I have had the privilege to spend most of the last 7 years, living and working in Asia. I say ‘privilege’ because the experience has been truly enriching professionally, intellectually and personally.
My learning curve steepened the day I started to work in the world’s largest, most populous, and richest continent. Much of the understanding of Asia that I developed, while working in the United States, the United Kingdom and Australia, was challenged within weeks of actually living in the region. In short, business in Asia is done differently than Western countries and the ways in which businesses operate varies greatly across different Asian countries. This makes it particularly difficult to take a general view of business activities in this amazing region.
So how do the characteristics of Asian economies affect the IT and BPO services business? Firstly, it is important to understand that the propensity to purchase IT services is generally lower in Asia than in the United States and the United Kingdom. Secondly, it is necessary to understand that there is a huge amount of variation in IT services and BPO buying behavior across the region. Indeed, these variations are not always what might be expected when applying the business logic that we typically use in Western economies.
For example, organizations in the Philippines, a relatively immature economy with lower labor costs, are more likely to purchase services than organizations in Korea, a mature economy with relatively high labor costs. Why is this? Nobody knows for sure but it appears that the propensity of organizations in a country to purchase services is heavily influenced by three cultural and economic variables as follows:
#1 The cost of labor. In mature economies, the cost of employing people with technical skills is often significantly higher than the cost of buying access to skills from a third party. Hence, the countries in the world with the highest propensity to purchase IT services are those with high labor costs. In Asia, the best example of such a country is Japan.
#2 The Anglo Saxon business culture. Buying IT services from third parties is most widespread in countries that are often described as Anglo Saxon, led by the United States and the United Kingdom. The business culture in these countries has, over the last 25 years, focused on outsourcing ‘non core’ activities. A common belief in the Anglo Saxon business culture is that sourcing services externally can drive down costs, give organizations access to ‘best of breed’ services, and offer greater flexibility.
#3 The Confucian business culture. In the Confucian business culture, which exists in most of Eastern Asia, service is widely perceived to be something that is free. Services are considered to be critical to the differentiation of products. The loss of control associated with sourcing services from third parties is thought to remove a key differentiator from corporate control. Furthermore, paying for such services is an anathema to many organizations in East Asia.
Organizations that wish to understand how to sell services into countries in Asia must consider these variables carefully as they develop their marketing strategies. This is particularly important for organizations that generate the bulk of their business from parts of the world that are heavily influenced by the Anglo Saxon business culture.
In a country where the cost of labor is low, the influence of the Anglo Saxon business culture is low and the influence of the Confucian business culture is high, such as Vietnam, the challenges of effectively marketing IT services are profound.
Conversely, in a country where the cost of skilled labor is high, the influence of Anglo Saxon business culture is high and the influence of Confucian business culture is comparatively low, such as Singapore, the propensity to purchase IT services is relatively high.
Now, let’s briefly discuss some of the IT services buying characteristics of Asia’s four largest economies:
A lot of American and European firms are particularly interested in countries in which the cost of labor is high, the influence of the Confucian business culture is high and there is also some Anglo Saxon influence seeping into the business culture.
Perhaps the best example of such a country is South Korea. South Korea is Asia’s fourth largest economy and offers significant opportunities for foreign firms. However, selling services in South Korea is proving to be a highly vexing challenge to many US-based IT firms which have the Anglo Saxon business culture in their DNA. Ownership of much of the market by existing mega firms or ‘chaebols’ such as Samsung and LG, is obviously the number one challenge to any foreign firm.
So how should a US-based IT firm market its services offerings in South Korea?
Importantly, it must recognize that many South Korean customers will expect services to be free, and will show little willingness to pay for them. Thus, it makes sense to describe services offerings as products. Perhaps, services offerings could be described as ‘value enhancement products’. Maybe, if service is bundled with a product, the combined offering could be described as a ‘premium or platinum product’.
Japan has its own highly distinctive and successful business culture. It is, by far the largest IT services market in Asia. The Japanese IT services market is dominated by Japanese multinational companies, mainly the NTT Group, Hitachi, Fujitsu and NEC. It leads the world in many technology areas including robotics, some aspects of AI, and converging information technology with operational technology. Nevertheless, the propensity to buy standalone services in Japan remains lower than in Anglo Saxon economies such as the United Kingdom, the United States and Australia. To stand a chance of success in Japan, foreign firms must have solutions against which the Japanese firms cannot compete.
China has a relatively low cost of labor, strong Confucian influence on business, and growing Anglo Saxon influence. The propensity to purchase services remains low but is growing. For foreign firms, the marketing of standalone services offerings is a major challenge. Services remain perceived, by the majority of Chinese organizations, as something to be bundled with products.
India embraces Anglo Saxon business culture, together with its own array of local cultures. The cost of labor, however, is very low. So, Indian companies have a willingness and openness to buy IT services where skills are not available. But, the low cost of labor means that it is usually much more cost effective to hire than to purchase services externally. Indian firms that do purchase services externally tend to do so, when there is a need to compete internationally, and where the adoption of services that are perceived to be ‘best of breed’, can enable this.
The Bottom-line: Doing business in Asia is, simply, very complicated! This is just the start
These comments touch on some of the issues that need to be considered when doing business in Asia – and they are the tip of the iceberg. We will endeavor to address the complexity and diversity in the Asian IT services business over the coming months to help executives in buying, advising and selling services in the region be more successful.