Entering Foreign Markets in the

Software Industry

Whitepaper from TBK Consult

Author
Hans Peter Bech, M.Sc. (econ)

 Hans Peter Bech 2014

First edition
Unless otherwise indicated, Hans Peter Bech copyrights all materials on these pages. All rights
reserved. No part of these pages, either text or images may be used for any purpose other than
personal use. Therefore, reproduction, modification, storage in a retrieval system or retransmission,
in any form or by any means, electronic, mechanical or otherwise, for reasons other than personal
use, is strictly prohibited without prior written permission.
The Business Model Canvas Framework is made available by Business Model Foundry GmbH,
Kalkbreitestrasse 71, 8003 Zrich, Switzerland
The copyright of other frameworks and information sources mentioned on this whitepaper belong
to the proprietor.
Published by TBK Publishing (a division of TBK Consult Holding ApS)
Denmark
CVR: DK31935741
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ISBN: 978-87-93116-10-8

Entering Foreign Markets in the Software Industry

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Table of contents:

Targeted audience

Abstract

Author

Acknowledgements

A Global Industry

What is different abroad?

Customers
Value Propositions
Customer Relationships
The Channels
Revenue
Key Activities
Key Resources
Key Partnerships
Cost

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6
7
7
8
8
8
9
9

The Business Model Environment

10

Key Trends
Market Forces
Industry Forces
Macro-economic Forces

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12
12
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About the author

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Entering Foreign Markets in the Software Industry

Targeted audience

The target audience for this whitepaper is the board of directors,

the CEO and the sales and marketing executives of software
driven companies1 with ambitions for achieving global market
leadership. The whitepaper primarily addresses the challenges
of software companies with long value chains.

Abstract

This whitepaper discusses how to manage the business model

when planning to enter foreign markets in the software
industry.
The whitepaper exclusively deals with B2B software business
models requiring sales and support people in the field and thus
some sort of local operation in the individual markets.
The whitepaper recommends changing as little as possible in
the fundamental business model architecture. Changing the
business model architecture and moving into new markets at
the same time will typically be very difficult to manage for most
software companies.
By using the business model environment framework we can
identify those changes to the tactical implementation of our
business model, which are required for successful foreign market
entry.

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The whitepaper recommends being careful when using macroeconomic trends for choosing new markets. As macro-economic
trends change much faster than the perspective needed for
entering new markets, we may be caught up in a gold-rush
type situation with other insurgents. In addition B2B software
solutions are often anti-cyclical making macro-economic peaks
less attractive.

Author

Hans Peter Bech, M.Sc. (econ.)

Acknowledgements

Design and lay-out: Flier Disainistuudio, Tallinn, Estonia,

www.flier.ee
Proof reading: Emma Crabtree, ecr@tbkconsult.com
Independent Software Vendors (ISVs)

Entering Foreign Markets in the Software Industry

A Global
Industry

The software industry is by nature a global industry.

As the software industry is blessed with low cost of entry and
simple value chains international growth comes much easier in
the software industry than in most other industries.

Starting a software company can be done with very little

investment. Bringing software to international markets requires
no investments in factories and logistics infrastructure. A
software business model is primarily dominated by development
and sales. This structure enjoys tremendous economy of scale
benefits motivating software companies to grow globally as fast
as possible.
As the mainstream customers always favour the market leaders,
those software companies that do not make it in global market
leadership are severely penalized. The global market leaders
such as Microsoft, Oracle, AutoDesk, Adobe and SAP have made
it virtually impossible to run a local business competing with
them. Customers prefer to be served by the globally recognized
brands rather than by the smaller local brands irrespective of
whether their products are on par with those of the giants.
Thus, the rule of thumb in the software industry seems to be
grow globally or die.

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Although growing a software company globally is easier than for

most other types of companies, many still fall flat on their faces
when trying.
This whitepaper provides some guidelines, which should
help software companies become more successful with their
international growth activities.

Entering Foreign Markets in the Software Industry

What is different
abroad?

Software companies who are successful in their domestic markets

should take a close look at their business model and ask:

What changes when we go global?

The answer should be:
As little as possible!
Lets take a look at each of the business model building blocks.

Customers

Will the ideal customer profile change as we enter foreign

markets?
Hopefully not.
Changes to the customer segments we choose to address
globally as opposed to locally may require reengineering the
entire business model. That is a huge endeavour and introduces
increased uncertainty and risk. Entering foreign markets may
require that we become even more specific in our ideal customer
profile definition and start out with a more narrow focus on just
the best-validated customer segments.

Value Propositions

Will the value propositions change as we enter foreign markets?

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Hopefully not.
Changing the value propositions will also require complete
reengineering of the entire business model. Again we may be
even more specific in spelling out how we provide value to the
best-validated customer segments.

Entering Foreign Markets in the Software Industry

Customer
Relationships

Will the customer relationships change as we go global?

Hopefully not.
Why should we change the way we find, win, make, keep
and grow customers in Germany from the way we do it the
Netherlands? By all means Germany is not the Netherlands, but
the generic approach should remain the same for all markets.

The Channels

Will the channels change as we go global?

Hopefully not.
However, this is where many software companies make their
first and biggest mistake.
Most software companies have built a successful business
domestically by serving their customers directly. As they go
global they change the channel from direct to indirect.

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The issue is that they dont realize the requirements for

fundamental changes in the business models and they dont
realize that independent channel partners cannot be treated like
their own sales force.
Please see our whitepaper The Software Partner Channel in a
Business Model Context2 and The Software Partner Channel
and the Customer Value Propositions3 for a full explanation of

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Entering Foreign Markets in the Software Industry

the issues arising from using independent channel partners as

your Go-to-Market approach.
This whitepaper assumes that we use the same channel approach
globally as we use domestically.

Revenue

Will the revenue streams change as we enter foreign markets?

Hopefully not!
Unless we change the business model (the channel, the value
proposition and the customer relationships) we should maintain
the same types of revenue streams we enjoy domestically in new
foreign markets. Forces outside our business model may provide
us with opportunities for asking higher prices or force us to
accept lower prices, but the revenue architecture should remain
the same.

Key Activities

Will the key activities change as we enter foreign markets?

In principle no, but we will have to deal with longer chains of
commands and different market requirements, competitive
challenges and languages. Localization issues will need to be
included in our product management, planning and development
activities.
I will get back to this later in the whitepaper.

Key Resources

Will the key resources change as we go global?

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In principle no, but again we need to have the resources to

deal with a larger market and a bigger variety in market
requirements, competitive challenges and languages. Mastering
the English language will become a requirement in all corners of
the organization as we shift our internal language to English.
The more markets we have to serve and the longer the command
lines are the more we need structure and well defined processes.
We have to shift the balance from rapid agility towards reliable
structures and processes.

Entering Foreign Markets in the Software Industry

Key Partnerships

Will the key partners change as we go global?

In principle no, but we may need to replicate some of our key
partnerships in the markets where we choose to operate.
As we expand globally it becomes important to show up on
the radar of the industry analysts. We may need new sources
for market intelligence and we may need new partners for
certification purposes. We will most like have such key partners
in our domestic market, but they may not extend into the new
markets where we choose to operate.

Cost

Will the cost change as we go global?

Yes.
Entering new markets requires changes in our tactical
organization and investments in building a presence in the new
market. Serving foreign markets requires staff with different

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qualifications, additions to all our organizational units and

budgets for travelling.
Some of these changes and investments must be made up front
and equity funded, as it is highly uncertain when revenue will
begin to flow. For most B2B software companies requiring people
in the field, the time to first revenue is typically no less than 1218 months.

Entering Foreign Markets in the Software Industry

Many software companies grossly underestimate the magnitude

of investments required and are also completely unprepared for
the unpredictability associated with entering new markets. It
always amazes me that software companies, having spent 10-15
years getting a reasonable market share domestically, embark on
entering 5 new markets simultaneously with a different business
model and with a half hearted commitment. No wonder they fall
flat on their face.

The Business
Model
Environment

Alexander Osterwalder, who gave us the business model

framework, also introduced the business model environment.
While the business model represents those elements of our
business that we can control, the business model environment
represents all those elements that we cannot control.
The business model environment is divided into four
areas (the four forces):
xx

Key Trends

xx

Market Forces

xx

Industry Forces

xx

Macro-economic Forces

As we move into a new foreign market we also move

into a new business model environment. The business
model environment framework offers an excellent
approach to learn what the differences are and which
tactical adjustments we should make to our business
model and organization to become successful in this
new environment.

Key Trends

The Key Trends cover such areas as:

xx Societal and cultural circumstances and trends
xx Regulatory circumstances and trends

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xx Technological circumstances and trends

xx Socioeconomic circumstances and trends
Societal and cultural circumstances and trends certainly come

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Entering Foreign Markets in the Software Industry

80

74

70

59
36

Turkey

34
12

49

47

44

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Denmark
Power
Distance

Individualism Masculinity

Uncertainly
Avoidance

Pragmatism

Indulgence

in many forms and shapes. That language is one of the most

visual differences is, however, only the tip of the iceberg.
The World Values Survey Association4 maintains a map of
the world based on a few cultural parameters, which makes it
completely different from the geographic world map.
The Hofstede Centre5 provides insight into differences in cultural
issues such as the power distance, individualism, masculinity,
uncertainty avoidance, pragmatism and indulgence.
While most software business model architectures will work in
most countries the tactical implementation and execution must
respect the cultural differences - or they will fail.
Legislation differs from country to country. Even the EU
countries have substantial differences in legislation. If our
software requires compliance with local legislation then we must
add key partners to provide advice and organizational resources
to manage the relationships and processes.

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Other sources for information on society, culture, regulatory and

technology circumstances and trends are available from The
CIA FactBook, The World Economic Forum, OECD and the local
Statistical Departments.
Dealing with cultural differences from the outside is extremely
risky. Nevertheless this is what most software companies do
when making the first steps into a foreign market. I would
recommend getting a mahout who can help you navigate and
help make the right connections.

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http://www.worldvaluessurvey.org
http://geert-hofstede.com

4
5

Entering Foreign Markets in the Software Industry

Market Forces

The market force represents the demand side of our business:

our customers.
It includes such areas as:
xx Markets Segments
xx Market Needs and Demands
xx Market Issues
xx Switching Cost
xx Revenue Attractiveness
We obviously need to know how many potential customers there
are in a foreign market and who they are, but also how they are
organized, what specific requirements they have (which may be
dictated by legislation and by our competition), where they meet,
which media they use and who they take advice from.
Insight to the specific issues and challenges of the market in a
foreign country can be critical for the tactical implementation of
our business model.
As most B2B software represents an opportunity for process and
workflow improvement, foreign markets with expensive cost
structures are in general more attractive than countries with
inexpensive cost structures. The Annual Competitiveness Index
6
published by the World Economic Forum provides an excellent
indicator of which markets may be most receptive to software
based productivity improvement solutions.

Industry Forces

The industry force represents the supply side of our business:

our competitors.
It includes such areas as:
xx Competitors
xx Other Value Chain Actors (independent channel partners)
xx Substitute products and services

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With low barriers of entry and industry growth in general,

the competitive landscape in each country on the globe is very
different.
The current incumbents, who enjoy the home
advantage, make entering new markets very difficult.

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http://www.weforum.org/reports/global-competitiveness-report-20132014
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Entering Foreign Markets in the Software Industry

Unless our value propositions offer some key differentiators and

there is some awareness and demand in the market generated by
spill over from other markets, then it may be very difficult and
it may take a long time to break the ice unless we allocate
massive resources to the endeavour.
Most English-speaking software companies enjoy spill over
externalities. They show up in Internet searches, when Englishspeaking people all over the globe are using search phrases
corresponding to their activities. Software companies that
participate in global industry exhibitions and conferences can
also generate positive spill over effects, which can generate
opportunities for new market entry.
Software companies operating locally and using local language
only will obviously not enjoy positive spill over externalities.
The English speaking population7 on the globe is 1.5 billion
compared to 400 million Spanish, 220 million French and 100
million German speaking. Chinese is also a major language,
but the demand for B2B software from this group is negligible
compared to the demand from the 1.5 billion English-speaking
population.

Macro-economic
Forces

Although macro-economic forces are very well documented8

they are probably also the less interesting for our market entry
considerations.
Macro-economic forces change much faster than our perspectives
for market penetration. We will typically apply a long-term9
perspective on a new market and in that time frame it is
impossible to foresee the development in the macro-economic
circumstances. Especially in the developing world, these
circumstances may change rapidly.
The most important issue however, may be that the sales of our
software can be anti-cyclical. Cost reduction and productivity
improvement may be more critical in times of sluggish macroeconomic times, while less critical when the economy is booming.
While some of the smaller markets (Scandinavia and Benelux) will
accept B2B software products operating in English only, most markets
will only accept products that are available in the local language.
8
Key macro-economic figures for all countries in the world are
published by the CIA in the World Fact Book: https://www.cia.gov/
library/publications/the-world-factbook/
9
At least 10 years

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Entering Foreign Markets in the Software Industry

Macro-economic forces normally affect big companies, while

smaller companies may experience the exact opposite.

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Booming markets, which are easy to identify due the statistics

available, stimulate gold-rushes. This means that in boom
times insurgents rush into the markets building up capacity
expecting to enjoy surfing the growth wave. Entering strategic
markets when they are at the bottom of a macro-economic cycle
may actually makes more sense.

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Entering Foreign Markets in the Software Industry

About the author

Hans Peter Bech has been engaged with international sales and
marketing operations in the software industry for more than 30
years.
Hans Peter was instrumental in building the international
business platforms for companies such as Dataco (now Intel),
Mercante, Dansk Data Elektronik (now CSC), RE Technology
(now Barco), and Damgaard/Navision (now Microsoft).
As a management consultant Hans Peter has been
consulting on internationalization to companies
Microsoft, Danfoss, Proekspert, Jeeves Information
eMailSignature, SoftScan (now Symatec), Netop, EG
Scandihealth and Secunia.

providing
such as
Systems,
A/S, CSC

Hans Peter is an advisor to IMMIB, the Turkish ICT Exporters

Association. He also lectures in internationalization at the
Sabanci University in Istanbul, Turkey.
Hans Peter is the author of several whitepapers on
internationalization in the software industry and he frequently
writes articles on the subject.
He started his career as a management consultant in 2003
and founded TBK Consult in 2007. Since then he has built the
company to its present position with 25 senior consultants in 16
countries.
Hans Peter oversees the development of TBK Consult as well
as performs management consulting assignments for selected
clients.
Hans Peter holds a M.Sc. in macroeconomics and political science
from the University of Copenhagen. He speaks Danish, English
and German and is a certified ValuePerform, ValuePartner and
Business Model Generation consultant.

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More about Hans Peter Bech

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