MARKET EXPANSION SERVICES CHANGING THE FOCUS OF OUTSOURCING TO INCREASE REVENUE

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1 MARKET EXPANSION SERVICES CHANGING THE FOCUS OF OUTSOURCING TO INCREASE REVENUE Whitepaper provided by adyton Sales Execution as a Service For further information, please contact info@adyton.de Copyright by adyton Sales Execution as a Service, Munich, Germany, January 2012

2 Management Summary: Traditional Outsourcing used to focus on efficiency gains and cost cutting. Typically it is found in areas where no customer interaction is required like production processes, payroll management and cleaning services. With Market Expansion Services (MES) a whole new type of outsourcing is developing. MES focus on sales growth and increased market share, objectives which are on most CEOs agendas. Experts predict a rapid growth of Market Expansion Services between 5% and 8% until Companies who intend to grow their overseas revenues now have an interesting alternative. MES help companies grow their business in new and existing markets. Unlike traditional outsourcing companies they engage in close contact with customers. The prime examples of MES include marketing and sales. For sales and marketing services it is mandatory to understand the local culture and regulatory requirements as well as maintaining a network of potential customers. Many companies today are hesitant to hire staff and set up subsidiaries. It is costly and requires extensive resources and local knowledge of the local regulatory requirements. Companies hope to hire staff with access to local customers, enablers and distributors. Market Expansion Services can also support vendors already present in a market. Frequently vendors are looking for a performance boost in a specific region. By adding focused sales services they can tap into new revenue potential. Page 2, January 2012

3 There are five drivers behind the growing adoption rate of MES: 1. Globalization. In the past only very large multinational companies were able to offer their products and services worldwide. They benefited from economies of scale because they served very large international markets. Today, to compete with multinationals even small and medium sized organizations need to look outside of their home market. Nowadays you find medium sized organizations that generate more revenue abroad than at home. 2. Focus on core competencies. Today companies focus on their core competencies because in our very competitive market it becomes increasingly difficult to achieve world class standard in several categories. Even successful organizations like GE recognized that running a successful engineering-and services company does not necessarily mean to be able to run a media company. 3. Speed of business. Just 10 years ago companies used fax machines to process purchase orders and schedule deliveries. Today customers and business partners expect real time communication. Many transactions are initiated and processed by computers and only monitored by humans. 4. Time to market. The early bird catches the worm. Companies who are able to penetrate a market early can easily benefit from relatively high pricing. Competitors who enter the market later very often have to discount their products and services and therefore realize smaller margins. 5. Sales Margins. For private and for public companies a high sales margin is essential. By using MES the sales margin is considerably higher since the cost of sales and administration can be reduced, especially compared to setting up subsidiaries. CFOs prefer OpEx to CapEx which is another reason for Market Expansion Services. Page 3, January 2012

4 The unique Customer Interaction and Growth position of MES: Growth Market Expansion Services Business Process Outsourcing Cost- Cutting Manufacturing Outsourcing IT Outsourcing Technical Support Outsourcing Internal Customer Interaction Market Expansion Services occupy the premium position of all outsourcing services. They increase revenue and can reduce cost and risk at the same time. Unlike traditional outsourcing services MES involves customer interaction and therefore vendors and MES provider usually arrange a tight communication process. To avoid loss of control a deep understanding of local customer expectations, regional requirements and the vendor s products and services is required. Page 4, January 2012

5 Typical objectives of vendors: Objectives Access to local customers Establish market entry platform Risk minimization Lack of resources Lack of local experience Shortening time-to-market % 10% 20% 30% 40% 50% 60% 70% 80% Most vendors have multiple expectations when selecting a Market Expansion Service provider. Almost all Vendors expect access to local customers and prospects. The MES provider and his team must be well connected to the vendor s target market. Many vendors would like to duplicate the go to market process and replicate it for other countries. Especially in Europe, where you find multiple cultures and languages a replicable market entry platform is desirable. Vendors also aim for a risk reduction when entering new markets. Managing and reducing the risk becomes increasingly important in fast markets like software and technology where vendors need to be in a market early to become a market leader. A delayed entry can be very costly to a vendor and in some cases a market entry can become impossible because of market saturation. Shortening time-to-market and becoming the creditable local market leader is crucial for some vendors. Page 5, January 2012

6 Standardized services bring costs down: MES offers end-to-end solutions for Business Development, Marketing, Sales and Post Sales deployment and customer service. MES providers can standardize those services and thereby reduced their own costs. These cost benefits are passed on to the vendors. If an account executive sold Enterprise Software to a large customer and handled the business relationship professionally he is in a prime position to approach the same customer with another product or service. By reusing those relationships both the MES provider and the new vendor benefit. Another factor is the dynamics of the vendor s requirements. In most situations the vendor s requirements will change over time and MES providers can easily adapt the number and depth of services they provide to their clients. Page 6, January 2012

7 Risk Exposure of different go to market options: There are many routes to enter a new market. They all have a certain risk exposure in common. No matter if you choose to enter a joint venture or to open a subsidiary you face a certain risk. Many US vendors set up a legal entity in each European country and hire staff. In case the revenue expectations do not come through they face costly legal battles. On the other hand, if you decide to enter a market by using a low risk strategy (i.e. sales agent, nonexclusive licensing), you probably do not exploit the full market potential. Each country and each industry has a set of regulatory requirements and it is difficult to understand and fulfill all those requirements. MES will help vendors to reduce the risk while at the same time allowing the vendor to profit from this emerging new sales and marketing paradigm. Page 7, January 2012

8 6 capabilities to look for when selecting a MES provider: Robert Crais, the best-selling author from Louisiana said: Efficiency and focus are the keys to success. 1. Focus on your industry. Look for MES providers who are focused on your market. If you are a software vendor, make sure you select a MES provider who has extensive experience with software vendors. It is impossible for vendors to deliver superior results across all industries. I.e. a vendor who offers outsourcing services to the pharmaceutical industry and to software vendors probably does not understand both markets exceptionally well. 2. Focus on your region. The MES provider you intend to select should have extensive local knowledge and a local network of contacts in the region and in countries under consideration. Perform an extensive due diligence if a MES provider promises you an extensive worldwide network of contacts. To keep the quality high you should have few regional MES providers with an extensive local network. 3. Focus on Sales. MES providers should be able to provide strategic guidance and at the same time deliver the level of execution which is required to enter a new market. Since you already have a company strategy you probably don t need to reinvent the wheel over and over again. Look for experienced sales people on the ground and on the phone. 4. Team. Make sure the team and the individuals you will partner with have the same experience, a local network and are as qualified as your best employees. 5. Communication. Make sure the MES provider communicates openly and frequently with you. A tight communication link between the vendor and the MES provider is recommended to ensure good corporate governance and high ethical behavior. By analyzing the feedback you get, you can easily adjust and fine tune your sales- and marketing plan. 6. Exclusivity. Most vendors desire a competitive clause to make sure the MES provider does not work with a competitor. This is a very delicate issue since some very large MES providers cannot guarantee this level of exclusivity. Make sure the competitive clause is part of your agreement. Page 8, January 2012