 | Posted: January 10, 2010 12:42 AM by: Jan Pabellon |
This is a repost of an original article I made a few months back in my blog. I repost here because I'm interested in hearing the thoughts of others in the community as well:
Melvin Calimag, a Filipino journalist and blogger for ZDNet Asia posts in his blog PinoyPost a question on why is it that, unlike in India, there are very few IT/Tech companies in the Philippines who have gone global. He writes:
Need for Filipino IT firms to go global : Pinoy Post : Blogs : ZDNet Asia
Unlike India which has launched quite a number of successful global IT firms, mostly in the BPO (business process outsourcing) sector, the Philippines seems to be content in merely hosting multinational companies in the country.
A cursory glance at the composition of the largest tech firms in the country would reveal that the majority, if not all, of them are foreign-owned. Even in the field of outsourcing where the Philippines has made some inroads, the biggest names are still those from the United States, United Kingdom, and yes, India.
Sure, there are some Filipino-owned BPO firms which have expanded into foreign shores, but none of them have approximated the level of prominence or success the likes of India’s Infosys, and even Satyam, have achieved–just the mention of these company names would earn recognition of their country of origin.
Sadly, that’s not the case with the Philippines. While the country has somehow been able to market itself as a viable offshore destination, there are no homegrown icons to speak of that can serve as IT ambassadors for the country.
While I certainly share the sentiment, let me share my thoughts on why that is–specially for software product companies (which have a different set of challenges than IT service or IT-enabled service companies). I think the challenge for many software companies in the Philippines (and in Asia for that matter) is that it takes a considerable amount of capital to build a sustainable and profitable business abroad.
Although I have heard of stories and case studies of small, local shops making a nice profit developing casual games, online services or iPhone apps; I have yet to see one scale to a size beyond being a lifestyle business for the owner, or to develop a sizable customer base or presence to be called a truly “global” company. By global, to have the size, reach, stature and success of companies like F-secure (Finland), Trend Micro (Japan/Taiwan), Kaspersky (Russia), ICQ (Israel), Skype (Estonia/Sweden), SAP (Germany), Zoho (India), and many others.
Creating a scalable business with considerable international presence and a sustainable business model in my opinion requires considerable capital. Companies can start out with low cost Internet direct marketing, but to truly grow and to make a name for themselves, they will eventually have to join trade shows, go on trade missions, meet face to face with international analysts/press/decision makers and influencers , or in the case of complex or business applications provide consulting and support, develop partner/reseller channels, and many others.
In order to do this, you need capital. For a company just starting out, often times the only way to do this is to get funding from a) a wealthy angel investor (as in the case of GSCand G2iX as mentioned in Melvin’s blog post); or you would need b) venture funds/institutional investment/debt/capital raised through IPO; or a third route is to c) raise capital purely through organic growth.
Now the first (getting angel investment) is difficult as it requires the right sort of connections or “social capital.” Preferrably you would want to get investment from people who know the industry–who have realistic expectations of the time horizons and amount required to get a software company of the ground and can mentor the software entrepreneur how to best use the funds provided. This is something not all Filipino entrepreneurs have access to, but is something that considerably more Indian entrepreneurs have with the success of many country men who made it big in the US in the 80s and 90s like Vinod Khosla of Sun Microsystems and Sabeer Bhatia of Hotmail (and literally hundreds, possibly thousands of others who found success as software engineers/analyts/testers, etc in the US).
The second (venture capital/institutional investments/IPO) is hard, because the Philippines and many countries in Asia simply don’t have access to the type of capital markets and business ecosystem that entrepreneurs in the US (specially in Silicon Valley) enjoy. In this regard, GSC and G2iX (companies mentioned in Melvin’s article) struggle as well as evidenced by their aborted IPOs.
The third route is hardest as it requires that software companies have a large enough market in its home country for it to be able to grow enough to support and fund that kind of internal growth. This is hardest as it is outside of the entrepreneur’s control. For Filipinos it is difficult because of lackluster economic performance of the country. This is compounded by the fact that the market is just too small (specially for companies developing enterprise/engineering/scientific) applications to fuel the kind of focused expansion/growth required for quick product development, innovation and market penetration (notice how many Singaporian and Australian software companies themselves struggle to create truly global software product companies, simply because their home market is just too small to raise enough capital to build global companies).
Perhaps technical brilliance, innovative products, smart people are not enough? The environment, connections, access to capital, and maybe luck (ie where you were born) plays a part as well. Do you agree? Let me know your thoughts as well.
Comments
Add comment
Please login to post comment.
Please login to comment.
Indians have become succesful due to the enormous amount of IT professionals that have started their trade craft in Europe and the US and come back to fund and start outsourcing operations in India. Furthermore, many Indian families come from families with a lineage of engineering. So as Indians had discovered paths for success in the IT field (as Filipinos have discovered for Nursing), they flooded the field in industrialized nation eventually creating strong footholds in these countries to eventually peddle their outsourcing operations.
In summary, Indians had discovered the opportunities back in the 80s and continued to steadily build up the expertise of their population. They were well prepared in the 2000s to exploit the outsourcing trend.
As far as exported global software, there are very few successes. The issues of IP property and a small market prevents that development in India. The company that build Zoho had previously focused on Java management products. A product line focused on needs outside of Indian IT more than local needs.
Australian software companies like Atlassian have done the same. They've always focused on a global market from the start. Rarely has it been to satisfy a local need and then eventually transition to a global audience. The inefficiencies of the approach will lead to one missing the boat.
Smart people are obviously not enough. Focus and timing are extremely important. Easy and cheap capital helps you avoid distraction of having to hunt for money.
Thanks Carlos for your insights as well!
Those are great comments, Jan. Allow me to put in my two cents.
First I am a VC and I am also the interim CEO of Stratpoint Technologies (www.Stratpoint.com), a software consulting and outsource development firm.
I have been asked similar questions in various public forums and here are some of my common answers.
Money is available but obviously not as much as in Silicon Valley, or even as in India, China or other places where there is a lot of engineering innovation. As Carlos says, the critical mass of engineering talent is important in order to build an ecosystem and culture of innovation. Investment capital whether VC, angel money or corporate investments follow financial opportunities brought about by companies that can innovate and therefore grow in hot markets. Nonetheless, the short answer is still "yes," there is a limited amount of capital for innovative companies in the Philippines. And for software companies of normal ambitions, I believe there is sufficient capital. Especially, since open-source software, lower-cost computing, affordable communications, and cloud computing trends have truly democratized this industry and allowed people to contribute from almost anywhere in the world.
Markets are available but not that many or as large as in more developed economies like the USA or Korea or as in more populous countries such as India or China. Nonetheless, in the Philippines there are still some large markets for software and IT in industries like telecommunications, finance, manufacturing, and branded consumer goods. This is why Stratpoint has strategically focused on telecommunications and finance, not to mention marketing (as in sales) technology and consumer applications to reach the large population.
For many software companies I have met in the Philippines (and as a VC I have seen quite a lot… and I see this also at Stratpoint), the difficulties I personally see are in putting together the right teams with the necessary years of experience. As Carlos said, there are many returning Indians and Chinese who are veterans of Silicon Valley leading the charge in their respective countries. For Stratpoint we are working with Filipinos from this Brain Gain Network to continuously improve our quality levels and to bring advanced technologies and best practices to our consulting and outsourcing business. This practice has distinguished us from many of our colleagues and has us more valuable to our strategic customers. We hope it will keep them happy and bring us repeat and new business, of course.
And aside from people and managers with decades of experience releasing quality assured software, the other talent missing in Asia is Product Marketing. This discipline of knowing technology deeply enough (normally as an ex-engineer); then studying scientifically markets and what customers really need and will buy; and, then finally translating this into product requirements documents is a tough one and the professionals are not easy to find. Therefore, since markets are not as plentiful and experienced product marketing is tough to come by in the Philippines, we have extra work ahead of us.
All the above challenges, I believe make it tougher to build large, scalable software companies, whether for outsourcing or for your own products. But, as I try and point out, I belive the challenges are solvable with the right people. At Stratpoint we are working on this and hope to find the talent to help us solve these challenges so that we can soon see ourselves as one of those groups that can proudly raise the Philippine flag in the global software world. I know that there are many other good and talented groups out there going for the same goal… maybe with other approaches or philosophies. We hope that we all succeed and improve the general environment for high-tech in the Philippines and around the ASEAN region. Of course, as all experienced and successful entrepreneurs say, there is also that element of luck. They were prepared and they worked hard… but they also were lucky to be in the right place at the right time. Good luck to us all!
Hi Paco:
Thanks for your insights as well.
Just to sum up, here are the challenges Filipino software companies face:
1) Access to capital
2) Timing (need to catch an inflection point in the industry, take advantage of discontinuous shifts in technology and business models)
3) Focus (dominate a niche, target specific verticals, get into markets where size and capital is not an issue, target the needs of a larger, international market, go into markets similar to your local market, leverage local unique culture/economic/social conditions-->ie as in the case of wireless/SMS technologies; or English speaking talent in the case of customer service and distance learning solution providers)
4) Talent (access to world class engineering talent, product management and product marketing talent, executive talent, ability to recruit and retain talent--> not losing them to greener pastures abroad or to multinationals with local operations)
Hopefully this post can help technopreneurs just starting out--and hopefully give focus to their efforts and to broaden their ambitions.
Jan,
Good summary!
IT is in particular extremely promising relative to other technology fields in that the game is changing so quickly that there's sufficient disruption as to allow more agile and innovate newcomers to exploit.
About ten years ago I read somewhere that India's embassies had a private desk funded by a private organization whose task is precisely to market their IT business. If this were true, then what's preventing us from doing the same kind of united marketing?
I am currently the CFO of GSC (company referred to by Jan and Melvin above) and I have also worked for 12 years in Abu Dhabi among expats of various nationalities until 2004.
I agree with the summary that Jan posted but I would like to add that, based on my experiences working with various nationalities (Indians in particular), in my opinion, the Filipino's being culturally humble when dealing with other nationalities or even fellow Filipinos is working to the disadvantage of our race. To concretize this, let me give you an example:
In 2001 I had to interview applicants for the position of systems analyst in the company I was working with. There were about 8 applicants: 2 Filipinos; 5 Indians; 1 Canadian; 1 Brit; 1 Australian. After I conducted the interview (BTW, the Australian was hired) I had formed a conclusion that: The Filipinos, even if they were sure they could do something, they said "we can try" or "we will do our best" whereas the other nationalities (Indians in particular) even if they were not really sure they could do what was required said "yes we can".
To me the attitude of the Filipino is politically upright but then again this leads me to think that to succeed globally, maybe we don't have to be politically correct all the time.
The next time I hear the word "Filipino" and "Disadvantage" in the same sentence, I'm gonna puke!
We need to stop focusing on the problems and start focusing on the solutions. Everyone needs and wants capital, but if you can't get it you should still continue and develop software projects. Software programming is one of those things that can be made with extra time and effort. You want to sell something, you had best produce it first then sell it. Whether or not the software is sold or licensed you gain in the end. You gain in experience, because software is one of those things that is difficult to produce without the proper experience and know-how. You must develop that know-how.
Build it. Patent or Copyright it. License it.
Speaking of patents, does registering at the local Philippine patent office also extend protection beyond the Philippines? Does one have to apply for a patent in every country where the product may be sold and used?
Infosys didn't use outside capital until its listing in NASDAQ. Till that time, it just relied on organic growth
Infosys is the true start-up from scratch. Being part of the bigger Tata Group surely helped Tata CS. Wipro is a rich food company before it branched out to IT services
Carlos and Francis are right.
Tech startups nowadays require less capital to launch because of very cheap access to web and cloud infrastructure.
Most just start rolling with very little seed capital gleaned mostly from personal funds or angels. Thus focus is shifted from raising money to getting a product out fast.
Foreign money is taking notice of the Philippines though. Next month, there are a bunch of tech focused VCs coming in just to survey the opportunities. The one's I know are coming independently of each other so something's up.
Check out Tony Sagami on the Philippines sent to me a few days ago.
Some valley vets are also settling here (fil-ams not fil born) to tap the pinoy talent and cost base.
My 2 cents.
Come on this is an unfair comparison. India has a population of 1 billion, the british left them with an excellent railway system, and engineering schools that can match schools anywhere.
Read Indian enterprenuer's blogs and you can see their frustration with some of the best engineers preferring to work in established foreign companies and service oriented businesses.
The pool of talent in the Philippines has not yet reached that critical mass where we can support a larger share of global software/it/hardware needs.
That said, we are getting there, thanks in part to the efforts of individuals like some of the people who have already commented here and those other people who have no time to spend on forums like these because they spend it in their startups.
A more apt comparison would be singapore and I think the only real advantage of singapore is the insitutional advatage, such as great judiciary system, and a well functioning bureaucracy.
but when we compare ourselves to singapore (or even hong kong) we see that what I previously wrote is bunk. 4.5 million population with a labor workforce of between 2 and 3 million is enough for progress.
What does this mean? A province zone (Cebu?Davao?Cagayan De Oro? Clark-Subic? CaLaBaRZon area? maybe evena city such as Makati-Taguig-Mandaluyong-QC-Pasig ) can be the start of a big change.We of course can't wait for our government to shape up, we've been waiting for too long for us to pin our hopes on these people.
What can we do? We must really create an environment of tech-sharing from the grassroots (we can commend G2iX). You talk technology/startups often enough and you'll reach a point where you just jump in.
help the schools/acedemic institutions to become better. You hear this from engineering grads of the top 3 engineering schools in india,it far easier to study in Stanford/MIT than from their respective schools. We still don't have that here.
cheers!
Government support also helps, not just in terms of money, but policies that work in favor of developing IT and technology companies in general.
Technopreneurs here have more obstacles to clear than in other countries -- and most of these obstacles are simple ones: business registration, taxation, etc. All these distract tech companies from focusing on growth and in fact hinder growth. And it sometimes tempts us to just work around this obstructive system.
Pahabol, just to illustrate what I meant by good policies. India consciously set up their IIT's -- Institutes of Info Tech and these schools were responsible for training the best engineers there.
In comparison, our schools have little incentive to set up similar institutions. Schools are geared to supply labor in other countries (eg, doctors and nurses).
Giancarlo, could you define "better" and "easier to study" in
"help the schools/acedemic institutions to become better. You hear this from engineering grads of the top 3 engineering schools in india,it far easier to study in Stanford/MIT than from their respective schools. We still don't have that here"
I've been confronted with all of the obstacles to global success mentioned in this thread - lack of money, lack of local market, lack of government support, etc. However, what would really make the biggest difference in our quest to succeed on the global stage is a factor that Paco mentioned in this post - the lack of software "product marketing" talent.
We've been able to work our way around all the other obstacles; I guess that's what being an entrepreneur is all about. Despite those obstacles, we have grown to offices in 4 different countries (Philippines, Australia, Singapore, South Africa) and over 500 customers in 14 countries.
However, I now believe that we have reached a level of growth that can not be sustained (or increased for that matter) without adding more product marketing talent into our team. At this time, we have just one product marketer in our organization of 85 people - his name is Joey Gurango. Unfortunately, that is only one of several hats that I need to wear, so that role does not get the attention that it deserves in our organization.
I've been looking for software product marketers in the local talent pool for the past 8 years. I have yet to find just one that I could hire. The qualified Pinoys who I've met are either already working overseas, or are overseas-based Pinoys who came back here as employees of foreign companies.
I have now decided to look for Pinoys in Singapore and Australia for this type of talent, with the hope that we can entice the qualified guys to come back home to work for us here. Wish us luck!
The problem is that we keep on thinking about "the problem". I prefer to stop over-analyzing the situation and just focus on solutions to try-out.
So, let's create a new thread, for example: "Marketing solutions for Filipino software companies who want to reach the global market."
There are many ways to communicate effectively to the global market.
First, as Joey says, someone competent has to be in charge. Second, companies need a solid strategic visibility plan for the corporate and usually the personal brand of the founder. Third, there must be commitment in terms of resources. There are cost effective ways to communicate, but communicating effectively requires an investment.
Frequently, that investment is where the problem lies with entrepreneurships because there are so many competing needs for resources. But the reality is that there are two secrets to every successful business: product and visibility.
Wow! Really great insights here. Per Floyd's suggestion, I posted a new topic in the forums here.
Here we can share solutions/suggestions to help technopreneurs gain success in the global market.
Experience/insights/analysis/ideas/war stories/success stories welcome!
In the meantime, just to get the conversation going--I posted a new article here:
Is being in the Philippines bane or boon for founding a tech startup?
Hope to get your comments as well! Cheers!
I met with N. Murthy, the founder of Infosys at my 1st year at Stanford, and I ask him the question.. how did India get to be the IT hub of the world... and jokingly he said.. during the 60s the goverment decided to focus on 2 things: "IT and Beauty." So this was a concerted effort to incentivize its work force to focus on a couple of things: Software and Bollywood etc.
This may be an irrelevant comment, but as I ask him for some tips on how to create global IT companies, it seems that he said that it takes alot of determination, talent and quality. He said that India was great in taking advantage of global market "needs" and most especially the Y2K bug for example.
One thing that is great as well with these types of successful Indians is that they dont carry any baggage, even with a colonial past. They know who they are... "Indian." Also, with global "heroes" like N. Murthy or the Tatas or the Ambanis, at least they can look up to great heroes that are trully global figures. I think that we need global billionares (I am not discounting what Henry Sy or Ayala has built) but basically businesses that aspire to be household names in every household n the GLOBE... not just in the country.
If any Filipino has a great idea, we in BGN should all suppport these teams or individuals to reach their max potential. We need to give a chance for someone who wants to be a founder of the next Google, Facebook, Cisco etc... a chance to compete in the global market place.
sharing this with everybody here - in the case of India, they have visionaries, its a result of long term planning
(from http://www.outsource2india.com/kpo/articles/kpo-india-advantage.asp)
The Science and Technology Edge
The Government of India set up IITs (Indian Institute of Technology) and IIMs (Indian Institute of Management) across the country in the 50s & 60s. These ivy-league institutes of formal education are centers of excellence competing with the best institutes worldwide.
Another milestone was the establishment of IIIT (Indian Institute of Information Technology) as a joint initiative by the government and industry. Apart from producing B.Tech/M.Tech/ PhD graduates, it also trains professionals and industry-sponsored candidates.
India has more than 250 universities (over 900 colleges) and engineering colleges providing computer education at the degree/diploma level. The output of trained human power at the degree/diploma level has been consistently increasing since 1985 and touched 130,000 during 2000. The formal education system is augmented by thousands of private training institutes providing computer education. By mid-2002, India had 840 business schools, which turned out 65,000 MBAs.
With India's infotech sector firmly in a leadership position on the global map, its scientific and research talent has also been acknowledged by the world. India is an emerging hub for contract research and clinical trials. India's biotech sector spans the spectrum of BioPharma, BioAgri, BioIndustrial, Bioinformatics, and Bioservices industries. New initiatives to spur the growth of the biotech sector include a biotechnology finishing school with PES College in Bangalore. The Karnataka Govt. will partner with Australia's Deakin University to start Post Graduate and Ph. D. programs to build high-end skills in India.
Renowned Indian scientific institutions provide high-quality R&D services to organizations worldwide. Among them are the Indian Institute of Science (Isis), the National Centre for Biological Sciences (NCBS), Jawaharlal All Nehru Centre for Advanced Scientific Research (JNCASR), Plant Genomics Center, New Delhi, Center for Human Genetics, Bangalore, National Institute of Biological, New Delhi, Center for Cellular and Molecular Biology (CCMB), Hyderabad, National Facility for Macromolecular Crystallography, BARC, Mumbai, National Facility for High Field NMR, TIFR, Mumbai Central Drug Research Institute, Luck now, National Brain Research Center, New Delhi.
Edmond, sorry for the late reply.
I was actually quoting an indian student studying at stanford in a video that I can no longer locate.
The video was about why India didn't have as many Silicon Valley type tech startups.
Most interviewed agreed that based on know how or technical skills Indian undergrads have good skills as I believe evidenced with their success in US universities. I believe they somewhat agreed that culture and other social factors were a main cause of the lack of tech startups in India.
With respect to the Philippines and Filipinos, I hear less of that type of confidence from people who are fortunate/brilliant enough to have studied in top US universities for their graduate or post graduate degrees. This may be due to the Filipino temperament of modesty or it maybe due to a failing of Philippine Tertiary education.