Buying too much software?

Although there has been a slowdown in the global IT economy, the sector has been slowing down less than other sectors such as automotive. However, software purchases from many of the largest providers have continued to grow and I've observed a return of enterprise licensing agreements - all you-can-eat deals, where companies can deploy as much software as they need, without incurring additional fees. Flexible though these deals are, they are also prone to being expensive.

This set me wondering whether companies were actually acquiring more software than they would use, and that we were seeing the return of the shelfware issues that the software industry has always had - as a dark secret. Over the past few weeks I've been running a poll to try to get a handle on the size of the problem, using a number of free Internet tools - Polldaddy and its Polldaddy twitter poll facility. Vanilla twittering of poll links, along with highlighting the poll on Linkedin.com and Facebook status pages also helped to spread the work.

The results show that many companies have bought significantly more software than they are currently using. The current results can be seen at http://linkbee.com/A3FOC, or add your own vote at http://linkbee.com/A3FOD. Without having worked through all of the calculations yet, I'd hesitate to give a single figure that puts a dollar value on this excess purchasing - but it'll be in the hundreds or millions of dollars range, each year. A few of the highlights of the poll - 22% said they had bought 10-125% more software than they were using; 17% said they had bought 25-50% surplus; and there were even 15% had over-purchased by ore than 50%. Of course, some surplus gives business flexibility - but this too much flexibility costs a lot of money.



Of course, there are lots of questions about the methodology - as it doesn't have the same control over sampling, for example, as would be found in traditional research methods. Nevertheless, the results are quite startling.

Why money matters?

I've been interested in the financial aspects of the technology industry for most of the last 20 years, probably from the first time that I created really comprehensive business case for a client - to help convince them of the value of geographical information systems (GIS) and how they could save them money, through improving the management of their physical assets. Since then I've build hundreds, if not thousands, or business cases to help the cost justification of technology investments, for either buyers or sellers of technology and services.

Rather than focusing on the increasingly discredited measures like ROI and/or TCO I've more recently been asked to estimate the payback period for technology investments, and to look at the ways that deals are financed - so that the investments can be suitably "engineered" to help those investment pay for themselves more quickly, and to better match the timing of the cash that funds the investment with the real financial benefits that are accruing. Financial structuring of deals has always been important but it is now more important than ever.

In recent months, and in part driven by the recession, I've been asked about financing again - perhaps more than ever. As a result I've been researching the subject more deeply again, seeing what financing concerns are being faced by buyers and the financial products that vendors are offering to help with these concerns. I presented a summary of some of the recent research in a webcast for HP Financial Services (HPFS) recently, to their customers and staff around the world - co-presenting with my Datamonitor colleague Martha Bennett. HPFS recorded the webinar and are making it available "on demand". You can find the webinar, entitled Moving to a variable-cost model for IT, online at the HPFS website. Reaction so far has been really positive - feel free to head over and listen to it (site needs some basic registration details).

Malaysian open source growth

I read an interest article on one of the Malaysian wires last night about the continued and future growth of open source in Malaysia. The expectation is that the open source economy will grow from RM420 million to RM800 million over the next two years - an impressive rate of growth. In part this growth is being stimulated an RM10 million government stimulus fund.

Two things interest me in this. First, that the growth of open source in the Asian markets continues to be strong, across the board. As countries in the Asian area continue to grow their economic wealth their demand for software and hardware will increase. If their appetite is for open source rather than for traditional commercial software then the balance of the entire global software industry will swing towards open source even more than it has already. Second, is that appears to be a link between the levels of software piracy and the growth of open source. As we've seen from the BSA analysis of software piracy there are still significant levels of software piracy. The question is "Are these levels driven by a desire for free software or more by an inability to pay prices which are high by local standards?".

I'd really like to see a few of the big software vendors bring out really, really cheap versions of some of their products - say at the $5-20 dollar level - available only in the less developed markets. We'd then see if the open source advantage was real, or whether the ability to pay was a greater practical obstacle than any theoretical or philosophical preference for open source.

Scotland's national database deal

Although it's not the normal focus of my blog I couldn't resist mentioning the recent deal that Procurement Scotland had struck with Oracle - The Register has a few more details. Essentially, for a fee of £18.7m around 80 public bodies in Scotland will have unlimited access to a range of Oracle technology. Now £18.7 million is a reasonable size of technology deal but it's by no means enormous.

What is more striking, though, is the signal that gives. Countries can use their aggregate purchasing power, in the same way that large corporations do. While this type of purchasing power has been wielded in the past, notably through agreements such as the GSA Agreement in the USA and the work of OGC Buying Solutions in the UK, it is much more unusual to see a small country like Scotland being able to do the same.

Now that the precedent has been set, at this smaller scale, government purchasing agencies in smaller countries around the world need to think about doing the same - gathering together demand from their diaspora and pressing for recognition of their aggregate purchasing power. Of course, this doesn't only apply to Oracle purchasing but to all IT-related spending with the technology majors such as Microsoft, HP, IBM, et al...

Will the US keep on restricting access to technology to unfriendly nations

It's long been the practice in the IT industry to embargo the shipping of high technology products, both software and hardware, to countries that are considered hostile to the US Government. It's been such a tradition that I've not really heard mention of it for over 10 years. However, it came up again recently when Microsoft confirmed that it was restricting access to Windows Live Messenger in Cuba, Syria, Iran, Sudan and North Korea - I spotted this in a PC World article. Of course, as the article points out, it's not only Microsoft but Google and others who have taken this or similar action.

Now... access to IM isn't in itself a huge thing. What is more significant though is the style of regulation that this might lead to, if the enforcement regime takes it to the logical extreme. Regulation around the physical software media and hardware wasn't particularly easy to implement and a whole range of grey routes appeared that allowed a variety of banned software to end up in the countries that the US didn't want. However, I never really saw the US regulation being enforced with true vehemence. It seemed much more like a token set of restrictions.

If the same degree of enforcement happens in the online services world then we'll see no major change. A range of workaround methods, involving anonymous proxies, or any of the simple network-level will then emerge that make it relatively easy for the nationals of Cuba, Syria, Iran, Sudan and North Korea to continue to use their favourite IM services - with a little inconvenience. However, if the intent of the US Government is to enforce the ban with extreme vehemence then we're looking at a very different set of implications. To be able to enforce it, we'd see the US regulators needing to have very deep and far ranging monitoring and control powers, effectively permitting them to inspect any packet, at any time, in any location in the world. Now, that would make a lot of people quite nervous indeed.... It would see the US Patriot Act being used on a regular and systematic basis, just to ensure that IM traffic from proscribed locations wasn't being generated.

There are definitely a lot of implications but it all depend on how serious the US Government is about holding firm and being certain that certain types of technology are not being exported to Cuba, Syria, Iran, Sudan and North Korea.

Balancing software and IT services in South Korea

For a long time I've thought there was an opportunity for South Korean software companies and, indeed, for a wider software economy to be built up in the country. The large IT services companies have largely shaped the IT local IT market, with firms like LG CNS (see http://linkbee.com/956B), Samsung SDS (see http://linkbee.com/956G) and Posdata (see http://www.posdata.co.kr/eng/) defining the landscape. In many circumstance these firms have grown out of parent company that is a larger technology, electronic or engineering conglomerate and they began by offering services to that parent, before expanding into the wider market. However, these firms have faced a couple of major challenges:

• expanding internationally - to grow revenues in the lucrative European and North American markets, in the same way that their product-focused parent companies have done.

• competing with the low-cost IT services destinations, such as India, China or Brazil

I've often encouraged my friends in South Korea to focus in creating leveraged software assets, to augment the labour-focused IT services heritage. This would allow the capital and IP strengths of the country to be invested, to build software investments that would remove the labour advantages of lower cost economies. It seems that some of the advice has now been taken to heart and that the South Korean investment is investing funds to support it.

I liked the article in the Korean IT Times last week (see http://linkbee.com/9558). The Ministry of Knowledge Economy announced the availability of a W10 billion support fund, to encourage the development of software technologies. It's a good start but needs to be spread into a wider initiative and linked with initiatives to support the export-led growth of existing software companies in the South Korean market. New companies need support, but so do the existing companies like TmaxSoft (see http://linkbee.com/958Z).

Vietnam software parks are not enough

I was picking up on the discussions held at a recent conference in Ho Chi Ming City about the Vietnamese IT industry. One of the most significant debates was about whether there were enough software parks available in the country (see http://linkbee.com/FKW).

There are 10 software parks operating in the country but there are also ambitious plans for a 35-40% annual growth rate, to reach a revenue target of $1.5 billion by 2010. One of the local participants in the conference, Dwight Paul Lam claims that, without major investment the industry would not be able to grow beyond $800 million. That would be a significant shortfall. Now, I hear that new technology parks are scheduled (Hoa Lac Software Park in Ha Noi, FPT Software Park in Da Nang, Thu Thiem Software Park and an expansion at the Quang Trung Software City) - according to the VNS article that I read.

I do wonder, however, if this is rapid enough to meet the growth targets. If it is not, then there must be interim moves to meet the initial shortfall. This could take the form of using some the excess real estate freed up by decline in the financial services industry, or from use of surplus capacity in government buildings. Short term capacity problems are going to need creative solutions, especially when the construction industry is suffering globally and may have less appetite to take the risk in investing in new marque facilities.

There is a big danger that constraints on the growth of the local software industry could turn into a negative spiral for the whole economy. the construction industry needs to be incentivized to continue its investment in the infrastructure of the country, so that the general economic growth that is driven by software can be continued.

Mid-market APAC deals

Over the past couple of weeks I've noticed that vendors in the APAC region have been keen to publicize their latest deals. However, the deals that they are publicizing are - by international or western market standards - very small transactions.

A couple of examples.... Last week SAP highlighted deals in the Philippines with oil provider Metro Oil Subic and the motorcycle distributor and manufacturer MCX. These were deals for the SAP mid-market offering BusinessOne and together were worth $105k of licensing - being implemented in around two months. While these are undoubtedly considered significant investments by the firms concerned they are much, much smaller deals than we're accustomed to seeing elsewhere in the world. In the UK and US, for example, deals of $1 million generally go by without publicity.

In late September Salesforce.com publicized their deal with Del Monte Philippines (DMPI) for an initial purchase of 50 enterprise license. Again this is a relatively small transaction but it also represented the second largest transaction in the Philippine operations of Salesforce.com so far.

The flush of publicity is less about the transactions themselves, but it is more about the vendors highlighting that they are beginning to get greater traction with their distribution and local partnering arrangements. The announcement of the two SAP deals, for example, was accompanied by the appointment of XCEL as a distributor in the Philippines. XCEL established their Philippine operations in 2007, from their original New Jersey roots, and is aiming to tap into the forecast SMB growth. The Salesforce.com announcement also focused on the appointment of IP-Convergence Data Center (IP-Converge) as their Philippine partner. Interestingly, though IP-Converge claim to be the largest user of Salesforce.com in the country.

The mid-market in the Philippines accounts for a very significant proportion of the total number of countries in the country, up to 80% according to some estimates. Mid-market companies, especially those in this region, have a buying preference for local companies rather than dealing directly with international conglomerates. The local market trust is important. What these facets drive is a need for the original software manufacturers or service providers to offer strong enough revenue and margin earning opportunities for those local partners, be it through re-sale margins, support fees, or consulting and implementation services. Without those streams of money the local partners will simply go elsewhere and the international majors will find that they don't get the traction that they hope for.

Offering good money making opportunities to the local community is, of course, something of a moral issue. It can contribute to a reduction in inequality between nations, rather the more exploitative situation where all margins are automatically repatriated by the international firms.

Google - a glocal company ?

I was mildly surprised to see that Google had launched local homepage for Mozambique. I had always considered Google to be very international in its focus, with a few localizations for the largest of markets, such as the China, US, UK or Germany. As part of the launch press release Google emphasized that this was the 26th country-specific homepage in Sub-Saharan Africa, and third for a Portuguese speaking country in the region.

Google clearly has a much more glocal approach that I had given credit to. In September alone they launched homepages for Mozambique, Algeria, ran an East Africa Gadget Competition, and invested in the O3b Networks initiative to increase Africa connectivity. In October they extended the Map Maker initiative that lets users build maps online for areas where Google Maps has less than complete quality coverage - enabling 45 new African countries to contribute. This extended the portfolio of countries that were brought into the programme in August this year.

I really need to pay more attention to the glocal initiatives that Google is putting in place. There is clearly a great deal at stake, both the company itself but more broadly for the overall international makeup of the technology market and, indeed, on the interaction patterns between technology and society worldwide. I've been a fan of the glocalization theme for many years rather than the single cultural model than conceives that technology and society interact in the same way everything - irrespective of culture, geography, history, politics, etc...

SITA in the open

Another interesting read that I picked up today was the annual report from Sita, the South African State IT Agency. Sita delivers IT services to the government.

Open source really came onto the stage in stage in a practical way in South Africa when the Cabinet endorsed the proposals for an open source strategy nearly 18 months ago. There were, of course, earlier moves - such as the 2002 submission " Open Software and Open Standards in South Africa: A Critical Issue for Addressing the Digital Divide" and a 2003 Cabinet memorandum. However, it was the 2007 initiatuive that I see as really kicking the impetus to make practical change to IT used by government in South Africa. In the recent report, Femke Pienarr, the CEO of Sita stated that the transition to free open source software would be completed by end of their 2008/2009 financial year.

South Africa has an "open source first" policy (see http://linkbee.com/REH). Key elements include the policies that the South Africa Government will:

- implement FOSS unless proprietary software is demonstrated to be significantly superior
- migrate current proprietary software to FOSS whenever comparable software exists
- ensure all Government content and content developed using Government resources is made Open Content

These are clearly very significant policy elements. Putting these into practice has not been without challenges, especially in being able to establish the correct support infrastructures and at the correct costs i.e. less than the cost of commercial support.

Any country or, for that matter, major corporation moving towards a wholesale open source policy need to invest a huge amount of effort to make the transition work. For some this will be a worthwhile investment, while for others the effort will outweigh the potential returns.

The financial benefits of South African transition to open source are difficult to quantify. The original 2007 paper has a section on the justification of the policy initiatives but it is wholly lacking in financial analysis. While I don't doubt (at least not too much) that hard economics were involved in the policy decision, I would really like to see the financial outcomes that have resulted from on of the most notable transitions to open source.

Back again - looking at Africa

Been on the road for the last two weeks, so have got behind in writing blog entries for Geosophical. Back on track again...

For the past few days I've been looking into the African IT market, partly because I think it under-estimated but partly because xxx. When starting to dig into the market I came across a really useful aggregator site - Afridex. You can find it at http://linkbee.com/VUO. It describes itself as:

Afridex is an online aggregator of African business information data related to specific companies. It was created for the purpose of making it easier to track down specific information about companies operating throughout the continent. Afridex can also be used as a reference tool for members of the press and bloggers interested in linking to company information. All information included in the Afridex is either public data or volunteered by the organizations themselves.

It's not the only aggregator that I've come across though. Others include the Cape Town headquartered social media aggregator, http://afrigator.com the blog Startup Africa, and a host of other community or social media sites. Just like the older markets in other parts of the world have matured and changed their structure, so will the nascent African market change.

A continuous flow of new social media and aggregator sites are likely to emerge, the vast majority of which will simply go nowhere in business terms. Of course, there is the possibility that each African nation will create a "local hero", in the way that countries like Russia and South Korea have national favourite search engines - eschewing the dominance of multi-national players.

An interesting facet though is the type of social impact that these community sites generate. In the Western world the social structure are dominated by urban and city environments, many of which have significant issues around social alienation. In these places social networking and social media re-established social connections, though not with the local geographic commumnity. Community in the social media world does equate with propinquity.

In Africa communities in the real world are distinctly different, in places, with greater village culture in rural areas but equal amounts of social alienation in cities. Rural-urban migration has also impacted the social structure. How the social media will impact this base is not yet know but it is pretty certain that it will a different impact than we've seen in the UK and US markets.

We need to let the social media market for Africa evolve a truly African genre, rather than analysing it through the lenses of a Western class and social structure.

Cambodian markets

I don't often get a chance to look at the smallest regional markets in Asia, so I was happy to read some news in MarketWatch today about moves in the Cambodian market.

It concerned the appointment of Campura Systems Corporation, the local Cambodian firm, as a distributor for the products of SoftBrands. SoftBrands have a specialist focus on business applications for the hospitality sector, although it also has manufacturing solutions offerings based on SAP Business One. They are likely to hit the notable $100 million revenue threshold within the next 12 months or so, and will see a contribution to this through regional expansion - such as their Cambodian deal with Campura.

The hospitality sector within Asia is interesting, particularly for countries where tourism, travel and transportation are playing an increasingly important part of their economy. SoftBrands have existing offices in Singapore, Malaysia, Hong Kong, Indonesia, China and Australia, with joint ventures in Thailand and the Philippines. I can see possibilities for SoftBrand to establish further joint ventures and distributions arrangements in other countries - South Korea, Vietnam and Laos among those.

I'd like to see further companies establishing partnerships in Cambodia, as the IT and IT services economies grow in maturity.

Investments in Excelsoft e-Learning

e-Learning is an area of the market that I've found fascinating for some time. In the early days I was deeply unconvinced of the value of e-Learning, other than in very simple circumstances where the training needs were focused around conveying information to a wide audience. My biggest worry at the time was that there was little, if any, pedagogical innovation taking place and there needed to be massive progress from the educational community to find the ways of exploiting the maximum educational benefit that new technology offers.

Since those early days there has been massive progress from those education professionals, with teams such as the old Ultralab unit of Anglian Ruskin University - though has massively changed since its heyday. e-Learning software providers have also built in more product innovation, to support and enable pedagogical development. While companies like Blackboard have built major market positions there have also been a number of smaller companies that have develop strong businesses, in the hope that the sector would eventually see rapid acceleration.

Excelsoft is one of those providers. It is headquartered in Mysore with other offices in Hyderabad and New Delhi. It has won a series of awards in the past few years, including the Karnataka Best IT Exporters Award 2006-2006. Today saw a 10% stake in the company being acquired by Arohi Asset Management - a Singapore based investment fund. The Indian e-Learning market in India seems very buoyant at the moment, especially from an investment perspective. The UTI Ventures exit from Excelsoft generated excellent returns for them. Educom and Tutorvista are also attracting strong interest.

Taking the Indian e-Learning companies from the Indian market onto a global stage represent a great opportunity. If they can ensure that their platforms are able to support their entry into the Chinese market then their opportunities will be all the better.

Indian acquisitions in the ERP market

One of the advantages of the global industry is that I can get to read tomorrows Business Standard at the tail end of the preview day here in the UK. In Monday's edition was the news that Ranklin Solutions was to acquire Cigniti.

Ranklin Solutions is headquartered in Hyderabad and, to date, has focused on the software development market. Their ERP applications capability has been focused around SAP-related services. Cigniti are an ERP solutions provider, although their precise focus is not quite clear... They describe their offering as:

Enterprise Resource Planning (ERP) solutions to help you implement and integrate popular ERP packages, including those from Oracle, PeopleSoft and SAP. Cigniti’s ERP services range from assisting organizations through the package selection process to an enterprise-wide implementation of the full ERP suite.

Now...if Cigniti bring some concrete intellectual property, either template implementation methods or actual software assets then I can see some rationale for the acquisition. If it purely for a series of consulting and system integration staff and contracts then I can see less reasons for the deal.

The trend for Indian software and IT services providers to make acquisitions in other parts of the world is increasing. The Infosys acquisition of Axon, assuming it completes, will be a substantial example of the trends - at $753 million. Last year Firstsource acquired the US firm MedAssist Holding Inc. As long as the commercial health of the Indian players continues to prosper, and the markets in the US generate tough conditions for companies there, the more there will be cross-border acquisitions like these. Tough US markets will result in some companies becoming available at much keener prices than would have seen 12 months ago.

Philippines - training for the future

Catching up on reading after a week in the US... I spotted an article in the Saipan Tribune that seems to tie in neatly with some of my previous suggestions for the development of the Philippine BPO and IT Services industry. While I cannot claim any direct influence on the announcement, in does align with my previous comments.

When the Philippines announced the creation of technology parks I commented that there was, initially, a need to focus on a limited number of industries - to ensure that the country could compete based on specialization rather than low cost differentiation. But, to make this skills and specialization based approach work there would also need to be a change to the education system - at all levels - to make sure that a pool of properly skilled and experienced labour was being produced to feed the demand that growth around these parks would create.

Seeing the implementation of a Training for Work Scholarship Program was heartening. It focuses on taking recent school leavers and developing their skills in precisely those areas where the demand from employers is coming - call centre operations, software development, and specialist transcription services. Of course, the program also focuses on developing skills around other non-IT and non-BPO segments.

The initiatives works in co-operation with Business Process Association of the Philippines and the members of the Contact Centre Association of the Philippines, the Philippine Software Industry Association and other connected bodies. Any initiative like this needs co-operation between the state and the private sector, to make sure that the skills being developed fit with the needs of the market.

Headstrong in diversification push, but when

I first came across Headstrong at the NASSCOM leadership conference in February this year where they the laptop bags bore the Headstrong logo. At the time they struck me as an organization with some passion for growth and a recognition that they would need to develop their proposition beyond the roots in the consulting to system lifecycle space. So.. I've been waiting to see the actions being put in place to drive that growth.

Today I read in the Inquirer.net that those plans are likely to include acquisitions in the BPO space. However, the interview still only talks about the future rather than instantiating anything concrete today. Headstrong CEO Arjun Malhotra talked in the article about creating a $100 million acquisition fund, with the first $50 million of that already available. Now... in comparison with the larger scale investment fund available to the larger Indian players this is a relatively modest fund size. The size of the fund means that Headstrong needs to focus its acquisitions very tightly indeed.

While others from India may be looking to European acquisitions, in order to diversify their revenue sources the revenue diversification effect of a $50 million European acquisition would be very limited. Even if the focus was in a single country and a single vertical then the impact would be limited. So.. I wouldn't advise Headstrong to go shopping for european demand diversification.

Instead, there should probably be a focus on diversification of capability. Here the existing Headstrong capabilities in the Philippines give a reasonable pointer. The Philippines is already looking to specialize its services offerings, with open source and software-as-a-service being strong candidates. Headstrong could do worse that focus its investment on acquiring increased capabilities in these areas, more than the estimated 2,000-4,000 additional heads that they are already seeking to acquire. A portfolio of 3-5 $10 million specialist open source or Software-as-a-service acquisitions would give greater capabilities and, potentially, a set of additional intellectual property. Acquisitions like this would not necessarily conform with the "BPO focus" that Headstrong have talked about but would be closer to their traditional core business.

If Headstrong is completely committed to the BPO expansion and diversification then a key to its success will be to focus on the industries and process-areas where they have already found success. The second area of focus would need be to be on differentiation and specialization. The capabilities acquired would need to be industry specific and deep, with no hint of differentiation through labour arbitrage alone. Headstrong needs to compete based on deep skills in its chose industries and processes.

Pakistan on the technology park gig

It's only a few days since I wrote a critique of the new technology park initiatives in the Philippines (see http://linkbee.com/KXD). Now I see that there is to be a massive new IT park in Lahore, due to be operational from November 2008. According to the article in Pakistan Daily the facility will be 360,000 square feet and will be able to house around 30 mid-sized Pakistani IT companies.

What's not clear yet though is whether the facility will aim to attract any specific type of IT companies. Just like I argued that the Philippine facilities needed a narrow focus, the same is true for the facilities in Lahore. Given the success of Pakistan in becoming an attractive outsourcing destination, it might be prudent to have at least part of facility focusing on companies that develop intellectual property that can make the outsourcing industry more competitive on a global basis.

Investment in education is another area where I said the Philippines needed focus, so that it built the workforce of the future and the same is true for Pakistan. Across Pakistan there have been many initiatives to build the IT skills base, such as the AR Saleh Mohammad Computer Learning Centre in Lyari (see http://linkbee.com/KXF). Initiatives like this and many more will be needed if Pakistan's $2 billion IT and IT services market is going to be able to continue to grow at the 50% rate that it has done recently.

Pakistan exhibits, in microcosm, the same problems as many different countries in Asia. It needs a whole range of inter-connected investments from real estate, skills, through to the financial incentives and levers needed to create a thriving ICT economy. Although I see some of the ingredients I don't yet see the inter-connected strategy to join them all together. Maybe this will become clearer as I learn more about the Pakistan IT economy...

hSenid: HR SaaS and outsourcing in tandem

I've argued before that having good quality HR systems and processes are going to become an increasingly important asset that companies in the emerging Asian markets wield, in an effort to build and sustain differentiation. While the global HR systems players, such as PeopleSoft and SAP are well known, there is very different structure to each regional and national market. As such I am interested when I hear of smaller HR players in different countries.

Late last week I picked news in the Sri Lanka Daily Mirror about a Sri Lankan founded company called hSenid. They are a software provider as well an outsourcing services provider. One of the things that is especially interesting about them is that their HR platform is delivered through a Software-as-a-service (SaaS). This increases the applicability of their solution to the SMB market that is important in the countries that they are targeting, namely: India, Malaysia, Singapore, Indonesia, and Sri Lanka. The fact that the outsourcing service is equally based on the SaaS platform is important for the uptake of outsourcing in the local markets. It means that there is a much lower on-boarding cost to outsourcing contracts, compared to traditional outsourcing contracts where there can be large software and associated implementation costs - even though these may be financed to give an annuity basis across the entire contract. The SaaS basis of the platform leads to lower implementation costs and so to lower outsourcing initiation barriers.

Local players, such as hSenid, have the potential to dominate local and regional markets - especially in the SMB sub-segment. Fundamentally this shows that HR markets are somewhat different to their CRM counter-parts, where international players such as Salesforce.com have been able to build market share. Of course, there are international players like SuccessFactors and other HR niche specialist firms, but the local firms are still able to take substantial market share. In the case of Sri Lanka hSenid claim market share approaching 70%. This local hero trend is likely to continue in the HR systems market for some time to come.

Skills shortages again - Malaysia this time

I hate to think how many of my blog posts here have focused on the issue of skills. So many of the emerging Asian markets are constrained in their growth through either current or future skills shortages.

The most recent example of skills shortages was with Malaysia. An article in The Star Online looked at the number of professionally certified software testers; those who have achieved the International Software Testing Qualifications Board (ISTQB) certification. Only 91 ITSQB certified professionals came from Malaysia, although a further 10,000 people in country are estimated to work in software testing. Now, there is clearly an active encouragement for there to be more software testers in Malaysia, and for more of these to gain formal certification and professional qualifications.

Given the number of different skills shortages that continue to be reported in the region I have begun to wonder what commercial opportunity this represents. Clearly there is a limited ability for individuals from the poorer countries to pay for expensive training. However, with the provision of micro-credit facilities or community-credit schemes there is potential. Investment in education is, generally speaking, a very good long-term investment for both an individual and a wider economy.

Now, I hope that the opportunity is grabbed by entreprenrurs and companies in the local markets, rather than being serviced by the international players in the global market.

Philippines open source cancelation woes

Anyone who thinks that the development of the IT economy of a country can be separate from the broader political, social and economic climate of the country is mistaken. There can be no simpler illustration than the cancelation of the open source summit that was due to be held in October in Cebu, in the Philippines. The article in the Inquirer.net late last week describes the cancelation of the event, with the prime cause being the security concerns of the speakers and other delegates.

It's clear that the unstable political environment has contributed to the cancellation of the event. It is also a simpler illustration of a broader historical irony. Countries where there are poorer economic conditions can create a sense of frustration and injustice in the populous, when value expectations are greater than value capabilities - as has been expressed in sociological literature over the years. Generally that means that unrest is most likely when a population has greater desires and ambitions than the economy is delivering at the time. This expectation gap is amplified when the population sees people in other economies and societies getting on better - such as the Philippine population seeing the economic growth of India and China in recent years. Now, the irony is that when unrest and instability break out the amount of investment from inside and outside the country reduces - further pushing down the potential for the population to see their aspirations delivered. It can be a no win situation.

In the broader sociology movement the most effective route has often been to encourage a much wider self-help or community involvement regime. Here communities are encourage to create micro-businesses that trade strongly in the local economy, get funding from local micro-credit facilities and rely less on the international markets. Now, clearly a completely isolationist regime is not helpful in an economy that is targeting international outsourcing growth. However, the cancelation of the open source event means that Philippine companies cannot wait until it is re-schedule before they start their next round of commercial open source initiatives. They must simply focus on business as usual and new sources of business, if old partners and customers are discouraged by the current difficulties.

Kenya building further BPO skills

An interesting little article in Network World yesterday, giving some coverage of investments to grow the BPO capabilities in Kenya (see http://linkbee.com/IQP). 

Livebean Consulting have set out to increase the skills of the contact centre industry in Kenya, by creating a contact centre scholarship programme - to be administered by the Kenya Business Process Outsourcing (BPO) Society and AITEC Africa. Building an effective outsourcing and BPO capability in Kenya is going to need investments in many areas: skills development (like this initiative sets out to build), a technology and communication infrastructure, and an attractive and stable financial regime, with incentives for companies to develop their facilities in Kenya.

It's going to take some time to build Kenya into a world, or even an African, outsourcing powerhouse. There is competition from other African countries, mostly notable from South Africa, Egypt and other parts of the North African cost. Kenya needs to build on initiatives like this, if it wants to be recognized as a global player.

Infosys and the Axon aquisition

In the FT today the news broke that Infosys is to acquire Axon, in a deal valuing them at around $800 million - an all cash transaction due to close in November this year (see http://linkbee.com/IQL). Axon themselves had been on the acquisition trail recently, having acquired Australian headquartered Consulting Principles Pty Ltd for an initial consideration of £1.7m.

Now, there has been speculation for years that the major Indian firms would look to acquire consulting businesses in Europe, as they move up the value chain and look to have a higher-end business sales capability. Axon have been known for two things: business transformation consulting and their SAP capabilities. Both will be very valuable assets for Infosys.

For a start the utilisation of SAP practices across the UK and the rest of EMEA have been running at high utilisation levels for well over a year now, and there are no real signs of the demand declining. As such, Infosys are buying into a buoyant area of the market. Axon has developed a reputation around its SAP capabilities through work in key verticals such as government (like at Birmingham City Council), banking (with their foundation membership of the SAP Banking IVN being an example here) and oil & gas (having acquired the consulting firm EnterSys Group that were specialists here). The combination of the SAP heritage and the industry specific transformation expertise is likely to be a strong combination for Infosys.

This is a good sized acquisition and one that may well encourage one or more of the other Indian majors to make equivalent moves. Any one of the EMEA IT services firms that has a valuation of $2b of less is potentially in play. However, with EDS having been acquired by HP in a much larger transaction it is also possible that one of the Indian majors may set their sights higher and go shopping in $10b range - something that would be bolder but more difficult to integrate, and extract the value from.

Latvia and Japan in partnership

With the globalization focus that I've adopted here at Geosophical Technologies I see some very unusual partnerships between countries and companies. However, few struck me as more unusual than the announcement of a partnership between Japanese company NTTCom Technology Corporation and Latvian company Zabbix SIA. The press release that I picked up on LinuxPR gave some details of the partnership (see http://linkbee.com/IOZ).

The partnership sees NTTCom take a series of network management offerings to market, based on the sophisticated open-source network management products that Zabbix provides. As the convergence agenda continues to evolve there will be an increased need for both local and wide-area network management, to avoid the problems of service outages and poor service levels that will otherwise result. While network management has always been important, it now growing in importance as the network becomes more central.

While Japan is well known as a technology market, from both supply and demand-side perspectives, Latvia is less known. However, there is a thriving software and IT services sector, with a sizable graduate pool entering the technology outsourcing activity in the country. Outsourced software development has been one of the strong service-lines in the country. There are also a whole variety of growth opportunities that are emerging for Latvian companies, as described in a recent presentation by Ina Gudele - the Special Assignments Ministers for Electronic Government Affairs (see http://linkbee.com/IPC). It's one of the growth market in the Central and Eastern Europe region, and the prospects continue to look strong.

Indonesian education and free software offers

The Jakarta Post had an interesting article yesterday (see http://linkbee.com/IKB). It was written by the educational technologist Jaha Nababan and looked at the rights and wrongs of Indonesia accepting technology donations of a philanthropic nature.

It started as a response to the offer from Bill Gates and Craig Barrett to offer free software and reduced cost hardware, and concludes that it - if it were to accepted by the politicians of Indonesia - that it could well be considered as a bribe under the rules of the Corruption Eradication Commission (KPK).

However, the argument is richer than that. It goes on to suggest that Indonesia may well get better commercial terms if it were to go to competitive tender, using the estimated demand for 2.65 million computers to procure a better hardware and software bundle than would be obtained through philanthropy. The last few months have seen a huge increase in the choices of low cost hardware (such as the Asus EEE or the Acer Aspire), with supporting software, and an order of that size could produce fantastic discount terms.

Beyond the simple use of commercial leverage there is another angle that is worth considering. It would, essentially, see Indonesia and a major IT vendor working in partnership. If Indonesia can work to become a centre of design and production of low-cost ICT devices and software, it will be a benefit to both the global ICT partner and to the local Indonesia economy. While it is going to be difficult to have Indonesia go "toe-to'toe" with China, to become the centre of low cost manufacturing, it is not impossible to imagine greater Indonesian ICT manufacturing. China has economic ambitions to make sure that it does not simply becoming a low-cost manufacturing centre for the equipment that other countries design. As such we're seeing a trend for traditional Chinese manufacturing to be outsourced to other Asian locations, and Indonesia is one potential beneficiary and may be able to use this trend as a kick-start to the local economy around ICT.

What is more certain though is that Indonesia needs to think very creatively about how to it brings greater ICT skills into the local economy, and that this is much more complex that sourcing a bunch of cheap PCs. It would be better to think of the integrated ICT economy of Indonesia rather than just ICT in classrooms.

Google is not the only search engine

We're used to talking about Google being the dominant search engine globally, with others like Yahoo and MSN falling far behind in terms of market share.

Despite being the global lead in most countries of the world the article in The Sunday Times today (see http://linkbee.com/IFY) highlights that it's not ubiquitous, with Russia, China, South Korea and the Czech Republic having local search favourites. Yandex is the local dominant Russian search engine, while it's Baidu in China. According to The Sunday Times article Yandex is valued at around £2.5 billion. Just like some Chinese firms are moving into the UK and broader EMEA markets, so will some of successful Russian firms - I suspect that Yandex will either make a push into the EMEA markets or directly into the US, with a NASDAQ floatation being rumoured..

When I last met one of the Google EMEA executives I was pleasantly surprised that they were so humble. They talked about the threat to Google's position from many new entrants, each brining specialist domain search functionality to market. I'm encouraged by this. If Google doesn't actively monitor the markets, be they geographic or specialist functionality markets, then their current market prominence is sure to be under threat. Arrogance is the enemy of continued success for the large technology and services companies.

Search can appear to be a boring market, with a dominant player surrounded by smaller but less significant competitors - a bit like the very old adage that there was IBM and the BUNCH (as a memory test, who were the BUNCH ?). However, it's also a market where new technology can have a relatively rapid impact and there are many such technologies under development. Google cannot afford to sit on its laurels.

China coming to Britain

Just as the Beijing Olympics is coming to an end, and the handover to the London team happens, there are signals of an increased business cordiality between China and the UK. On the front page of the business section of the Sunday Telegraph (see the footnote at the end of http://linkbee.com/IBP).

I've written before about the fact that many of the ideas present to the Western Internet community actually find their genesis in India or China. Alibaba is one of those companies, having pioneered the B2B trading environment. The Sunday Telegraph article signaled the fact that Alibaba will announce tomorrow that they are bringing their operation into the UK market, and will make a joint announcement with Think London. There have been a whole stream of Chinese companies that have been attracted into the Uk market by Think London (see the article at http://linkbee.com/ICI).

A notable technology company here is Geong International. Geong is an enterprise content management software company and is unusual in that it is an AIM listed company that was started in China, before expanding into the international market. They listed on AIM in June 2006.

Even without the backdrop of the Olympic handover there was always going to be an increase in the volume of Chinese technology companies that want to enter the UK and broader EMEA market. Some will take the AIM listing option that Geong has, although it is currently unique in this strategy. Others will open local trading offices. Others will seek to acquire UK firms, as the basis of accelerating their entry to the market.

A whole variety of strategies will be adopted but one thing is certain; the domestic Chinese software and IT services players will soon be seen in the UK market. On a wider perspective it's becoming increasingly difficult to talk about a UK domestic market, in isolation. In my view it always has been difficult. Previously it was the influence of the US firms, with subsidiaries of the major US operations like Microsoft, HP, IBM, Oracle, EDS, CSC, etc... making the majority of the UK software and IT services revenue. Now it will be nearly impossible to focus on the biggest revenue influencers in the UK market without recognising the role of US, Indian, and now Chinese companies. Local UK firms, with a few notable exceptions like Capita Group, are in danger of becoming the mid-market.