In the IT services business, the propensity to purchase services is often different to what might logically be expected. This is particularly obvious in the extremely diverse Asia Pacific region.
For example, organizations in the Philippines, a relatively immature economy with lower labour costs, are more likely to purchase services than organizations in Korea, a mature economy with relatively high labour 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 3 cultural and economic variables as follows:
#1 The cost of labour. 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 labour costs. In the Asia Pacific region, the best example of such a country is Australia.
#2 The influence of 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 influence of 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 anathema to many organizations in East Asia.
Organizations that wish to understand how to sell services into countries in the Asia Pacific region 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 labour 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 labour is high, the influence of Anglo Saxon business culture is high and the influence of Confucian business culture is low, such as Australia, the propensity to purchase IT services is extremely high.
A lot of American and European firms are particularly interested in countries in which the cost of labour 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 to 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.
So how should a US-based IT firm, market its services offerings in South Korea? Firstly it must recognize that 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 descried as ‘value enhancement products’. Maybe, if service is bundled with a product, the combined offering could be described as a ‘premium or platinum product’.
Basically, services marketers must consider the Confucian influence on buying behaviour in South Korea and act accordingly. How does the convergence of Anglo Saxon business culture, Confucian business culture and the cost of labour, impact the propensity to buy IT services in China, India and Japan?