal to overcome it. An implementation plan considering money, men, minute and materials is also discussed. The business issue at study is the definition of appropriate entry modes in a foreign market like Brazil. Established internationalization models such as the Uppsala Model and the Network Model were referred as guidelines for the proposal developed for this small software firms. In greater detail, the problems surrounding an expansion process are approached. It is discussed why none of the six legal entry modes is suggested and why exporting is the appropriate internationalization door to open. Dealing with lack of reputation, lack of scale and the sales force strategy that can leverage the company s strongest resources are all subjects under the scope of this work project. 3

5 Purpose of the IWP in Strategy The purpose of the Integrative Work Project (IWP) is to improve the competitiveness of an organization by studying, understanding, assessing and cooperating with the company s managers, to develop and present possible solutions to strategically overcome an identified competitive weakness. By overlapping theory with the reality of an enterprise, the goal is to bring together the knowledge acquired during the Masters Programme, as well as knowledge from management literature, into a real life business case, presenting strategic thinking over an identified business issue. The Business Issue This IWP, in particular, was set to address an issue under the broader challenge of starting the process of bringing a small company out of its home market. In spite of the several aspects that relate to such process, such as analyzing the reasons behind the internationalization and country selection that could be subject of an interesting research, the purpose of this work project is to face the specific issue of entry modes in foreign countries. Thus, if an internationalization process were to be split into three simple steps (Appendix 1) why/what, where and how this work project would address the last step, as the first two were already defined by the company and will be explained further ahead. The goal it to understand, according to the scenario this company is presented with, what kind of sales force strategy, hence defining the mode of entry, would best fit the company s international business general strategy, in order to allow for the most effective entry possible. 4

6 Company Background This IWP was developed together with AnubisNetworks, SA (from now on designated as Anubis), a small Portuguese company, whose CEO is Francisco Fonseca. Founded in 2006, by experts in security services, with an Internet Service Providers (ISP) and corporate background, Anubis is an IT private company based in Lisbon, Portugal. The company operates exclusively in a business-2-business frame, selling security solutions for communications. Anubis is currently a start up company owned by InovCapital with 80% ownership. With Francisco Fonseca, the company has 15 workers and 7 departments Appendix 2. Anubis core business is the development of anti-spam solutions. In general terms, spam is unsolicited junk messages, usually sent out massively to thousands of users at a time. It bears costs for organizations that receive hundreds of thousands of spam messages per day, as it reduces productivity, greatly increases network bandwidth costs and, most importantly, threatens the security of the network since viruses and other malware are often spread via spam messages. As shown in Appendix 3, from 2006 up until the end of 2008, company sales improved from to close to , reflecting the growth of the vast client portfolio the company acquired in its home market. Amongst their clients are private corporations as well as public institutions as can be seen in Appendix 4. Anubis offers all of the three product configurations for the Corporate market: Software, Appliances and Hosting Services. All of the configurations perform the same task but offer the clients different service types. See Appendix 5 for technical details. AnubisNetworks, SA DNA The mission statement, the vision and the values are the DNA of any corporation. Together, they identify the purpose of the company, what does it want to become and the way the company will behave while in business (Collis and Rukstad, 2008). 6

7 Mission Statement To provide a feeling of trust and security in the usage of , with services suitable for businesses of all sizes. Vision Become an international reference in the anti-spam business. Source: AnubisNetworks, SA website. Anubis has clearly defined the purpose of its existence, with a clear and concise mission statement that explores, in few words, what the company s role is as well as the scope of this role, by defining the range of customers it will seek to satisfy while in business. Additionally, its vision statement makes clear the sort of player the company wishes to become in the anti-spam industry. Company values, however, have not been defined yet as the CEO did not see the need for one. So far, the absence of a values statement has not become an issue, since the company is very small and informal, allowing for an easy to understand and to transmit corporate culture. Nevertheless, with predictable future growth, Anubis should create a platform to help communicating its corporate culture, both internally and externally, with its core values, which should not be more than five in order to be easy to be adopted and recalled by the workers and easily understood by the clients. Anubis has set out two strategic objectives to be achieved in a short/mid term: Internationalize the business, selling customized solutions for the Service Providers market. Maintain the leadership position within the Portuguese market 7

8 External Scanning The security industry is a rather complex one, with several players assuming different but relevant roles to the business activity, (Appendix 5). Simplifying, four kinds of suppliers are identified: Hardware Manufacturers who produce all the tangible components of the products such as computers, servers and mainframes; Open Source Anti-Spam Software Developers who develop some of the intangible components that can be built on by the anti-spam companies; Space Renters for Database Centres who rent premises for storing large computers like mainframes used in the Hosted Services product configuration; Third Party Technical Support Providers who provide outsourcing of call centres in countries where labour costs are cheap; As for the sort of clients, the security industry is divided into two markets each with different competition dynamics: the Corporate or Standard and the Service Providers or Customized. Corporate or Standard Market The corporate market includes the majority of corporations for whom the safety of their communication system, although important for reasons presented before, is not a crucial input for their business operation in general, as they can still operate without it. Hence, since the anti-spam product is perceived by these clients as a supportive input, prices are valued over product effectiveness or other features. Having understood that price is often the decision trigger when product effectiveness is similar, the industry offers these clients standardized plug-and-play products that allow for scale economies hence the Standard market designation, in order to offer a more competitive price. Therefore, in the Corporate market, anti-spam solutions are priced as a function of the number of mailboxes the customer wishes to secure. Price per mailbox discounts are offered as the number of mailboxes secured increase, as Anubis internal confidential reports indicate. 8

9 Hence, in the Corporate market, the relationship with clients is cyclical since products are sold as temporary licences to use the anti-spam solution, bought according to the number of mailboxes to be secured, that need to be renewed when expired. According to Anubis internal reports, in 2007, the worldwide Corporate market size was 973 million protected mailboxes designated as the installed base (IB), which represented a USD million sales volume. Expected growth rate for this industry, for each of the next 4 years, is around 15% for the IB and 11% for industry total revenues. The same reports present multinational corporations such as Barracuda Networks, IronPort, McAfee, Symantec, TrendMicro and Panda as the most relevant competitors in the corporate market. Service Providers or Customized Market The Service Providers market is a niche market. It includes specific clients such as Internet Service Providers (ISP), Application Service Providers (ASP), Portals and Messaging Service Providers (MSP) also known as Providers; for instance, G- mail, Hotmail, etc. These clients look only for the software product configuration, as they usually have all the hardware necessary to run the product. For Service Providers, the anti-spam product is a relevant input for their core business as the lack of anti-spam service will be perceived as a pitfall by their own customers according to Nuno Loureiro, a manager from SAPO an ISP, one of Anubis largest clients. Furthermore, unlike customers from the Corporate market, who simply request this industry to deliver an end product that fixes their spam problems, Service Providers have know-how in the IT area and are able to request customized solutions to meet specific needs, thus the niche designation and the differentiation to the standardized mass-market. The product can be highly differentiated as different competitors may present different alternatives, depending on their own know-how and approaches, for the same problem presented by the Service Provider. Customization allows for higher prices and scale becomes less of a relevant factor, allowing for smaller companies to compete head-tohead with larger competitors (Li, 2007). Since larger players, competing in the Corporate market, have rigid structures based on a standardization business model design for economies of scale, they choose not to meet 9

10 customer customization demands in this market niche. Despite the special requirements, companies do offer their standardized solutions to these Service Providers. However, they are not perceived as competitive as those who customize their solutions for the clients, according to Nuno Loureiro. Given all the vicissitudes described before, and unlike the Corporate market, the business relationship with the clients is not cyclical. The Service Provider requires a solution for a problem and buys the solution to implement, ending there the business relation. Technical support is indeed part of the service but is offered as a guarantee. Therefore, this is a buy-once-pay-once relation. Nevertheless, the same Service Provider may need several solutions through time. Security Industry Attractiveness The use of Porter s Five Forces model allows assessing the global industry attractiveness. Although some aspects differ between the two different markets that compose the security industry, the global perspective is that it can be a profitable industry. See Appendix 7 for detailed explanations. Entry Barriers Rivalry Significant overhead costs Steep Learning Curve Networks Externalities Economies of Scale Brand Equity (Reputation) Low Switching Costs Several Global Players (war for scale) Short Life-Cycle Products Undifferentiated Products except in the SP market niche 10

11 Suppliers Clients Hardware Suppliers (HS) have greater leverage then Software suppliers HS have less relevance for the security industry Low concentration from the security industry in the Corporate Market High concentration in the Service Providers market Substitutes No realistic direct substitutes Fig. 3 Industry Attractiveness Porter s 5 Forces Model Entry barriers are the first most relevant force for the attractiveness of the market. With significant structural barriers presented in Fig. 3, it is not easy to enter this market from scratch. Plus, strategic entry barriers such as limit pricing for the Corporate Market are being used by the global players to further increase the difficulties to compete in this broader market. Rivalry is the second force to intensely influence market attractiveness. The Corporate market is under a price competition scenario, with a computed Herfindal Index between 0,097 and 0,189 depending on product configuration See Appendix 8. It is not possible to compute the same index for the Service Providers market as there are no figures on this market yet. However, according to information collected from the CEO, competition is not only softer but also different in this market as competition is made in other dimensions than price, making it more attractive in this sense. Overall, this can be seen as an attractive industry, especially if you are a sound competitor in the Service Providers market where price competition is not expected, given the existence of a differentiable product. Although more significant as a market, the Corporate market becomes attractive once you are established as a big player given the structural entry barriers, the possibility to engage in strategic behaviour to further raise these barriers and the significant gains from scale increments. However, the operational margin is very low and profits come from large volume. 11

12 Anubis Pin Point Within the Portuguese market, Anubis as achieved a comfortable status, with a leadership position claimed by the CEO (no market share presented, though). Nevertheless, global players such as Barracuda Networks, IronPort, McAfee, Panda, Symantec and TrendMicro have much larger scale economies than Anubis, due to their global nature, making them fierce competitors in terms of price, as scale means significant fewer costs per unit, resulting in higher flexibility to lower prices. Given Anubis solid position, with clients often conquered directly to key players, major international corporations are expected to pay more attention to the Portuguese market and become more competitive, which means a significant risk to the profitability of the company s single market. Hence, to the company s viability in the long run as well. In light of this threat, Anubis has diversified its business. It was able to enter the niche market of the Service Providers by closing contract with SAPO, one of the largest Portuguese ISP s, while competing directly against a global player: IronPort. Although a small step, it allowed Anubis to become aware of the required competences to be competitive in this market. According to the CEO, because scale is less relevant for this niche, due to customization in a client-by-client case, Anubis lack of dimension versus global players is much less of a factor to compete. Plus, the successful accomplishment of the SAPO project proved Anubis to have know-how to compete on this knowledgeintensive market, a competence further explained on the next section Internal Scanning. 12

13 Internal Scanning Distinctive Competences Anubis is an entrepreneurial project born from the will of former workers in the Vodafone Group, with significant technical expertise in dealing with network security, to address the issue of spam. The staff s technical experience and know-how has allowed the company to develop the majority of the elements that compose their products in-house relying less on outsourcing, as opposed to some competitors who acquire more elements of the end product from OEM and open-source software (OSS) developers and then make a wrap up, applying their branding and marketing according to Francisco Fonseca. Therefore, despite being a young company, Anubis has not only expertise in anti-spam solutions but has also proven to possess the required know-how to operate in the demanding Service Providers market, as they are deep into the product development process. As a result, Anubis was able to develop its own version of the Fingerprint technology which they named Spike that makes them independent of other software developers for this essential element of the end product. The Fingerprint technology is seen as a must have feature for any company competing in the security industry, according to Nuno Loureiro from Sapo. Furthermore, as an in-house developer, when clients do come across with problems, Anubis is able to provide full technical support for their solutions, provided by the company s own staff, which translates into faster responses and delivers a sense of proximity unlike competitors who relegate the technical assistance to third-party call centers. Thus, with such modus operandi a greater service level is perceived by customers. But the key competitive advantage for the Service Providers market is the fact that, by being a small company, it is flexible and accommodates changes in customer demands faster than heavier competitors, offering solutions according to the customer nature. In spite of major competitors having more resources available human and financial capital they are unable to similarly perform customization since they primarily bet in a one-type fits all product as it is more profitable for them. 13

14 Anubis operates practically in every stage of the value chain (see Appendix 9) for the Customized market. In the Standard market, since it does not require a strong technical background for the sale process, it out sources the distribution through three resellers to: Compta, Bizdirect and CSO. The sales/distribution structure for the Portuguese market is adequate and fulfills Anubis demand in comparison to its competitors. But when going abroad, Anubis will face the challenge to put up an effective sales force, since their competitors have already a wide established net of resellers and channel partners around the globe. Altogether, the ability to cooperate with customers, the unique product characteristics, a distinguished support service given the speed of solving problems and client proximity in contrast to their multinationals competitors which usually centralize operations regionally, resulted in a substantial growth of the client portfolio in the past two years. Capabilities Gaps SME s typically face resource limitations such as shortages of information, capital, management time and experience (Li L., 2007). The board, particularly the CEO, does not hold international experience plus the absence of a clear strategic and operational plan, may difficult the process of internationalization by slowing Anubis through wrong choices and decisions. The Portuguese market is not significant in the worldwide security market and, therefore, important aspects as brand awareness and brand equity are not developed abroad, whereas major competitors have not only longer experience and presence in the security market but also a substantial customer base, which gives them brand awareness and market power to set the market standards. As in many other industries, here too reputation works as a network externality: the greater the number of clients and their dimension, the more reliable is the product and the company perceived. Nevertheless, Anubis may not be able to leverage the reputation built in the Portuguese market into foreign markets, which is currently one of their biggest strategic challenges, since their big Portuguese customers are frequently unknown abroad and won t work as a good business card. 14

15 The lack of international brand awareness and reputation will definitely become an obstacle when going to foreign markets. Both are an important aspect to acquire clients and also because it will be hard to recruit local human resources abroad if necessary. SWOT Analysis Summary Strenghts Weaknesses Technical know-how and in-house development capabilities Flexibility to respond to customers special requirements Financial Resources available Good client portfolio in Portugal Inexistent Brand Reputation abroad Lack of international experience Lack of scale Presence in a single and small market Lack of language skills to develop products for foreign companies Opportunities Threats Market niche with profitability potential Spam is expected to grow, hence so will the anti-spam business Expected competition from global player in the Corporate market Internationalization Process dependant on a single external agent (sales representative in Brazil) 15

16 General Problem Given the external and internal scanning, a conclusion can be drawn regarding Anubis capacity to sustain its growth as a start-up and to achieve a mature position in the short/mid term. The company is likely to lose competitiveness if it chooses to remain solely in the anti-spam Portuguese market, especially if it focuses exclusively in the Standard market where it is expected to become less and less competitive when compared to the major players. The threat of stronger competition, coming mainly from global players tougher strategic actions in the Corporate market, is behind the problem of sustainability as they have far more resources to support price wars, a scenario that, according to Francisco Fonseca, is already being felt. Therefore, Anubis is obliged to look for alternative markets not only for survival purposes on the long run but to assure resources that allow the company to remain competitive in the Portuguese standard market in the short-mid term. The first and, apparently, easiest alternative would be diversify the business to the Portuguese Service Providers market. The reputation built while working with Portuguese large enterprises eases the transition into selling to Service Providers. However, the problem of sustainability is not solved. This market, in Portugal, is a niche of niche as it is indeed a very small. To target a niche of an already very small market could delay the sustainability problem but would not absolutely overcome it. Thus, the generic problem Anubis is facing at the moment is the need to start its internationalization process to pursue the Service Providers niche in geographical market of greater dimension. This means the internationalization process must concern the questions of what geographical markets to move into and how to establish Anubis presence in the selected markets in a way that allows complying with its value proposition. Choosing an Entry Mode The purpose of this IWP is to analyze entry modes into foreign markets. Having selected the products the company believes to have export potential, and having determined both the target markets and the geographical markets which they believe to 16

17 be the best opportunities, both in terms of profitability and in terms feasibility, Anubis must now address the issue of selecting the appropriate entry modes. When the country selection is completed and the decision to internationalize is made, a company has six legal ways of establishing itself in a new market: 1. Wholly-owned Subsidiary 2. Joint Ventures 3. Mergers and Acquisitions 4. License Franchise 5. Agent Distributor 6. Office Foreign Direct Investment Partnerships The Wholly-owned Subsidiary, the Joint Ventures and the Mergers or Acquisition forms are all Foreign Direct Investment (FDI) alternatives that require a strong strategic commitment towards the internationalization process as well as greater financial resources, thus representing a higher risk particularly for a small firm like Anubis who lacks experience operating abroad. The License Franchise and the Agent / Distributor would be considered the next two alternative entry forms for Anubis. Licensing is a non-equity contract, with a local partner firm, that grants the licensee the right to use one or more of the licensor assets such as patents, brand name, business models, technology, etc. in exchange for a fee. (Osland, G. et al. 2001). Although less financially demanding, these alternatives would mean less control over foreign operations and would even increase the chance of a foreign partner acquiring Anubis technological competitive advantages and later becoming a direct competitor. According to Li, L. (2007), partnerships can become a menace for SME s, especially if they have resources to cover market niches alone. The establishment of an Office is the most balanced alternative for a company like Anubis. It does not require the necessary funding of FDI like market entries, nor does it jeopardize the firm s control over foreign operations and technical know-how as well preventing today s partners to become tomorrows successful competitors. 17

18 6 Legal Entry Modes Office Partnerships Foreign Direct Investment Viable Knowledge-Intensity makes it unsuitable Lack of financial resources Fig. 5.2 Problem at Focus: Legal Entry Modes Analysis Uppsala Model - Exporting Having conducted a literature review on research concerning internationalization of firms, particularly regarding entry modes, the Uppsala model was suggested to accurately describes firms usual internationalization process (Moen et al. 2004). The Uppsala model argues that a firm s internationalization experience generally comprehends four stages: 1. No regular export; 2. Export via independent representatives; 3. Establishment of an overseas sales subsidiary and; 4. Foreign production/manufacturing. Thus, a company like Anubis with no international experience is advised to begin its expansion with Exporting. This alternative requires less strategic commitment because there is little need of high financial investment and is a way for Anubis to become experienced in international business before opening making stronger commitments towards internationalization However, a company has three alternatives when decides to export: 1. Direct: the sale is made directly to foreign customers 2. Indirect: sales are made to home customers, who in turn sell the product abroad 3. Third Party: where an independent entity connects the exporter with the importer 18

19 Since Anubis is selling a product for the final consumer, in a Business-2-Business frame, the choice of Indirect or Third Party Exporting would only be justified if the company couldn t, for some reason, accomplish the sale to the foreign customer itself. Motives as language or cultural barriers could support the choice for these options. However, bringing intermediaries between Anubis and the end customer would mean dividing the total profit. Since the motives supporting these choices are inexistent, given the market selection made by Anubis managers, Direct Exporting is the most suitable choice. Direct Exporting, however, raises some issues and questions for Anubis: i. Exporting demands knowledge on dealing with government institutions, such as customs, and with all the legal proceedings regarding documentation. Given the product intangibility and the Internet as its distribution channel, one not under customs supervision, although a pitfall usual associated to exporting, dealing with customs and paper work is not an issue. ii. iii. iv. Exporting enhances the brand s positioning as a foreign company, thus leading to the notion of physical absence. How can this sense of physical absence influence Anubis business? What can be done to deal with it? Understanding customers specific needs let us not forget Anubis is targeting the Customized market can become difficult and may result in delivering faulty products leading to brand reputation damage and, ultimately, internationalization failure. How can customers needs be accurately communicated to the product development team based in Lisbon? Issues regarding technical support may become a flaw in Anubis general service level. How will the product be installed at customer premises? And if there is any problem, who will provide technical support and how? v. In spite of being a market niche where product flexibility is highly appreciated by customers, brand awareness and reputation are still major assets Anubis does not possess abroad. How to overcome the brand awareness issue? vi. Who will make this work? Regarding human resources, does Anubis have the people to engage in an international expansion? For a company like Anubis, 19

20 people are its factory and production is expected to rise substantially. Is Anubis prepared for this? If not, what can be done? vii. Exporting is less financially demanding than any of the six legal entry modes presented above but it does require financial resources. How will this work financially? Does the company have the necessary resources to engange in actions to solve the issues presented? Uppsala Model: Exporting Direct Exporting Indirect Exporting Third Party Intermediaries Unnecessary profits split with third parties What issues arise from Direct Exporting? Building the bridge between foreign customers and Lisbon Legal Proceedings Financial Viability Lack of Brand Reputation Foreigner Positioning Technical Support Human Resources Fig. 5.2 Direct Exports alternative and issues concerning this expansion method. 20

21 Methodology For this IWP, primary data and secondary data were used. One in-depth interview and several informal meetings with Anubis Networks, SA CEO were conducted to perform an internal scanning of the company and for the analysis of the Service Providers market, given the absence of market reports on this niche. Another in-depth interview was conducted on a manager from the Portuguese ISP SAPO, Nuno Loureiro, in order to obtain accurate feedback from a customer, belonging to Anubis target market for the international business, both to improve the knowledge about what characterized these customers and to check if the CEO s self-perception matched what customers perceive in reality. Moreover, the CEO provided access to confidential internal reports, developed by external consultancy companies, which for this reason cannot be presented in the Appendix section. Still, information from these reports was used for the understanding of Anubis external environment. Finally, to support the proposal presented in this work project, literature research was conducted on papers focusing the process of internationalization of small firms. From this literature review, two main models of internationalization were identified for use in the development of a proposal that fit Anubis competitive scenario: he Uppsala model (Johanson and Wiedersheim-Paul, 1975) and the Network model (Johanson and Mattsson, 1988). The Uppsala model has two main ideas. First, company s internationalization process is lengthy and gradual, from no international experience to setting up manufacturing facilities abroad. In between, firms usually engage in exporting first and then may open subsidiaries abroad. Second, firms always pursue markets geographically close and psyche-near their home markets. With experience, they will tend to move into farther countries. The Network model, which is more recent, contests the second idea from the Uppsala model in the case of the software firms. Through research on several small software firms, it was concluded that firms to not pursue close markets but, instead, they look for markets where the company may have social contacts. 21

22 Anubis approach towards internationalization The company has realized its lack of resources to be a fierce competitor in the corporate market where margins are very low. Anubis recognizes its much smaller scale when compared to the global players locally established. Thus, the choice of looking for market niches, where it can operate under sustainable competitive advantages. Anubis managers have determined the target market to go abroad Service Providers, given its key competitive advantages explored in the Internal Scanning section. Country selection was not random. The company has been looking for geographic markets where entry can be somehow facilitated through the company s social network, thus following the internationalization model defended by Bell. Also, Anubis recognizes language, for instance, to be a crucial knowledge to develop a product for a specific country. Thus, Russia, China and India may seem very attractive but the company understands its competitive gaps. Following this Network approach of looking for markets where they have contacts, and that do not have the language barriers, Anubis has already identified three main geographic markets where they wish to enter and compete all at the same time, starting in 2009: Spain, Germany and Brazil (possibly extending its services to South America, as well). Sales forecasts have also been conducted for each of the market as can be seen below, as can be seen in Appendix 10. The Network Model Application: Germany & Brazil Germany: One of Anubis shareholders works for Vodafone in Germany. This person has thirteen years of experience in the areas of internal and internet IT systems, applications and networks and more than five years of international experience within the Vodafone Group. Francisco Fonseca believes this person to be able to identify one native German with contacts in Service Providers to become the face of Anubis in Germany. Thus, this would be an intermediate contact for an additional contact still to find. 22

23 Brazil: This is a person who works for Check Point Software Technologies (CPST), an Anubis competitor, as Manager for Latin America (Pre-Sales Director). He has more than eight years of international experience in sales and pre-sales activities in the US and all over Latin America and between 2000 and 2006 he was responsible for approximately $100 million dollars in sales in Latin America. His competence is undeniable as he has won several international awards, including Best Security Engineer from CPST. Not only does he have a commercial profile but he also worked directly with CPST s R&D department to design and develop new products. Besides, he is actually an Electrotechnical and Computer Science engineer from Instituto Superior Técnico, in Lisbon. The downturn of this contact is that he is only willing to leave is current position at CPST for a salary around /year. This is may raise discomfort amongst the actual Sales Department staff. However, it should be pointed out that, in terms of cost/benefit, this solution if efficient as no marketing activities costing this amount would leverage Anubis positioning the way he is believed to be able to do. The Uppsala Model Application: Spain According to the Uppsala model, firms typically choose close-to-home foreign markets to begin its international quest and will gradually pursue farther markets as they gain international experience (Vahlne and Wiedersheim-Paul 1973) which is exactly what Anubis is doing in the Spanish case. Given the lack of experience in international business, the company is also considering the Spanish market. The choice is explained by the Spanish market similarities to the Portuguese one. The language barrier, although existent, is easy to overcome. None of Anubis workers speaks Spanish but because Portuguese also derives from Latin it makes it relatively easy to learn. Also, the short geographical and psyche distances, makes it easier to use big clients as a business card. 23

24 Analysis and Proposal Target Market Conditionings McNaughton (1996) has concluded that the firm s product customization degree was an influence to the entry mode selection. Since Anubis is targeting the Customized market, composed by customers who have enough know-how on the industry products to be able to ask for specific redesigns, whatever sales force channel the company chooses to set abroad, it must have technical expertise on the product. First, it must be someone who knows the product features to be able to properly sell the product to this well informed type of customers, presenting, when required, detailed technical explanations of the anti-spam solution capabilities developed by the company. Second, it must be someone who is able to make the bridge between the client and the product development team. Whoever presents a customizable solution to a client must be able to accurately comprehend customers special needs, being able to make suggestions if necessary. At the same time it must be someone able to accurately brief the product development team of all the customization parameters. Third, the sales force set abroad must also be able to deploy the product at the customers premises if required, a task that demands strong technical skills given the complexity of some customized solutions, quite different from the plug-and-play ones offered in the standard market. Finally, the sales force is the first line in terms of technical support and must be able to provide it or, in case of a complex situation, precisely report the issue to Anubis headquarters where specialized technicians can address it. The Scope: Brazil Anubis is too small to pursue competitively three distinct markets simultaneously. Ultimately, it might lead to a weak presence in all three, which would damage future chances of establishing Anubis has a solid competitor. Hence, there is a need to prioritize the country selection and two issues bring up Brazil as the priority market. 24

25 First of all, according to Anubis internal reports, Brazil is the most attractive market among the three in terms of expected sales volume (see Appendix 10). If one of the company s internationalization drivers is obtaining resources to remain competitive in the Portuguese market, it makes sense to choose for the most financially promising market. Second, the opportunity cost. The contact in the Brazilian market is unparallel for the company, which needs that kind of sales representative: experienced in selling (proven commercial profile) but also with strong technical expertise. It s availability to leave its current job and to join Anubis is known but it may not be eternal. If this contact is lost, the Brazilian market is no longer recommended, both under the Uppsala Model as it is far from Portugal and the Network Model as the company has no other contact there. Direct Exports vs. Office Past research on small software firms internationalization (Bell, 1995; Moen, 2004) has indicated none of the six legal alternatives presented in the General Problem section, which predict the setting up of production in the foreign markets, to be suitable for a company with intangible products with no need to produce/deliver its products abroad. A decision to set up production/distribution facilities abroad is made under the assumption of cost savings which is not the case with the software. Although a product, software development does not require typical production facilities, such as factories or assembling lines, nor does it require complex logistics, delivery or transportation systems. Partnerships with agents or distributors from foreign markets are, according to Bell (1995) appropriate for standard product business whereas companies who base their business model in tailor-made solutions should establish their own export sales staff to deal with customers. Thus, the office solution with company s own staff is a viable one for Anubis. According to research on companies expanding from Norway to the US market (Moen, 2004) a transition similar to what Anubis is facing with Brazil the office solution was very successful when certain conditions where met: a native person running the office, with prior experience in sales and with former clients and acquaintances. This is the case of the Brazilian contact that Anubis has managed to find and approach. However, the office brings overhead and operating costs and would implicate setting up 25

26 product development teams when according to the CEO, every product development stage can be performed at the company s premises in Lisbon. For these reasons and considering the internationalization stage where Anubis is no exports at all, the office solution should not be immediate. With Anubis resources, international experience and general product and market scenario, the recommended strategy is the choice for direct selling through a sales representative, with technical expertise, responsible for an exclusive region. It would allow beginning the international venture without putting the company s home performance at risk since this option does not demand heavy resources. With predicted future growth, and following the Uppsala model theory, opening an office in Brazil and localizing product development teams abroad is the right choice when comparing to FDI or partnerships. Facing the Issues Concerning Exporting The Lack of Reputation The Brazilian market, and the same reasoning can be extended to the South American market as well, is distant from Portugal. Not only is it enormous as it is well developed in terms of ITs product offerings. The lack of reputation would be an obvious entry barrier for Anubis that must be dealt with upon exporting to such market. Because of the distance between the two markets, to present its rather solid client portfolio of Portuguese clients as a business card does not seem to solve the gap of reputation. Anubis best chances lies in recruiting an identified local human resource that works for a direct competitor. If this person were to be the face of Anubis in the South American market, the problem of reputation would be solved has his current clients already rely on his word for competence, effectiveness and integrity. He himself would be the reputation badge for Anubis in the Latin America market. Financial Resources for Internationalization Because such project requires liquidity, Anubis management is negotiating with shareholders to persuade them into funding these operations. So far, however, shareholders have been divided in how much to support the company, since they disagree on the decision to target all the geographical markets at the same time and even what market to enter first is not consensual. 26

27 According to the CEO, Anubis is not dependant on the willingness of the shareholders to fund the project and they have resources to pursue these international projects on its own. However, they acknowledge that it would be much less risky for the company if they had access to additional financial resources rather then using company s profits from past years. Technical Support and Bridge between Clients and Anubis Without a physical presence in Brazil, the service level regarding handling technical support will be considerably lower than what is the standard for the Portuguese market. Phone assistance is possible but, according to the CEO, some issues must be addressed in loco as the client is unable to understand the problem to report it. Since sending a Portuguese technician every time a problem occurs is unreasonable, the sales representative must handle the most basic issues and report back the most complex ones. The Brazilian contact is, in Francisco Fonseca words, a one man show, able to deal with technical aspects of the anti-spam software product. In a more serious case he is able to report back to Lisbon the situation and, once developed, implement the necessary corrections at customers premises. Positioning as a Foreign Brand and Physical Absence If Anubis is planning to operate in Latin America, Spanish is a language to be learnt since none of staff speaks it. Despite English being universal, tasks as selling and technical support must be offered in the customers home language to provide a sense of physical presence in the customers country. Another action to promote the sense of physical presence is the creation of websites for each of the country where they are competing. The sites must be in the country s official language and should present customers satisfaction statements to encourage new ones. Human Resources The increase in the market size calls for capacity expansion. Moreover, Brazil is the door for the Latin American market, further increasing this need on a near future. Anubis must create engage in a recruitment process. Usually these processes take time and, for Anubis to begin its expansion successfully, when the projects start coming from abroad, the product development team must already be set to address them with no delay. 27

28 Implementation Plan Anubis should hold every other international project, to allow all the management to fully concentrate in Brazil, along with the home market. It is preferable to make a late entry but with good arguments and well prepared to compete than to waste resources in a precipitated. I. Minute st Semester Hire the contact in Brazil: Initiate contacts with the purpose of securing the contact in the Brazilian market. Usually job contracts have rescission clauses and it takes time to solve contracts. Bring the contact to Portugal to introduce him to Anubis staff, particularly the product development team. Knowing the core competences of Anubis is relevant for someone who will represent the company abroad. Participating in a Portuguese project to become acquaintance with Anubis operational process could be helpful. Negotiate with the shareholders: Although Anubis is confident on proceeding to its international expansion with its own resources, negotiations with the shareholders should be concluded in order to evaluate exactly how much the company has to invest in this venture. Assess human resources needs: Discuss with the Brazilian sales representative the kind of projects expected in Brazil and compare it with the actual development capacity. Obviously customized software is hard to rate in a products per day ratio as it is depends on a project to project basis. However, the experience from the sales representative can indicate what kind of human resources Anubis needs nd Semester: Begin Operations in Brazil Send the sales representative to Brazil and begin contacting his previous clients in order to promote Anubis as a new player in the market. 28

29 nd Semester: Expand Sales Representative Team with Local Sales People Along the second semester, expand the sales representatives to assist the Brazilian contact. It is important to avoid remaining eternally dependant from one person that can leave Anubis for another job offer. Implement recruiting processes in Brazil to recruit local sales force South America & Office Abroad Begin sales and marketing efforts throughout Latin America. Assess Anubis general performance operating abroad. Considering future client portfolio and the dimension of the markets where the company is operating, it is likely that the majority of the sales volume will come from the Latin American market. If sales volume is developed and has been significant throughout the 2009 and 2010, establish an office with product development teams. II. Men st Semester: Guarantee the Brazilian contact Recruit the Brazilian contact. Have the HR department person develop a cyclical recruiting plan for additional technicians nd Semester: Begin a Cyclic Recruitment Process for Technicians Initiate recruitment process of additional computer programming technicians. This process may be long as Anubis may not yet be seen as an attractive employer in the job market, suffering from its start-up status. Therefore, initiating this process should be a priority to make sure human resources are available as soon as possible. Furthermore, this recruiting process should be maintained through the next years as the company foresees strong sales growth constant for the next four years. Travelling availability should be a requisite as the predicted establishment of a foreign office will require 29

30 sending Portuguese technicians abroad for creating product development teams and transmitting Anubis core competences to technicians recruited abroad. Have Anubis staff taking Spanish classes as part of their on-the-job training. Foreign language training should be part of the job features from now on Developing Management Staff Competences Consider hiring management staff experienced in international business to help support the fast growth of the company and support the CEO who is expected to be travelling a lot and whose absence may be hurtful for the domestic market. If hiring management staff is considered to be too expensive, consider having one of the current management staff attending an MBA or a post-graduation on international business. III. Materials Along with sales representatives and customer support offered in each of the countries language where Anubis expects to compete, the company should also take actions to help being perceived as physically establish in the clients markets. Therefore, according to market entry time line it should create versions of the website designed for those customers: 2009 Opening Brazilian version of the website Expand website versions according to the countries where operating. IV. Money With the beginning of operations in Brazil, every year will go for the sales representative as this his reserve price to accept leaving his current job. Because the sales representative will cover a large geographic region it is expected him to be constantly travelling. Expenditures with travelling and hotels are then estimated at The company s products life-cycle is short, and require continuous R&D efforts. Thus, additional is allocated for this purpose. 30