Wednesday, July 21, 2010

LatAm Market Entry: Before You Jump, Part Two

Before looking into some Market considerations, I'd like to point out an additional, and perhaps, crucial Product consideration. Many technology companies rely on strategic partners to complement the company's innovative offering. Perhaps the product requires special hardware or even additional software for it to be a complete solution. Maybe there is a need for certain expertise for delivery or even a need for specialized facilties for operation. I know of a company that houses its service application at a third party installation in Belgium and from here, the company serves its European based customers. No such installation was available in the CALA target country. In order to provide the same service in CALA, the company would either have to build a hosting site or procure an existing one in the region. On the other hand, there are many India based companies that seem to have overcome this limitation when serving US customers. The good news is that hosting companies have sprung out in Latin America. Brazil, for instance, has no less than fifty such companies specializing in different types of applications.

Another example is the requirement of specialized computing equipment in support of a company's special software application. The consideration is that the partner supplying the computing platform might not have as wide a presence in the region as the software vendor requires. This can significantly limit the reach of the software vendor.

So, intentions of strategic partners towards CALA can be an essential success factor.

Traditional approaches to market assessment follow a macroeconomic or political factor approach. PEST analysis is a must on every international marketing MBA curriculum.

What technology companies really need and what technology companies really want is a list of opportunities ready to mature. Ole Kilgore, former CEO of UshaComm, once told me that what every CEO wants is to hire the salesperson with an almost ready deal in the back pocket. In other words, totally abbreviated market research boiled down to the pre-purchase order stage. 

Market research and assessment initiatives, at the very least, aim to 
  • Identify number of potential qualified buyers,
  • Determine when will they be buying,
  • Find out how much will they spend; and
  • What their purchasing cycle and process is, including who the decision makers are. 
This kind of information unfortunately isn't readily available from industry reports and can be best obtained through a series of sales calls. Therefore, the importance of hiring a person with actual and current presence in the market. Ole, you were right!

One can fairly state that some very important market considerations were already identified in the previous blog on Product. The recommendation was to explore whether the Product was suitable, in the current incarnation, to meet the specific needs of the CALA market.

Perhaps the company will find that there is a need for further development to have the product fit CALA. Let me give you an example. A software vendor has designed its application to be compatible with a very high performance technology platforms, from mainly two strategic partners. Tall them N and T. Yet the dominant vendor for this type of computing platform in CALA is neither. It is actually O. Under what conditions will the software vendor invest in being compatible with O? Or will the company assume a wait and see what deals will N or T bring to the table?   

What other general considerations should a company look for when entering CALA as a new market? I propose that we assess how suitable the market is for a Product based on three characteristics:
  • Ready;
  • Willing; and
  • Able
Ready: Are the potential customers ready to adapt or use the product? Going back to the mobile market. I worked with an India based company that wanted to distribute videos of sports events via mobile handsets. At the time, the majority of the handsets were 2G, and in fact, there was but only one 3G network in the region. Clearly, the market was not ready.

Readiness limitations are not only technological but can be economic, social or even regulatory. Some mobile VAS require significant bandwith. Most mobile operators down south, have access only to limited spectrum. The perceived technological limitation is the result of a delay in the freeing of bandwith by the regulatory entities. 

The recommendation then, for companies entering the CALA market is not to walk away from a market for not being completely ready but rather to assess what pieces are missing in a particular value chain and determine when will the market be ready to take full advantage of a company's offerings.

Willing: I've found out that the highest priority of most mobile operators is still to get more customers. Any service or product that delivers new subscribers would top the list of coming attractions!
The urgency for increased customer acquisition is stronger than the efforts to increase revenues or margins from existing customers. So, my recommendation for a company entering the mobile market in CALA is to position its product as a means to get more customers.

On the other hand, the CALA market is receptive to applications that have little play in more developed economies. In the US, mobile to mobile money transfer is not yet a big requirement. That is not the case in some African countries where the banking system is limited at best. Yet, money transfer, in the form of credit from one mobile subscriber to another is widely used in Botswana and could be equally popular in Brazil, Mexico and other countries where there are serious consumer credit limitations.
One can argue that the CALA market would be highly receptive to certain innovatve offerings. This receptiveness stems from needs that remain unsatified by traditional means, in this case banking.

Able: Finally, there is the issue of abbility to acquire the product. Are the limitations economic? Then only a few will have it. The Apple iPad is more expensive than what the average worker makes in a month. And yet, quite a few are being sold in CALA. The key word is few

For the mobile market, the pertinent example is the penetration of smart phones. When the average ARPU in the region is about $18 US, subsidizing a $400 or $500 handset does not make much economic sense. Yet there are thousands of subscribers who demand the sophistication and functionality of a smart phone. The challenge for the mobile operator then lies in identifying those subscribers who can afford them and...developing offerings that are profitable even with a reduced subscriber base.  Phew!

To conclude, a company wanting to enter the CALA market would be well served by initially assessing the true potential for its products rather than blindly investing in sales efforts. 

How can a company enter and make money in CALA? Perhaps there is a way, or two, in how the company does business in the region. 

Stay tuned for the next blog: CALA Business Models.


Thursday, July 8, 2010

LatAm Market Entry: Before You jump

Many technology companies, like those targeting the mobile or wireless sector and with demonstrated products and valid references in the US and Europe, can significantly improve their bottom line by capitalizing on the CALA (Caribbean and Latin America) region.  After all, Brazil and Mexico are the 8th and 14th world economies respectively. The region, in general, represents a large number of potential consumers specially hungry for innovative technology products.

CALA market entry initiatives should take into account what effect subscriber behaviour and other considerations have on the five essential elements of a successful sales initiative:
  1. Product;
  2. Market;
  3. Business Model;
  4. Sales Process and
  5. Sales organization. 
Product: At the risk of being obvious, understanding how a company's product is used and applied by existing customers allows for an improved and refined value proposition, specially when pursuing new customers. The question then becomes: Can CALA potential customers apply the product in the same way that their US or European counterparts do? If so, will the benefits be equivalent?

Many companies, particularly those with limited CALA experience, assume tacitly that their special widget, in the current encarnation is indeed a be all to end all. As an example, take billing systems. Post-paid billing systems are used to support over 95% of mobile subscriptions in North America whereas the ratio is more like 10% in CALA. Pre-paid billing platforms are the priority for CALA mobile operators. Location Based Services (LBS) common and the rage in the US, Canada, Europe and Asia are the exception even in Brazil, Mexico and Argentina, the largest mobile markets in the region.
Perhaps the most interesting example, to me at least, is the use of Voice Mail. In Latin America , leaving a voice message is not considered polite, it is deemed unproductive and not smart use of one's expensive minutes. Here in the US, for instance, is not uncommon to have ten's of voice mails to conduct business or even communicate with loved ones.

I recently concluded a consulting engagement for a company that has developed an extremely powerful analytics application. The product, among other things, allows mobile operators to determine how usage of advanced Value Added Services (VAS) can be optimized. An existing customer, in the US, has determined what handsets work best with each type of data service, and has, therefore, developed promotions to favor the more reliable handsets. The challenge in CALA markets is that the more sophisticated VAS are used by at most 10% of mobile subscribers. The result is that business case justifications for sophisticated analytics applications are difficult to come by. 

Truism: companies that understand the differences in the CALA market and apply this knowledge to product development will be amply rewarded.
Let me introduce you to  CATATREPA, , an innovative small software company based in Paraguay. CATATREPA developed a simple application for the CALA pre-paid mobile market: Reversed Charge SMS. Text messaging is prevalent in CALA. It is conveniently inexpensive for the subscriber and represents a high margin for mobile operators. The challenge lies in increasing usage for pre-paid subscribers whose budgeted allotment has run out. CATATREPA's SMS Collect makes it possible for a subscriber to exchange SMS with other subscribers who are willing to accept the charge. Already the service has been deployed in six countries and represents significant new revenues for CATATREPA's customers and added convenience for their subscribers.

In the end, successful CALA market entry initiatives must account for customer usage and behaviour that can be particular for the region and nowhere else.

On the next issue. I will write about Market considerations. As a preamble:
  • Ready;
  • Willing and
  • Able 
Hasta luego.