Nearshore success stories such as those of Globant, Softtek, CPM Braxis and Stefanini IT Solutions have inspired a new crop of nearshore hopefuls across the Americas region hoping to get a piece of the US outsourcing pie. But the fact is that only a small percentage of up-and-coming IT and software development outsourcing providers will experience long-term success.
There are many reasons why a nearshore provider might not make it in the US market, such as poor service quality or the limited skillet of delivery staff. But one of the more important factors is how a company sells in the US, a factor directly tied to their level of commitment to the US market.
Good and bad market entry strategies
There are good and bad ways to sell in the US market, each one correlating to the nearshore provider’s commitment level:
The bad: Hiring a rep, opening an office staffed only with salespeople, and selling remotely make my list of the bad, or at least unadvisable.
The good: Establishing strategic alliances, using accelerators, and opening an office staffed with senior executives make my list of the good.
Hiring a rep – In the last few years I’ve spoken with dozens of small and mid-sized software development firms all over Latin America. Without fail most of them ask me if I want to sell their services on commission. I always roll my eyes.
Hiring a commission-only rep is a nearshore provider’s dream. It promises huge gains with zero risk. It’s also indicative of an attitude that I’ve witnessed all too often with nearshore providers: dabbling in the US market without fully committing to it.
The downside is that the rep bears 100% of the risk. He risks losing his reputation if the nearshore company does a poor job on a project he brings to the table. He also risks leaving a secure job to work for 3-6 months without commission.
Opening an office staffed only with salaried sales people – This is the next step up from hiring a commission-only rep, and ensures the sales person will commit to staying for as long as it takes to close the first couple of deals.
Although it’s better than a commission-only model, this is still dabbling in my opinion. No matter how good the sales executive, it’s hard to sell big ticket items such as nearshore services by yourself. This model only works if the CEO or another top executive spends a substantial amount of time at the US office working directly with sales executives.
Selling remotely – This has the lowest probability of success. Although tools such as web seminar technology, email and social media make it easier to conduct business remotely, selling nearshore services is a high value B2B sale which requires an on-site presence to close the deal.
However, there are exceptions. Sieena, a Microsoft development partner, derives most of its revenue from US customers. Its owner, Mauricio Duran, sells remotely, hopping on planes to fly from his native Monterrey, Mexico to visit clients in California and Texas.
But Duran went to school at the University of California at Los Angeles where he forged lifelong connections while studying computer science. Most of these connections are now IT decision-makers at important companies in the US. He has an unfair advantage.
Strategic alliances – This is selling to a US based software development firm who then re-sells your services to their customers. Companies as diverse as Hildebrando Services, to very small outsourcers such as Centraldev from Argentina, have had success with strategic alliances.
Alliances are the secret to remote selling success for companies starting out in the US market. It can help growing nearshore providers gain experience in North America, and also helps US providers who face competitive pressure from Indian outsourcing firms.
Accelerators – Accelerators provide office space, training and group collaboration to help accelerate entry into the US market. TechBA, a collaboration of the Mexican Ministry of Economy and the US-Mexico Foundation for Science (FUMEC), is one of the better known nearshore accelerators, having spawned notable successes such as Nearsoft and Merkatum.
There is a downside however. Companies can gain a false sense of comfort after joining an accelerator program and take their eye off the ball. An accelerator is no guarantee of success.
Opening an office staffed with senior executives – This is the best option. Usually either the company CEO moves to the US, such as David Abdo of Business Intelligence provider Bitam, or the company will hire a US CEO, such as Neoris’ Douglas Gattuso.
This also enables sales best practices. For example, an assistant or inside sales person can set appointments for the senior executive to meet with the CIOs or CTOs of US corporations. This separates the lead generation function from the sales function, and actually flips the sales process on its head: if two C-level executives meet, it is now no longer a sales call, but a business meeting.
It’s all about commitment
Many nearshore software development and IT services companies have made it, but many more won’t. The above tactics represent good and bad practices, but the underlying principle is the company’s commitment. Most of the successful companies will put growth in the US market at the top of their priority list. That may mean moving the CEO and his whole family to the US, putting the kids into American schools, buying a new home, and going on sales calls. Or it may mean biting the bullet and hiring a big name in the industry, like Neoris did.
Fernando Labastida is the owner of Latin IT Marketing, a content marketing consultancy helping Latin American software and nearshore providers successfully enter the US market. Check out his other article for Nearshore Americas on how LatAm outsourcers can use social media to their advantage here.
What would you say to direct investment by the offshore/nearshore entity into the US? Hybrid to your 'Good' points above – definitely shows commitment…