MARKET ENTRY STRATEGIES FOR VIETNAMESE SOFTWARE SMEs TO

ENTER EUROPEAN MARKET: THE CASE OF NAMCUONG CO., LTD

CHAPTER II: THE SITUATION OF VIETNAMESE SOFTWARE COMPANIES: THE CASE OF
NAMCUONG CO.,LTD
From till 2014 we visited Namcuong Co., Ltd Vietnam to execute our final report.
Purpose of this report was to see how Namcuong Co., Ltd has organized its market entry
strategy for the European market. In the next chapter we will first give a short
introduction about Namcuong Co., Ltd, further we will present our findings and in the
end we will match our findings with the information found in the literature review.
1. Introduction of Namcuong Co., Ltd
Namcuong Co., Ltd is a small Vietnamese software company based in Hanoi, Vietnam.
Namcuong Co., Ltd is a 10 year young company and currently fulltime working for the
European market (especially The Sweden and Germany). Namcuong Co., Ltd is a
software development company, specialized in the development of customized software
products, web design, and applications.
The staff of Namcuong exists out of 50 people, the average age of the staff at Namcuong
Co., Ltd is about 30 years. Beside the management team of 3 people there are working;
30-40 programmers, a 3 people human resource team, a designer, and a 5 people
marketing team with Swedish and German native interns. The marketing team at
Namcuong is responsible for the business development and project coordination. The
native workers are selected to bridge the gap of culture, communication and quality
between Western-Europe and Vietnam.
Namcuong Co., Ltd has established partnership with more than 25 IT companies in
mainly The Sweden and Germany, and has already developed more than 150 websites.
All the projects Namcuong is performing came by partners, they are not contacting any
end-clients. Namcuong is an end-to-end software developer, this means they are able to
work in almost every technology. Whenever they have not worked in a technology
before, they will try to learn this by themselves with information presented on the
internet.
2. Market entry strategies
Market selection
Previously Namcuong worked for the Japanese market, but this nearby market soon
became overcrowed by Vietnamese software SMEs. Practically all Vietnamese
companies set their priorities on the Japanese market and the company also faced the high
competition from Chinese enterprises. For this reason, under the decision of the CEO,
Namcuong Co., Ltd has changed to the EU market.
Moreover, beside the lower expected competition in the European market, Namcuong
also decided to enter this market for its size and the high opportunities. As stated before,
there was a high demand from European companies for highly skilled software
professionals with low wages. Namcuong was one of the first companies which tried to
enter the Western-European market and the CEO knew he had to find creative strategies
to enter the market. A big advantage for Namcuong was the English- speaking ability of
the staff members at Namcuong.
The choice to enter the Western-European market was very difficult and contained some
risk for Namcuong Co., Ltd. When Namcuong decided to enter the Western-European
market they had no relationships in the market. It would become very difficult to enter
the Western-European market without the existence of such relationships, but facing the
high opportunities in the market it was worth it to take some risks. Beside the lack of
relationships, they also had no prior knowledge about the culture, political rules, prices
and other market specific characteristics.
The second important decision of the company is which part of Western-Europe they
would first focus. Having no performance in any project here before, Namcuong had no
preferred country to start with. But even in a union, differences in the way business exist
among countries. According to the CEO of Namcuong, Swedish partners are more
focussed on references and German partners prefer building confidence. Without
references it is hard to enter the Swedish market, but it takes more time to convince a
German partner. Namcuong decided to enter the Swedish market first, because they
believed Swedish partners are more open minded to do business with low wage countries
and Swedish people are better educated in the English language.
Entry mode selection
Due to the lack of relationships in the market, they had to facilitate their own entry into
the Western-European market. Namcuong wouldnt use much resources to enter the
market, because of the high failure risks and their low experience with cultural issues. For
this reason, they apply piggy-backing method to get their first project. For piggy-backing
Namcuong had first to find a partner who wants to sell their product, or use a part of it in
their own product.
Namcuong chose to search for a partner since it is more difficult to work for end clients.
According to the CEO of Namcuong, end-clients prefer quality and trust, over a lower
price. At the other side it takes more effort to retain business from end clients. Partners
will contact the end clients and deliver new projects. Therefore, partners will give more
safety for retaining your business.
On the website, Namcuong promotes a virtual representative agency in the Sweden and
Germany with a R&D center in Vietnam. The purpose is to create a familiarity in foreign
customers. The agency is, in fact, never launched. The company also hired Swedish and
Gernam interns to communicate with partners and buy the Swedish and German website
domain. According to a member of the marketing, this direct marketing provided by
native workers is an effective marketing strategy. Potential partners prefer to
communicate in their own language and it creates more trust when someone from their
own origin contacts them. By offering new partners a pilot project Namcuong tries to
convince them and contract them for a longer period.
Namcuong found their first partner, Ericsson enterprise via a competitor. By looking at
the site of another Vietnamese software company they were able to contact one of their
competitors partners. At the same time they were contacting another partner of their
competitor to find out the price they were offering. In their place Namcuong offered the
partner a price far below the price of their competitors. This way, Namcuong was able to
perform a first pilot project for a Swedish partner. Namcuongs goal today is still to
continue negotiations with this partner to get the exclusive rights of supplying support
services to all of the twenty-eight countries mentioned earlier. Namcuong is convinced
that there exists a continuous value for the partner from a partnership, since this partner
today lacks the ability to serve the small and medium sized enterprises in these countries.
Because Namcuong already partially supplies services for one market, they have a unique
opportunity to prove the mutual value. The experience of collaborating with a large
multinational firm, has given Namcuong an interest of considering cooperation with other
companies that need partners when going international.
After performing this first project Namcuong had a reference, which could be shown to
new potential customers.It became more easy to attract new partners in the same market.
To attract new partners they used direct marketing as well as indirect marketing
strategies. Native workers were selected and offered a job in the marketing team to
facilitate the business development. With native workers Namcuong bridges the cultural
and communication problems between Vietnam and the Western-European market.
One direct marketing strategy, used by the native marketing people, is searching the
internet for potential partners which can be used to piggy-back the products of Namcuong
Co., Ltd. In first place, they are looking for companies working with the same
technologies as Namcuong with job offerings in this field, or small potential companies
who can grow along with Namcuong. All the potential partners are stored in a database
and when necessary potential partners are contacted by phone or e-mail.
Namcuong also tries to contact potential distributors via indirect marketing. They have
created profiles on popular social network sites like Facebook and Linked-in. Those
network sites will be used in the same time to search for potential distributors. They have
also translated their own website into English, Swedish and German, which provide all
the main information about their services. By using SEO (Search Engine Optimalization),
cross links and replies on forums they try to end as high as possible in different search
engines, like Google.
According to a member of the marketing team, the indirect marketing strategies are less
effective. Potential partners, who contact Namcuong by themselves have already heard of
the company before and the only function of the indirect marketing strategies is to trigger
their memories. At the other side, provide profiles on Facebook and Linked-in, and the
website some background information for potential partners who are contacted via direct
marketing.
Expanding
After Namcuong had entered the market, their next goal was to expand their market
share. To find new partners in a foreign market it is important to create a good network.
The CEO of Namcuong is the first person to expand his network. All the people he meets
will be tracked to see who they are, what they are doing and who are their connections. If
a partner has many connections, the CEO tries to trade some contact information by
offering contact information about his own connections.
According to the CEO of Namcuong, the best way to maintain and establish relationships
is by personal contact. Therefore the marketing team of Namcuong organizes three times
a year business trips to Europe. Purpose of this trip is to meet current and potential
partner, and when possible congresses about software technologies. These business trips
are organized by the native workers from the marketing team, and for each selected
country is one native worker supporting the CEO.
To attract new projects, the CEO carries out business trip. By visiting current and
potential partners a lot of trust is created, and Namcuong will stay in their minds. During
the business trips the CEO often tries to visit relations of current partners.
When a partner recommends another partner to Namcuong, they are willing to pay him a
percentage of the business they receive from this new partner. Consequently, they try to
stimulate partners to recommend Namcuong to their relations. Recommendations are
very effective in finding new customers. By paying a percentage of the business from
new partners, current partners are more willing to recommend Namcuong to business
relations.
Namcuong uses different ways to work along with their partners, one type is by an
offshore development centre. In their office in Vietnam, Namcuong has a special place
for a couple of specialist working on an offshore basis for a distributor in Holland. The
partner manages those people and gives them periodically some new projects. By using
an offshore development team, Namcuong can employ young software specialist and
train them by working in this team. Namcuong focuses on partnerships with big
companies, because they have more work and can select a dedicated team, as they call it,
which works on an offshore basis.
Namcuong also uses the offshore development centre to create stronger connections with
important partners and for some financial advantages. One of the partners of Namcuong
has a five people development team working at Namcuong. This partner has direct
contact with the members of its development team. The members of this development
team will only work on projects for this particular partner. In fact they are employees of
the partner, but still work at the office of Namcuong Co., Ltd. The partner pays their
salaries, plus some extra infrastructure cost at Namcuong.
3. Analysis and results
During the analysis, the findings of the in-depth case study will be matched with the
information found during the literature review. We will analyze whether the market entry
mode of our case company, Namcuong Co., Ltd, matches with the theories found in the
literature.
Market selection
When Namcuong entered the European market they had no relationships in this market.
Still they were able to create connections and start doing business in the market. A low
psychosomatical distance was not important in the market selection of Namcuong Co.,
Ltd. They were able to enter a foreign market, before they ever entered he domestic
market or any psychosomatical close market. In the case of Namcuong Co., Ltd It can be
seen the importance of the internet in the market entry process, this suggests that
technologies make market entry in psychosomatic distant markets possible.
Entry mode
When Namcuong first tried to enter the Swedish market they used non-equity entry
modes, because of the high failure risk in the market and due to their lack of knowledge
of the market. This matches with the findings from the literature review. One of the
characteristics of a successful marketing strategy is making use of non-equity modes in
cases of high risks.. Namcuong uses native workers to contact potential partners in the
Swedish and German market. In the literature this strategy is never mentioned
before.This is also an important strategy of Namcuong and one of the characteristic of a
successful marketing strategy to enter the European market.
Expanding
The product is complementary to the product line and contributes to it Namcuong was
able to complement Ericssons product line and focus on the smaller and medium sized
companies, allowing Ericsson to utilise their core competence and focus on their main
clients. The competence obtained by Namcuong when employing former workers from
Ericsson made it possible for them to offer better support than the dealers could. This was
one of the most important factors when Namcuong got the rights to handle support to the
smaller companies in Sweden
Ericsson is a large firm which means they can not cover small customers. However, using
the external dealer strategy and cooperating with Namcuong, they would cover all the
levels and therefore, have higher profits. Namcuong were able to deliver the same
services but for a lower price than the existing partner Ericsson have. In this way, both
would benefit higher profit for their cooperation.
The buyers were expecting Swedish support when buying Ericssons products. Through
the dealer network they instead received it from dealers located in other countries. When
using Ericsson as a provider the market is more willing to accept the product and even
though the small firms constitutes only a small part of Ericssons turnover, Namcuong
could make them more profitable. Namcuong was interested in delivering support to
twenty-eight countries, but only one country was established. In that country the sales
was reduced from the originally planned volume.
When Namcuong performs services for Ericsson, they work on commission as an agent
and the services that Namcuong provides is adjusted to suit Ericssons product line. In
fact Namcuong are supplying support service for Ericssons communication platforms.
This supports the reasoning about how the terms of sale in the piggybacking arrangement
is handled. It also grasp the theory of that the riders products are somewhat similar to the
carriers own products, to be able to help customers with support and feedback
operations.
Namcuong has enabled their services on the international market through the use of a
strong partner, and found an efficient channel to make their service accessible. The case
make clear about the branding possibilities and how they are important in the
piggybacking process. Since Namcuong is delivering support, they are acting on
Ericssons behalf and with their brand, the importance for Namcuong to use Ericssons
brand is stronger than the opposite.
Namcuong was aiming for a full coverage of the twenty-eight countries small and
medium sized companies. Country coverage in piggybacking is either one market- or
global market arrangements (Terpstra and Sarathy, 2000). Most of them are only one
country according to Terpstra and Yu (1990), this is usually when a large target market is
perceived. In this case the rider wanted to cover all foreign markets by piggybacking with
a multinational enterprise, however the initial arrangement only allowed one. If the
piggyback operations are to be expanded Namcuong wants it to include more countries.
Namcuongs service is a complement to Ericssons products and they are closely related
due to that Namcuong supports Ericssons products. This agrees with the theory that
describes piggybacking as mainly used for products that are non-competitive but related,
and complementary and allied.
After the market entry, Namcuong pays a lot attention on the development and
maintenance of relationships with partners. They use different strategies to expand the
network; by stimulating current partners to recommend Namcuong to other partners, and
by offering them a percentage of earnings out of the new business. Another way is; by
visiting important and potential new partners a few times a year by making business trips.
But the strategies used by Namcuong are not mentioned before in the literature.
Namcuong uses offshore development centers to create better connections with big
partners. Offshore development centers allow partners to take advantages of highly
skilled software professionals against low wages, which is one of the characteristics of a
successful marketing strategy. During the case study at Namcuong the importance of the
internet is recognized. Namcuong uses the internet for a lot of reason and wouldnt be
able to do any business without it. In the literature the importance is slightly mentioned,
but from Namcuong I can see that the internet is much more important for Vietnamese
software companies as mentioned before.
Cultural problems
During the operationalization of projects Namcuong faces a number of problems due to
the cultural differences and distance between Vietnam and the European market.
One big existing problem between Vietnam and Western-Europe is the importance of
deadlines. In Vietnam deadlines are a kind of guidelines to finish a project, but the
European partners expect the project to be finished at the particular date. According to
the programmers and partners of Namcuong, those deadlines cause often a lot of stress at
both sides. Vietnamese programmers at Namcuong are very often working till midnight
to finish a project on time. The same problem counts for quality, Vietnamese quality
standards are way behind those of the European market. During my research partners
complained many times about the bad quality of delivered websites.
Another big problem between Namcuong and the European market is the difference in
efficiency. Companies in the European market work by far more efficient than
Vietnamese companies. European programmers are multi-skilled and always try to
complete their projects on time. Vietnamese programmers are often trained in a single
technology and are more flexible in their time schedules. To overcome this problem the
programmers at Namcuong need a lot of training, not only to expand their knowledge of
different technologies, but also to workmore secure and finish their projects on time.

CHAPTER III: SUGGESTIONS FOR FUTURE DEVELOPMENT
Suggestions for Vietnamese SMEs:
From this study we could find some specific points that can be of use for management of
other small and medium firms in the early phase of their internationalisation.
To reduce risk management should consider piggybacking as an option for international
expansion. The lesson from this study is that the possibility of this option however
depends on the small service firms possibility to find a suitable partner.
Management should be careful when working as partners with other companies in
piggybacking operations. As seen in this case, cooperation terms can change fast and
involve the need of large changes in the international strategy. Sometimes even written
contracts can be changed or terminated without prior notice.
For a service firm the international expansion can be a complicated process. However
when going International in a client-following mode or with a piggybacking strategy as
seen in this case, the threshold for managers to go international can be smaller.
As seen in this research service firms that uses piggybacking as an entry mode can get a
stronger promotional position. International marketing is costly and it is hard to establish
a brand overseas. Association with a more established brand comes automatically in
piggybacking and the promotional tools that the carrier has can be used to further market
the riders company
Suggestions of this study for Namcuong Co., Ltd
When studying the case of Namcuong and their internationalization activities, some
suggestions for management were found.
We think that Namcuong should put more effort into their international expansion. The
international expansion operations should be included as a strategy in their business plan.
It is important to set objectives to be able to expand the international piggybacking.
When having the expansion as a clear objective it is easier to work on achieving it.
More focus has to be put on further negotiations to be able to get contracts for the
remaining countries. We think that if Namcuong get operations in a couple of these
countries, the remaining ones are going to be easier to negotiate with. This due to the fact
that already functioning service agreements and relationship with the multinational will
guarantee the quality of the service provided.
Namcuong is the small rider firm that have to prove the quality to the carrier. Therefore
more efforts have to be put on the relationship, so that the carrier can find a mutual
benefit of cooperating. When the carrier finds the mutual benefit the negotiations will
continue smoother and the relationship will become stronger.