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Kytsmey’s Lessons: How to Make an Entry into Western Markets and Not Regret It
LigaBusinessInform, Kyiv, UkraineSaturday, Nov 8, 2014
Taras Kytsmey, one of the co-founders of SoftServe – one of the largestdomestic IT-companies, on how to avoid mistakes while trying to get into foreignmarkets
Several weeks ago, DYB Club hosted a meeting “How to Break Into InternationalMarkets,” where Taras Kytsmey, a co-founder of SoftServe – one of the largestdomestic IT-companies, talked about his experience of working abroad. It’sworth listening; the company founded by the Lviv techies back in 1993 now has 25offices in 8 countries around the world, employing 3,500 people.
Mistakes madewhile getting into foreign markets
What are the most serious mistakes we made when coming toWestern markets? It’s hard to rate them by the degree of seriousness. I canonly say that we definitely made mistakes. For example, in 1997 we invested alot of effort, time and money into opening an office in Toronto, Canada. Wespent two years focusing on its development, and we spent significant resources.In two and a half years, however, we left the Canadian market. But we havelearned a few lessons.
Looking into the reasons, we now see that the main problemwas that we didn’t know the recipe for success in the North American market. Theformula is simple: a long-term success is possible if every time you exceed theexpectations of your customers, giving them more than they expected, and makingthem say: "Wow!"
Before getting into the Canadian market, we had already achievedsome success in the United States, and we thought that this success can be automaticallyreplicated in Canada. But it didn`t happen.
At that time, in the late 1990s, our processes were notmature enough and our team was young. Imperfect processes and a lacking abilityto change and adjust to the needs of clients prevented us from gaining a firm footingin Toronto. In Canada, we have slightly deviated from the focus on “exceedingthe expectations”; the people who led the project have got somewhat tired. Andwe immediately lost out on the result.
The Western market is very customer-oriented. When werealized that, we started to exceed the expectations, providing very highquality services. Perhaps, it was the most important lesson.
Customerorientation
Customer relations are very important. Now we have aconnection with most our customers not only through the business relationship,not only through the processes, but also mentally. The value of customer focusshouldn’t be a mere declaration or empty words. It should be mandatory like thearticles of war for the military. We have implanted those values in us; theyare inside us. The first of them reads that we succeed only when our clients succeed.
Processes
The Western world is all about processes. Processes are key;and whether your company succeeds or not depends on processes. This issomething people don’t want to realize or can’t realize in Ukraine; nobodycares about processes here. Here, managers like to fight for victories. Infact, however, every manager should start with fine-tuning the process.
Be closer
Another failure we had in making our entry into the Westernmarkets was even before Toronto. In the early 1990s, we wanted to open anddevelop our first U.S. office in Washington, DC. We opened it very successfullyand immediately became partners with a major U.S. company and held a largeconference with them. But we had to shut that office down a year later.
The reason was that while the City of Washington is the capitalof the United States, it’s the place for the government but not for the business.We are used to opening an office in the capital right when we get into a newcountry. There are many reasons for that, including prestige, wider access tonew customers, and so on and so forth. But this strategy does not work. We werenicely received in the government agencies and they all praised our services,but they didn’t buy. Washington has its own government atmosphere, culture,traditions, and so the Ukrainian, Russian or Belarusian companies find it hardto work there.
This lesson made us more pragmatic in opening our offices.Our next office, which we opened in Texas, has been much more successful from thecommercial standpoint. We made no more mistakes in choosing places for opening ouroffices in the United States.
The lesson made out of this story is: Know your potential customers and be closerto them.
Mentality is not anempty word
Our third mistake was in connection with the Philippines.
Like in Toronto, we opened an office there, worked acouple of years, and then left. The Philippine government is very interested ininvestors. They have provided us with benefits, assistance, but we still had toshut down.
We hadn’t taken good account of several things. First, officesneed to be opened close to the majority of your customers. Most our customers werein the United States, the management and a part of the software development teamwas located in Ukraine, and another part was in the Philippines. Making a generalconference call was an epic thing to accomplish. Due to the time difference, weonly had one hour when we could theoretically hook up.
Second, different nations have different mentalities.Filipinos are very process-oriented. They like to have everything scheduled,thought through, and foreseen. They prefer not to be proactive. In Ukraine,people take a different approach: a person looks for ways to solve a problem onone’s own and doesn’t focus on processes.
Choosing a market
We are an IT company. The United States is the leader ofIT technology. Moreover, the United States is extremely open; almost everyone caneasily get started. Doing business is very easy.
This, however, does not mean that we limit ourselves tothe United States. We have a strategy to enter the Western European markets.Our methods of work and ideas have been tested in America, and we think that wehave the necessary capacity to start operations in Europe.
Europe is very conservative. To start working with the Europeancustomers, you need to spend a year or two meeting and negotiating. But once youhave a deal and worked it all out, it can last for decades. Such conservativeapproach has been restraining us so far. Because of being so closed and conservative,Europe is not as efficient as the United States in terms of product quality,and in terms of salaries.
Of course, it is easier to enter a market with a goodreputation, favorable customer reviews, and a database of potential customers.This way, you can save time.
We have identified the European regions which seem to bethe most attractive to us for further development. These include the U.K.,Germany, Benelux and Scandinavia. We aren’t interested in other countries asmarkets at this point.
However, we practice a very different approach in pickingthe countries where we come as employers to open the software developmentcenters. From the labor market perspective, we choose the regions which are closestto us mentally: Krakow, Wroclaw, Sofia. These centers are ideal for us forseveral reasons: mental similarities, the structure and level of costs, and thelevel of education. By and large, the Eastern European counties are potentiallyinteresting from the labor standpoint. And I think we will be able to unveil theirpotential.
The time of the young
The today’s situation in Ukraine is favorable for youngentrepreneurs who have decided to work in our sector. Despite the overregulatedmarket, there are good opportunities, there are many professionals, and the pricingpolicy is favorable. The Ukrainian IT specialists have earned some goodreputation in the world market.
The fact that foreign investors are still bypassingUkraine has its positive sides for the local businessmen. When our market opensto global companies, they will be happy to come and create tens of thousands ofjobs. But then the Ukrainian startups will face a very different level ofcompetition. Well-established Ukrainian companies, which have experience and properprocesses in place, will be able to compete with the Western companies. Newcompanies, however, will find it very hard to compete with newcomers. ThePolish experience shows that the labor market favors transnational corporations.
Rules of expansion
When you enter a new market, it is important to work withthe people who know this market. It’s hard to come and take over the market. Thereare several ways how you can find the right people.
First, buy a company that operates in the market.
Second, become a partner with a local player and developbusiness together. This is the most common option.
Yet another option, not so common in Ukraine, is to use“consultants,” i.e., the companies which can advise and help to successfully entera new market. They make recommendations on how to better organize your business,how to build your management, and so on.
For example, our U.S. company has a board of directors, which includes Americans.It meets regularly to discuss various development options, makes decisions, andchooses the course of development. And decisions of the board are binding forthe CEO; he simply has to comply with them. So, in fact, we have permanentconsultants on our company’s board of directors, who have a better sense of themarket than we do and who help us to develop the company. It is a powerfultool, but it is not used in Ukraine.
Also, few people are aware of an option of bringing in consultantsfrom specialized organizations at minimum cost. There are many non-profitcompanies in the world, designed to promote the development of interstate relationsand business cooperation. In our time, we used services of such an expert, andit helped us a lot. It was a retired top manager from General Electric who consulted us for a month. This person had awealth of experience and he shared his knowledge and experience with us absolutelyfor free. He taught us many things.
Key challenges
Every company, which operates in an open market, facesthree challenges. First, global companies may come to the market with a similarproduct or service, and they will be much better than you are. Second, thecompany development slows down. If you stop and don’t mature, you are going to lose.And third, a shift in values, change of generations. A business that wassuccessful yesterday, may become irrelevant today – videotapes, desktopcomputers, and so on.
Stereotypes
There is a popular view that it is not possible to takean existing product and use it to compete in developed markets; you need to putforward only an innovative, unique product. In fact it is not true: it is allabout marketing and manufacturing capabilities. And this is so not only in the ITsector. For example, a new American star company that manufactures sportswear, Under Armour, came about when nobodyeven thought to compete with Nike and Adidas.
Ivan Zaytsev
LihaBiznesInform
About SoftServe Inc.
SoftServe Inc.a leading global software application development and consulting company,offers robust competencies in software optimization, SaaS/Cloud, Mobile, UI/UXand Big Data/Analytics. SoftServe developed Abiliton, a set of adaptive bestpractices comprised of people, processes and technology to ensure predictable,repeatable results for faster time to market and scalable growth. SoftServe hasover 20 years of industry excellence delivering rich user experiences,intuitive products and solutions for vertical markets such as healthcare,retail and technology. Offices are located in North America, Eastern andWestern Europe. For more information please visit www.softserveinc.com.
