Many companies run the risk of quickly outgrowing the New Zealand landscape. Yet venturing into the international jungle requires planning, resources and a lot of guts. The Channel speaks to some who have made the jump.
Identifying niche opportunities, forging strong links in overseas markets and investing in research and development is a model that is delivering success for some New Zealand information and communications technology companies.
Due to the small size of the New Zealand market local companies have to look offshore. Equally, because of the market size some New Zealand companies are reluctant to buy local products as they are wary of them going bust, says Tom McLeod, business manager Foundation for Research, Science and Technology (FRST).
“The biggest problem is trying to sell locally developed software into bigger organisations because those companies believe overseas products represent a lower risk,” he says.
For example, says McLeod, take a New Zealand company with $1million annual sales and the best product versus a $US100 million corporation.
“A New Zealand IT manager will be tempted to buy the US product because it has less risk even though it has less functionality. This is the struggle for small local companies in competition with larger players with huge pools of capital.”
Therefore New Zealand IT companies need to be swift on their feet, provide a superior product, stay two steps ahead of the competition in product functionality and survive on less capital, says McLeod.
“We have some very smart companies here who do just that, they find niches where they can be successful.”
McLeod says FRST has several different investment schemes designed to support local IT companies; from helping develop intellectual property and commercial strategies to introductions to NZTE.
“We can also give them a reality check on their project and force them to plan better. It’s a strategy that really works. I did a survey on the Hi Growth programme and FRST had invested in almost 70% of the companies.”
Yet, he says, New Zealand companies looking to go offshore still make some common mistakes.
“They try to do too much too soon and need to concentrate on one market at a time – lack of planning is also an issue. Typical New Zealand companies are under-capitalised but have loads of enthusiasm.”
McLeod says many companies make the mistake of trying to conduct all their sales from a New Zealand base rather than locate staff overseas.
“You have to have a presence in the market you’re trying to break into. It’s very easy to make it look as though your head office is offshore, for example a company can say its headquartered in the US but the financials can be held in New Zealand.”
Michael Whitehead, CEO of WhereScape Software, agrees with McLeod and is reaping the benefits of being headquartered in the US.
“My belief is that the US market prefers to deal with US companies. It’s hard enough to sell software anyway and being from New Zealand just adds to that risk,” he says.
Setting up a US base was a necessity according to Whitehead, at the expense of increasing its local coverage.
“We don’t do much business in Wellington because the office and people are in Auckland. We had to decide whether to set up in Wellington, Sydney or Atlanta so we went for the biggest market.”
The problem with selling to New Zealand companies, he says, is that they don’t want to pay market rate for locally developed product but will pay a fortune for international software.
Whitehead describes the Australian market as something to do on the way home not the way out.
“I find that it’s very important to have international sales when it comes to Australia, companies there are more likely not to buy off a New Zealand business. It doesn’t matter how impressive your New Zealand clients are because names like Fonterra and Air NZ mean nothing on the international stage.”
The biggest challenge Whitehead encountered when venturing offshore was the lack of a strong message.
“You have to have a strong, crisp message that you can get across in ten seconds. That’s all the time you have at a trade show or a pitch to grab someone’s attention. Initially we moved too quickly without fully understanding the importance of good messaging and marketing,” he says.
Case study: Acquire
It’s not just software development houses looking to expand their horizons.
Web-based retailer Acquire established a sister company - AcquireIT – across the Tasman in 2002 and has been steadily making inroads into the market.
“One of our goals was to get into Australia as fast as possible. I figured out early on that the way Acquire works in New Zealand would translate very well to another country with a similar market,” says Simon Scott, Acquire director.
Scott says he sees Acquire’s role as a specialist trans-Tasman supplier.
“We want to help in the procurement process for companies that straddle both countries, it’s all about getting product to the customer in the easiest way possible.”
Kelly Raines, Acquire’s Australian-based e-commerce director, says there are several noticeable differences between the two markets.
“Distributors in Australia work quite differently, they don’t allow returns without a lot of begging and the support is much slower. Also, with the larger number of courier companies, it’s a lot more difficult to track items,” he says.
Due to the massive size of the country Raines says freight is problematic with most items taking a minimum of two days.
Additionally Australian businesses are typically larger than New Zealand customers and tend to be less personable, he says.
“I guess the biggest thing to learn is that your processes need to be different in another country. You can’t take what you do in New Zealand and just export it to Australia.”
Raines believes Australians prefer to deal with Australian companies and says there are definite advantages of having registered offices in Sydney.
“Ultimately it comes down to price and service. At this point I think we’ve learnt most of the lessons we need to about being an Australian company and are ready to ramp things up. It’s a fantastic opportunity and as a price/cost model it’s untouchable,” he says.
Case study: Innaworks
It took four years of research and implementation before Wellington-based Innaworks went to market with its flagship mBooster product.
mBooster is an automated optimiser that reduces the size of mobile games and applications for the J2ME platform.
Founder Stephen Cheng puts his company’s success – which is based on 100% exports – down to the quality of research and development (R&D).
“That quality of product, combined with working very hard at being professional in our approach and marketing, is what earns us respect and credibility in the international marketplace,” he says.
Initial R&D was financed by Innaworks founders and private investors with FRST investing $120,000 through its Technology for Business Growth scheme.
“I knew we were entering a very competitive and rapidly growing field. There were many opportunities and many industry-wide issues needing solutions. But, being new, I also knew we couldn’t survive the intense competition in more populated segments of the market, so we chose a niche that requires hard core research,” says Cheng.
Because mBooster is targeted at a highly specialised market – mobile application developers and mobile game publishers – Cheng says his company opted for a direct sales approach.
“The number of potential customers is relatively small – in the hundreds of thousands rather than millions – and the industry is new, so there are few other companies with established sales channels. Going direct has worked incredibly well for us but we’re now looking to work with strategic partners to establish secondary markets.”
By going direct Cheng says Innaworks has been able to develop working relationships with its customers, which he says is invaluable for any business trying to get established in a new market.
“Direct communications with customers allows us to understand their needs and requirements so we can continue to refine our offerings. If possible try to extend into a market as opposed to entering directly. In certain industries it’s possible to test product without having a physical presence and heavy upfront investment.”
Case Study: Soltius
Global connections have given Soltius (formerly Intelligroup) access to the sort of resource pool many companies only
Through its partnership with global solution provider Soltius, the New Zealand-owned company has been able to access highly skilled engineers in India for local projects.
Jim Brodie, Soltius managing director, says this model has allowed his company to compete for business against large multinationals.
“The reality is that this business is project-based and by nature quite cyclical. The trick is to balance the resource pool to bid on the big projects and downsize after completion,” he says.
Brodie estimates around 20% of Soltius’ work is done with offshore resources but says it’s still a challenge to work out the ultimate mix.
“We certainly don’t want to send the message that Soltius doesn’t employ New Zealand staff because that’s not the case. However there is a skills shortage and using the Indian model gives us access to a massive skills base and capability on demand,” he says.