Great expectations in foreign markets

The difference between developing for domestic or overseas customers is less to do with technology issues than go-to-market ones.

The difference between developing for domestic or overseas customers is less to do with technology issues than go-to-market ones.

Much preparation is necessary before a first foreign sale.

A common theme from exporters is that overseas market expectations are far higher than in New Zealand.

“It’s sue, sue, sue. It’s scary,” warns Annette Dow, a New Zealander who runs Wisconsin company Binary Research International (BRI).

BRI is a year late with a product, and will pay the price.

“The damage [in terms of lost credibility] will take years to repair,” Dow says.

Julian Stone of Christchurch’s ProWorkflow.com agrees that the US market can be unforgiving.

“You need a higher standard of programming; incredibly clean and robust. You do not muck around in the US. People will sue,” he says.

Auckland-based Peace Software says it is essential companies refine their products in their home market, ensuring they are well tested and proven before taken overseas. Peace, which does much of its business in the US, says that is what set the scene for its later success.

Maze-like

Dow also warns that going to the US “is like a maze”.

Deals done on a handshake don’t exist and the litigious nature of US business culture means a good lawyer and accountant who understands US legal and taxation matters are essential.

Detailed contracts – one of BRI’s is 26 pages long - are just “a starting point” in dealing with resellers and have to cover “all sorts of things you could not possibly imagine”.

Getting started also requires business credibility, Dow says.

“They [American customers and partners] will check your credit and company profile. They will want references. It will look like you are undergoing an FBI investigation. They will want to know they are dealing with a reputable company.”

The US typically operates the “old way”, with products reaching the market through a distributor and resellers, while European firms increasingly sell direct to customers either through their own sales forces or over the internet.

BRI used small distributors in Sweden, France and Germany, finding them “committed”, and willing to take its products to trade shows. To safeguard against less energetic partners, Dow advises that get-out clauses in contracts are essential. “If they do not work for you, that market is dead,” she says.

The company was taken aback at the 50% to 70% margin expected by US distributors, and their expectation of exclusive product rights. Resellers, which don’t do the same marketing as a distributor, expect 30% to 40% margins and 15% to 30% if they buy from a distributor, Dow says. For one product, the reseller got 30%, leaving the remaining 70% to be shared between BRI and a distributor.

“Europe is worse. Resellers look for 40% and distributors 80%. If they work, they are worth it, but there is a risk,” Dow says.

Route to market

Software makers can sell direct to retailers, but Dow says to get the products to market by that route can cost millions. Setting up operations overseas is also costly, and exposes the business to the complications of US workplace practices.

Americans are good workers, but find it hard to accept women in charge, Dow says. Thus, for the US operation to gain credibility, Dow’s husband, Geoff McIntosh, became company president.

Employment visas were another issue for BRI, eventually costing thousands in legal fees. With rules tightening, Geoff McIntosh is now setting up a UK operation and will use that to gain entry to the US through another type of visa.

Once your product is in the hands of end users, Dow warns of another hazard: customers expect instant support. Manuals must be clearly written in American English to avoid costly tech support calls, and be professionally produced.

Details of licensing and returns policies are also important; Americans expect to try before they buy, she says. They like to read customer testimonials before taking the plunge, but here, too, there are traps. BRI received one such testimonial from an AT&T employee, but had to cease using it when company bosses complained they hadn’t been consulted.

Dow’s marketing advice encompasses use of the web and magazine advertising. Websites must be “seeded” to gain top places in search rankings, and her experience is that banner-ad web campaigns don’t work. Opt-in mailing lists, however, are used effective.

US magazine advertising rates have dropped substantially in recent years, and creating a good relationship with magazine advertising managers will ensure even better deals.

Attention should also be paid to software reviewers, who need to receive products – with a reviewer’s guide -- well in advance of their launch because numerous products will be vying for their attention.

BRI increasingly eschews the major trade shows, like Comdex, saying more targeted events delivery better value, Dow adds.

Americans are suckers for gimmicks, leading to the creation of a ghost soft toy to lift the profile of Symantec’s Ghost software, sold by BRI in the US.

Pulling levers

PST Software says trade shows helped it enter the US.

“We attended a show, followed up leads and then cut an eye-watering deal with a customer, used it as a reference site and leveraged off that,” says Tom Meijer, head of sales and marketing.

He advises firms to “do their homework” and build relations with New Zealand Trade and Enterprise for support.

“Get your senior people over to the US to understand the feel of the US market, so you have credibility,” he says. Meijer spends half his time in the US.

StayInFront exports 90% of its software overseas, entering markets by targeting multi-nationals.

“We leverage off them and jump to another market,” says CEO Tony Bullen.

Supplying Fuji Xerox in New Zealand led to deals with Fiji Xerox in Australia, and deals with 3M in New Zealand led to custom with 3M in Australia and the US.

Peace Software created a “bridgehead” in its target market, using partnerships as a springboard to others. CEO Brian Peace says deals with British Columbia Gas in Canada paved the way for deals across the United States.

But small Christchurch company ProWorkflow.com – it has three employees -- used a novel approach to reach 200 clients in 20 countries.

“We used a Tag Library approach,” says founder and director Julian Stone.

“We sold our code as a download where developers hang out. We aimed for 100 customers and developers and we are turning them into resellers. Developers will have their client base and will sell our product to their client base. They could have been our competition but we are turning our competition into our greatest asset,” he says.

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