Dutch software market: A dream comes true?

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Dutch software market:

A dream comes true?

Internship International Business

Jitske de Jong

Student number: 1228021

University of Groningen

Groningen/Saltillo, August 2006

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University of Groningen Intelligent Network Technologies Faculty of Management and Organization Blvd. V. Carranza 4120 Int. 38A

PO box 800 Col. Villa Olímpica

9700 AV Groningen Saltillo, Coahuila 25230

The Netherlands Mexico

Dutch software market:

A dream comes true?

Internship International Business

Jitske de Jong

Student number: 1228021

Company supervisor: Antonio Hernandez CEO

INTECH Intelligent Network Technologies Mexico Supervisor: Rob de Graaf

Department of Information Systems Supervisor: Bram Neuijen

Department of International Business and Management University of Groningen

Groningen/Saltillo, August 2006

‘The author is responsible for the contents of this master thesis. The copyright rests with the author’ © Jitske de Jong 2006

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Management Summary

This thesis is the result of a research conducted for INTECH Intelligent Network Technologies Mexico. This company is a very young, dynamic and internationally oriented company which is looking for new business opportunities in the Netherlands. Although some of INTECH’s employees have experiences with working in the Netherlands, they did not know anything about this market and the most interesting segments.

The main research questions are:

1) How attractive is the Dutch market for subcontracting software development activities to Mexico?

2) How can INTECH enter the Dutch market?

This research aims at providing a suitable business plan for INTECH to enter the Dutch market as a subcontractor for software development. After some extensive research, we found that there are some interesting possibilities for INTECH on this market.

Methods and results

This research is conducted with the method of action research. Action research means that there is a frequent interaction between the customer and the researcher. In that way, the research focused more and more on interesting niches of the software development market. The research evolved in a suitable and usable solution for the problem of INTECH.

The framework of Dollinger provided a helpful model to write a business plan. In this business plan, an analysis of the market opportunities is done in order to determine on which segments INTECH should focus on. Then, a company analysis is made in order to determine what the companies’ core competences are. The core competences of INTECH are in the Telecom sector. Also, INTECH has developed a NetPBX product that is very interesting for the potential Dutch customers of INTECH. The Dutch ICT market is growing again after a couple of difficult years with 3,4%. Especially the software market shows good possibilities with a growth expectation of 8,1% in 2006. The telecom sector is growing with 2,6% in 2006.

We can identify three different trends and developments in the Dutch ICT market: 1) Many companies are offshoring their ICT activities to low cost countries like

India, China and Eastern Europe

2) There will be a shortage of qualified resources in the next years

3) On the long term the low inflow of students at Beta studies will decrease the amount of highly educated ICT specialists

With the information from the market analysis and the company analysis we found that INTECH should focus on two different niches in the Dutch market:

1) Subcontracting resources / projects

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Competition can be fierce in the Dutch software development market. Although potential customers are not very powerful, the power of the suppliers is considerable. There are many already established (foreign) competitors in the supply of resources. Suppliers of PBX products have considerable power because a small group of companies have a large share of the market. However, many businesses in the Netherlands are now planning to replace their PBX systems in order to reduce costs and to make it easier to control. The NetPBX product of INTECH can play an important role in this.

There are many substitutes in the Netherlands for the NetPBX product of INTECH. Also, there are substitutes for the resources that INTECH can deliver. The problem in the Dutch market is that these resources are not available because of the shortage of qualified ICT specialists.

It is relatively easy for INTECH to do business in the Dutch market. It is also not difficult to set up a business in the Netherlands. Work permits are an entry barrier. INTECH employees are allowed to work in the Netherlands without a work permit for a period no longer than twelve weeks. INTECH should get the confidence of the customer and strive for doing as much work as possible remotely in Mexico.

The differences in the cultures of Mexico and the Netherlands are very large. Also, the business cultures of both countries are very different. However, because of the former experiences of the INTECH in the Netherlands, we can expect that INTECH will be able to adapt to the (business) culture of the Netherlands. It is advisable to train the INTECH employees who will work with Dutch companies about these cultural differences.

For the entry strategy and the marketing plan, information is collected from different interviews with CEO’s and managers from the Dutch market of subcontracting software development and from literature and reports. Another very valuable information source was the TINE ICT fair where we collected much valuable market information.

There are several useful entry strategies for INTECH to enter the Dutch market: 1) Have a Dutch representative to represent the firm in the local market and

make contacts with potential customers.

2) Find a distributor for the NetPBX product. The sale of the NetPBX product will also generate new services that INTECH can offer.

3) Set up / buy a Dutch subsidiary

The best option for INTECH is to enter the Dutch market with a Dutch distributor of the NetPBX product. With help of this product, INTECH can generate more business like service provisioning and subcontracting resources or projects.

INTECH should also prepare an advertisement campaign and a good English website in order to get reputation on the Dutch market. Setting up a Dutch subsidiary

is a good idea when INTECH has some more experiences in the Dutch market and is confident that business will be attractive in the next years.

According to the results of the research, the Dutch market for software development is attractive for INTECH: a dream can come true!

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Preface

After my three months stay in Mexico in 2004, the country of tequilas, crowded cities, very friendly people, pyramids and beautiful nature has become very special to me. I never thought I would be able to go back within a couple of years! In December 2005, I saw an advertisement on the internet about an internship for a Mexican company. Of course, I was immediately attracted by the word “Mexico”.

Although I did not know much about software development, this internship was a great experience. For me, this internship was the perfect opportunity to learn more about International Business and business in general. The fact that I was just one of two persons that INTECH had in the Netherlands made it possible for me to learn a lot and contribute to many different aspects of the business of INTECH in the Netherlands.

I would like to thank all the people at INTECH for the very pleasant stay in Saltillo. Special thanks to Antonio Hernandez and Jorge Sala for all the help and the nice and valuable conference calls. Also, I would like to thank Margarita Zamarippa for the warm welcome in Saltillo and all the help during my research. I also would like to thank Rob de Graaf and Bram Neuijen from the University of Groningen for all good advices and help during my research.

Jitske de Jong

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Chapter 1 Introduction

Intelligent Network Technologies S.A de C.V (INTECH) is a Mexican software applications development enterprise. INTECH was founded in the year 2002, by former directors of the local design centre of the Swedish firm Ericsson, one of the world leaders in telecommunications. INTECH is a very young and dynamic company, with young but very experienced employees.

INTECH is very successful on the (Latin) American market, with customers like Telmex (one of the biggest telecom companies of Latin America), the Mexican government and of course Ericsson. Projects are carried out in different countries such as Mexico, Guatemala and the United States. INTECH employees are therefore sent to many different cities within Mexico, but also to international projects abroad. These projects normally have a duration of three to six months. In conclusion, we can say that INTECH is a very internationally oriented company.

In 2005, the directors at INTECH began to explore the possibilities to do business in the Netherlands. Because of the industrialized nature in telecom of the European countries and specifically in the Netherlands, INTECH wanted to conquer the Dutch market. To begin in the Netherlands was not a hard choice to make, most of the INTECH employees had been in the Netherlands for projects for Ericsson and were already familiar with the Dutch (business) culture. Because it’s very hard to explore a new foreign market, INTECH decided to hire a Dutch student to find out how to enter the Dutch market for software development.

According to the story above, there are two questions:

1. How attractive is the Dutch market for subcontracting software development activities to Mexico?

2. How can INTECH enter the Dutch market?

The choice for The Netherlands was already made but is it really a good place to start in Europe? Further, for a Mexican company, it is not easy to start a business in The Netherlands. There are many (cultural) differences that can affect the likelihood that INTECH can be successful in The Netherlands.

These two questions seem very clear at first sight. However, the problem of INTECH is very complex because every decision depends on each other. The Dutch software market is very broad, with a variety of businesses. For INTECH, a small Mexican company, it is important to decide on which business(es) in the main focus in the Netherlands. Also, entering a foreign market is a complex problem with many things to consider as a company. In this thesis, this focus is explored step by step. After every step, we get new insights to the problem and come closer to answers and solutions.

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The structure of this research is as following: In chapter 2 the problem statement is described. Also, the research plan and research methods are described. The whole research can be seen as a business plan for INTECH to enter the Dutch market. The business plan contains the following parts: a Company analysis (Chapter 3) where we can determine what the core competences of INTECH are. The next step is a Market analysis (Chapter 4) where we can discover what the opportunities for INTECH are in the Dutch market. After these two analyses, we can draw conclusions about the focus of INTECH when entering the Dutch market. An External analysis (Chapter 5) helps to get better insights in the pro’s and con’s of the macro environment when entering the Dutch market. The Marketing plan (Chapter 6) and the chapter about Organization, Management and Scheduling (Chapter 7) describe how INTECH can enter the Dutch market and what they have to do to get new business. This research ends with a Discussion and Evaluation chapter where the research is evaluated (Chapter 8). In Chapter 9 clear Conclusions and Recommendations are given in order to give INTECH practical and suitable advice.

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Chapter 2 Problem statement and Research Plan

In this part, the objective of the research, the research question and the sub questions are formulated. We also explain the research method. With the research method in mind, we can better understand how the research is conducted. After the explanation of the research method, we describe how we came to the actual research objective and the research question. Then, the research plan is described with help of a short literature review. In line with that, the sub- questions and data collection methods are described.

§ 2.1 Research objective

As already described in the introduction of this research, INTECH has already made a first commitment to enter the Dutch market. However, it is very valuable to know what the possibilities and difficulties of the Dutch market are.

Therefore, at the beginning of the research, the research objective for INTECH was described as:

To describe the attractiveness of the Dutch market for software development and to design a suitable plan for INTECH to develop and sell its software development services on Telecommunications, Voice Over IP and Web Solutions on the Dutch software market.

§ 2.2 Research Method: Action research

In this research, we use the method of action research to answer the research question and sub questions. As stated in the Introduction of this thesis, the problem that INTECH has is a very complex problem. In the first place, the problem is complex because it is explorative: INTECH wants to enter the Dutch market but does not know yet how they want to do that and on which niche they should focus. The problem is very open and the answer of the problem is hard to guess at the beginning of the research. Second, the problem is very broad: market entry in a foreign country is a problem that has many implications. INTECH does not know much about the Dutch market for software development. To get a good view of the problem that INTECH has, we have to do extensive research, were we get new insights and new problems with every new piece of information.

According to Ramondt1, there are seven steps that have to be done in action research:

1) Determine the subject of the research 2) Determine which information is needed 3) Decision-making about the data collection

4) Reflection on the data and give meaning to the data

5) Reflection on the determination of the organizational problem 6) Developing possibilities for redesign and realization of the redesign 7) Identifying useful lessons to learn in the process of change

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Action research means that there is a frequent interaction between the customer and the researcher. We can describe the research as a cycle: there are short steps of research and after every step there is a reconsideration of the research question. The findings from a previous step lead to a research question for the next step. In that way, the research will evolve in a suitable and usable solution for the problem of INTECH. New information is found during the whole research and needs to be evaluated by INTECH. In that sense, the “answer” to the research question may change during the research. Also, the research question itself can change over time. This research method is therefore very helpful for the research of INTECH: the problem evolves over time and will lead to very well-considered advices. This idea is visualized in the following figure:

INTECH INTECH INTECH

T1 T2 T3

Researcher Researcher Researcher

Figure 1: Cyclical method to integrate local knowledge and scientific knowledge2

In the figure, you can see that there are two parties participating in this action research: INTECH and the researcher. There are two timelines: the timeline of INTECH and the timeline of the researcher. T1 here symbolizes the first step in the research process. With every step, local knowledge (knowledge of INTECH and the researcher) and scientific knowledge can help to get a better idea of the organizational problem. After analysis of the data, the diagnosis and action, a new organizational problem is formulated to begin the next step in the research process. Action research is used in this research because developing a business plan for entering a foreign market requires a lot of interaction between the company and the researcher. Especially, when the researcher is independent and does not operate in the same country as the company, it is very important to have many interactions. Also, the nature of the problem asks for a very flexible attitude. Because the solution

2_{Ramondt, Organisation Diagnostics, 1996, p.38}

Local knowledge Organizational problem Local knowledge Scientific knowledge Analysis Diagnosis Action Analysis Diagnosis Action Organizational problem Scientific knowledge

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of the problem INTECH faces is not straightforward, a constant reconsideration of the research question is needed (step 5 of Ramondt). The method of action research is therefore very suitable for the research of INTECH in the Netherlands.

In this research, we can identify three different feedback moments with INTECH as a customer:

1. After the market research: a presentation of the results was held in Saltillo, Mexico. The conclusions of this market research indicated that there are many possibilities for INTECH on the Dutch market. However, the market as a whole is too big to focus on the whole market. Therefore, INTECH decided to focus on the Telecom market because knowledge about this market is one of the core competences of INTECH.

2. After the visits to the ICT fair in Amsterdam: the ICT fair was a very good place to see if Dutch managers in the ICT are interested in the propositions of INTECH. We found that there is actual interest in INTECH, especially in the knowledge in Telecom and the resources that INTECH has for subcontracting software development. The conclusion was that it is good idea to make appointments with different potential customers and travel to the Netherlands to attend to these appointments.

3. After the appointments: this is the third and last feedback moment with INTECH that is described in this research. After the appointments, we were still convinced that the Dutch market is attractive for INTECH. Also, we found out that INTECH has a very interesting product for Dutch companies: the NetPBX application. In conclusion, INTECH has two ways to enter the Dutch market: through subcontracting resources for software development projects and through the NetPBX application and the additional services.

At this point, we will decide if the Dutch market is really attractive for INTECH. Also, we will decide if INTECH continues to invest in the Netherlands. Conclusions and recommendations about this are given in Chapter 9.

After the different feedback moments and analyzes described in this thesis, we found that the research objective as described above did not fit the research perfectly anymore. This consideration is exactly what action research is about: after a cycle of integrating local knowledge and scientific knowledge and the interaction with INTECH, it is found that the problem of the research differs from the previous problem. This is in line with the steps of Ramondt described on page three of this thesis.

As described above, we found that INTECH should focus on a small part of the whole Dutch ICT market: the Telecom market. We also found that INTECH has actually two core competences that are very attractive for the Dutch ICT market: subcontracting resources for software development projects and the NetPBX product with additional services. Also, we found that the Dutch market for subcontracting resources for software development and the market for PBX products and services are attractive for INTECH.

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The eventual research objective is therefore described as:

To describe the attractiveness of the Dutch market for subcontracting software development, PBX products and services and to design a suitable plan for INTECH to enter the Dutch software market.

In Chapter 8, we will discuss and evaluate the model of action research.

§ 2.3 Research questions

In line with the research objective, the following research questions are formulated: 1) How attractive is the Dutch market for subcontracting software development

activities to Mexico?

2) How can INTECH enter the Dutch market?

§ 2.4 Research plan and Literature review

In line with the research objective and research question, we can formulate the following research steps:

As described in the section about Action research, there are different feedback moments in the research. This is shown in the picture in the next section.

We start with an analysis of the Dutch market for software development subcontracting because we first want to get an idea of what the market looks like. This approach is supported by Laserre3. He states that there are two things you need to know when choosing to enter a foreign country. The first are the market

3_{Laserre, Global Strategic Management, 2003, p. 137}

Step 1: Analysis of the whole Dutch market for software development subcontracting. Analysis of the market growth, size, competitive conditions, entry barriers, etc. Also, identification of what the needs are for Dutch companies when outsourcing their IT activities.

Step 2: Analysis of the capabilities of INTECH, based on its knowledge, expertise, current customers and previous projects. The results have to be an indicator of the value INTECH creates for their customers and results also indicate which focus INTECH should have when entering the Dutch market. Step 3: External analysis: analysis of competitors and macro environmental conditions. Identify the pros and cons of entering the Dutch market.

Step 4: With the results of Step 1, Step 2 and Step 3 a suitable strategy for entering the Dutch market will be developed. This is described in the Marketing plan.

Step 5: Evaluation and discussion of the strategy so that the strategy can also be used in other European countries like Germany, Belgium and Sweden.

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opportunities in terms of market size, market growth and quality of demand. The second are the industry opportunities in terms of the quality of the competitive climate, the quality of the industry competitive structure and the investment incentives granted by governments.

After the Dutch software market analysis, a plan should be made on how to enter the Dutch market and decide on which niche INTECH should focus. There are some theories that cover the whole process of marketing analysis and market entry. Hollensen4 presents a theoretical framework which describes this whole process. There are five different phases in the global marketing decision process:

1) Deciding whether to internationalize 2) Deciding which markets to enter 3) Deciding how to enter foreign markets 4) Designing the global marketing programme

5) Implementing and controlling the global marketing programme

Mühlbacher5 also describes a very comprehensive plan. According to him, the International Marketing process contains of four steps:

1) Evaluate the corporate policy

Here, the business mission and business philosophy are evaluated. This includes the major objectives, purpose and business domain, as well as the values, norms and rules of behaviour of the company.

2) Potential market assessment

In this step, the relevant market characteristics as well as the competitive position are determined.

3) Basic strategic decisions

The basic strategic decisions contain the determination of the global strategic position, the portfolio strategy and the competitive strategy. Further, the resource allocation and the market entry strategy are developed.

4) Marketing mix decisions

In this last step, decisions about the product and services management, distribution, market communication and pricing are made.

According to Mühlbacher, we also have to evaluate the corporate policy of INTECH in order to get a good view of what INTECH can do for potential Dutch customers. This is in line with step 2 in the research plan: analysis of the capabilities of INTECH. In the model of Mühlbacher, the first step is to evaluate the corporate policy and then afterwards do a potential market assessment. In this research, we have chosen to do the market analysis first because we in that way can get an unbiased view of the Dutch market for software development subcontracting. In this thesis, we will nevertheless put the company analysis first and second the market analysis, so the reader of this thesis will then get a better understanding of the research.

In line with the action research model that we use in this research, step 1, step 2 and step 3 lead to a new step: step 4 development of a suitable entrance strategy in

4

Hollensen, Global Marketing, a decision oriented approach, 2004, p. 138

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the Netherlands. This is also in line with the steps in the models of Hollensen and Mühlbacher.

The last thing that is needed to structure the research with suitable literature is a framework to describe the business plan for the market entrance in the Netherlands by INTECH. On the Internet, you can find many different examples of business plans, for instance on the website of the Chamber of Commerce6 or on the website of ING Bank7 or Rabobank8. In this thesis, we will use the framework of Dollinger9 to describe the business plan for INTECH. This framework is very complete and has a classification that suits the research very well. The frameworks of the Chamber of Commerce, the ING bank and Rabobank are especially designed for use by banks in case a new company has to persuade a bank to give credit. In this case, INTECH is an already existing company so the framework of Dollinger is more suitable.

In the figure the structure of the research is given graphically:

Figure 2: Research framework 6_{http://www.kvk.nl} 7 http://www.ing.nl 8 http://www.rabobank.nl

9_{Dollinger, Entrepreneurship, strategies and resources, 2003}

Business plan

(Dollinger)

Step 1 Market Opportunity

- Dutch ICT market - Telecom market - Trends and Developments - Resource requirements Step 2 INTECH competences - Products - Competences - Projects

Step 3 External analysis

- Competitive conditions (Porter)

- Macro-environmental conditions (Aaker)

Step 4 Entry strategy

- Market entry - Customer marketing method (Curry)

Step 5 Evaluation and Discussion

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Action Research is the overall methodology of this research. As shown in Figure 2, the first four steps in the research are all part of the business plan according to Dollinger. We can also see that the steps in this research are in line with the theory of Mühlbacher. Further, we can see the different theories that are used like Porter’s theory about competitive conditions, Aaker’s theory about macro-environmental conditions and the Customer Marketing method of Curry. In each chapter, these theories are first discussed.

§ 2.5 Sub questions and Data collection

With the research question, the information about the research steps and the literature we formulate the following sub questions:

1) What are the characteristics of the Dutch software development market? 2) What are the company characteristics of INTECH?

3) What are the characteristics of the potential customers and competitors of INTECH?

4) Why and how do Dutch companies outsource / offshore their software development activities?

5) How attractive is the Dutch software development market for INTECH and where should INTECH focus on?

6) What is the best strategy for INTECH to enter the Dutch market?

7) What are the implications of this research which we can use for entrance in other countries in Europe like Germany, Belgium and Sweden?

Information sources used to answer the sub-questions

Sub-question 1, 3, 4, 5 and 6:

Major information sources in this research are the interviews with different persons from the Dutch software development market. Interviews are done with persons who have many years of experience within the Dutch software development market. The information was very valuable because it gave very good insights in what the market actually looks like.

In total, five interviews with Dutch managers and CEO’s from different companies are done. The companies varied from very small (2 employees) to very big (more than 46.000 employees worldwide). Some of the persons already had experiences with subcontracting software development to foreign countries. In that way it was possible to find out what Dutch managers find important when choosing a foreign subcontractor. The findings from the interviews were supported by findings from articles and researches found on the Internet and other sources.

Another very valuable information source was the TINE ICT fair in Amsterdam. This fair is one of the biggest ICT events in the Netherlands. At this fair, it was possible to talk to different persons from the Dutch ICT market in order to ask what the Dutch market looks like and especially ask what they think of the propositions of INTECH. In that way it was possible to find out what the best strategy is for INTECH to enter the Dutch market and to find out what the attractive businesses are for INTECH. At the fair, many contacts that can be potential customers for INTECH in the future were made.

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15 Sub-question 2:

In February/March 2006 the researcher was able to travel to the INTECH company in Saltillo, Mexico in order to get to know the company and its people better. This visit was very valuable to get more insight in how INTECH works and what they can offer to Dutch customers. During the stay in Saltillo, the findings about the Dutch software development market were presented and interviews with different people from INTECH have been done. Interviews have been carried out with the CEO, the HRM manager, the Project Manager, the Quality manager and the Marketing manager. At the end of the visit, it was possible to make some preliminary conclusions about the attractiveness of the Dutch market and make a plan about how to continue the research.

In the table, the different activities per sub-question are stated. Sub

question

Chapter Activities

1 4 Interviews with managers in the Dutch software market, independent research reports, newspaper articles, journal articles, web newsletters, websites about software development.

2 3 Company websites, interviews with INTECH managers. 3 5 Interviews with managers in the Dutch software market,

independent research reports, newspaper articles, journal articles, web newsletters, websites about software development.

4 4 Interviews with managers in the Dutch software market, independent research reports, newspaper articles, journal articles, web newsletters, websites about software development.

5 4/5 Interviews with managers in the Dutch software market, independent research reports, newspaper articles, journal articles, web newsletters, websites about software development.

6 6 Interviews with managers in the Dutch software market, independent research reports, newspaper articles, journal articles, web newsletters, websites about software development, interviews with INTECH employees.

7 8 Information from the business plan, experiences of INTECH in the Netherlands, interviews with Dutch / INTECH employees. Table 1: Activities for answering the sub questions

Data collection

According to Baarda and De Goede10 there are different methods to collect data: 1) Use of existing information (desk research)

2) Obtain information through observation

3) Obtain information through a written or personal interview

In this research, especially method 1 and 3 are used. As described in table 1 on the next page, many information sources like research reports, articles and websites are

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used to find existing information. The reason that this data collection method is used is because it is cheap and because much information necessary for this research is already available. Also, it costs little time to find the information needed.

However, not all information is available in existing information. Observation and interviews are a good method to get information that does not exist yet. According to Baarda and De Goede, doing interviews is the best way to get new knowledge from people. In this research, interviews are used in order to get many qualitative information and new insights (see the appendix for a list of the interviewees). Observation is very time consuming and is only effective to observe behaviour that occurs frequently. This does not apply to this research.

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Chapter 3 INTECH competences

We will start this research with the INTECH company analysis and not with the environmental analysis. In this way, it is more understandable for the reader to first know something more about INTECH itself. However, in the actual research the steps stated in the research plan are followed.

§ 3.1 Intelligent Network Technologies

In this part, we will describe what the INTECH company looks like. Also, we will describe in which areas INTECH works and what kind of assignments they have done in the past. In this way, we can make a good analysis on the company strengths.

§ 3.1.1 Company organogram

Intelligent Network Technologies S.A. de C.V. (INTECH) is a high-tech company focused on research and development of software applications. They are leaders in Mexico and Latin America for intelligent networks applications for telecommunications and informatics. INTECH was founded in the year 2002 by former executive directors from the Ericsson research and development centre in Mexico. The company is a spin-off of the former R&D facility of Ericsson in Saltillo. INTECH is made up by professionals in information technology and software development areas with more than a decade of experience in related disciplines like software engineering, quality assurance and project management. In INTECH, the engineers and directors share a common background brought as a result of work within Ericsson. INTECH is a very young company with around 50 employees who are assigned to different departments. INTECH also has a subsidiary in the United States, in order to capitalize the business in the United States.

Figure 3: Organogram of INTECH11

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In figure 1 you can see what the INTECH company looks like. INTECH is a very flat organization. There are different departments like Marketing, Operations, Human Resources, Finance, Quality and Infrastructure. As we can see in the organogram, INTECH has many different departments for such a small company.

§ 3.1.2 Products

INTECH delivers products and services in three different strategic areas:

1) Telecommunications applications 2) Web Solutions

3) Vo-IP products

Ad. 1. Telecommunications Applications

INTECH provides added value applications for fixed and wireless telephony networks. This means designing, developing and deploying second and third generation intelligent network applications used in networks, in external application servers and in personal devices. Projects are done for Mexico’s most important telecom operators like Telmex. Because INTECH is a spin-off of the former Ericsson research centre in Mexico, the employees many valuable experiences in telecommunications applications. Examples of products are Prepaid and Post Paid services, Tele Voting, Voice Recognition services, SMS / MMS services, OSA/Parlay and SIP applications.

Ad. 2. Web Solutions

INTECH develops high end / user friendly applications based on the use of browsers and web servers as interface towards back end services. This can be a simple webpage or a more advanced application in which you can show information, share information or for example plan meetings. The administration and e-commerce solutions are being used by several enterprises and government agencies in Mexico.

Ad. 3. Vo-IP Products

With Voice-over IP, an Internet Protocol network is used to transport speech. In this way, telephony is possible on data networks. Vo-IP based telephone networks are more and more used by Dutch companies. INTECH develops different software for these Vo-IP networks.

Recently, INTECH has developed a new product called NetPBX. PBX (Private Branch Exchange) can be described as a company switchboard for telephony applications. NetPBX contains all the features of a conventional PBX, but using Voice-over IP as the transport technology for voice within and out of a company’s extension. NetPBX is a switch that enables an organization to go forward in IP telephony; it can combine conventional telephony with IP telephony in a single switch. This product is unique for Mexico and the rest of Latin America, and also unique in the Netherlands. The idea is to offer this product on the Dutch market. More about this will be discussed in Chapter 4.

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§ 3.1.3 Competences

In this section, we will explain which expertise and competences in the software development process the INTECH employees have. This is especially important for the next chapter when we will decide what the focus on the Dutch market for software development will be.

The software engineering process consists of different parts. The process starts with the definition of what is needed to carry out the project. In this phase the services, constraints and goals of the software development project are established by consultation with the end users. They are then defined in detail and serve as a system specification.12 The process of software engineering then continues with the actual architecture of the software, coding, testing and then in the last phases the delivery at the customer and the market deployment.

Figure 4: Developer’s average expertise in the software development process

In figure 4, the average expertise of INTECH employees in the software development process is shown. You can see that in every software development stage, INTECH has at least 3,50 years of experience.

In the figure mentioned below, you can see what the average expertise is in different areas. The INTECH employees have an average experience of almost nine years in Software Development and more than seven years of experience in developing Telecom applications. The experience in Telecom is of course because of the past at Ericsson. The most important part of this figure is the bar of experience in Multinational Projects. The average here is more than five years of experience. INTECH has done a lot of projects for companies in the United States of America, Guatemala and The Netherlands. Almost every employee at INTECH is sent a couple of months per year on international projects.

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All INTECH employees speak English very well. In the figure above you can see that the average English level of INTECH employees is 500, which is Bachelor’s level.

Figure 5: The software developer’s average expertise in years (2005)

The last part of the analysis on the competences of INTECH is the programming experience of the INTECH employees. In the figure above, we can see the average years of experience that INTECH employees have.

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21

§ 3.1.4 Projects

Projects that have been done in the last 2 years take normally between 1 month and 15 months. The number of man hours is between 350 and 5400 hours. Most of the projects are in the area of Telecommunications applications. INTECH has done several projects in cooperation with Ericsson the Netherlands, Ericsson Mexico, Ericsson Guatemala, Ericsson USA, Ericsson Croatia, Ericsson Brazil, TELMEX and for the government of Coahuila.

The projects are all managed by a project manager at INTECH. The employees can work both at the final customer site and also remotely in Saltillo. In many projects that INTECH has done, a combination of these two was used.

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Conclusions Company analysis

We are now able to give an answer to sub question 2: What are the company characteristics of INTECH?

INTECH is a very young and flat organization. They can be typed as very entrepreneurial and international because of the subsidiary in the United States and the international work they do all over the world. INTECH as a company has an open mind and is looking for new opportunities worldwide.

INTECH has knowledge and experiences in three areas: Telecommunications applications, Web solutions and Vo-IP products. The experiences in developing Telecommunications applications that INTECH employees have gained at Ericsson are the main competences of INTECH. On average, they have many experiences in software development and Telecom applications. We can also see that INTECH has sufficient years of experience in all software development stages. Also, they are very familiar with working in international projects. When we take a look at the projects that INTECH has done over the last few years, we can also see that many these projects are in the area of Telecommunications applications.

So the main conclusion we can draw from this analysis is that the core competences of INTECH are in the area of Telecom. However, because of the experiences in the other areas, INTECH can also offer services in the area of web solutions. For example; integration of telecom applications in other applications like CRM systems is possible.

In the next chapter, we will therefore give special attention in the market analysis to Telecom in the Netherlands, without forgetting the other areas.

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23

Chapter 4 Market opportunity

In this chapter we start with a description of the current situation and than continue with the mission, vision and objectives of INTECH. Then, a market analysis is done to get a better understanding of what the Dutch ICT market and the Dutch Telecom market look like and what the latest trends and developments are. In the last part of this chapter, we will evaluate which requirements are needed for the Dutch market to provide quality in services.

§ 4.1 Current situation

In 2005, the directors at INTECH began to explore the possibilities to do business in the Netherlands. Because of the industrialized nature in telecom of the European countries and specifically in the Netherlands, INTECH wanted to conquer the Dutch market as a start in Europe. The choice for The Netherlands was made very quickly, most of the INTECH employees have been in the Netherlands for projects for Ericsson and are already familiar with the Dutch (business) culture. Because it’s very hard to investigate a new foreign market which is miles away, INTECH decided to hire a Dutch student to find out how to enter the Dutch market for software development.

After a visit to the TINE ICT fair in Amsterdam in April 2006 and after some appointments in the Netherlands with potential Dutch customers, INTECH has found out that there are two different services/products that they can sell on the Dutch market for software development:

1) Subcontracting resources / projects 2) Product delivery / Service provisioning

The first service is subcontracting resources or doing parts of projects for Dutch software companies. Engineers from INTECH can take over small parts of the software development process when this can not be done by Dutch employees or where there is a shortage of resources.

The second part is products. As already mentioned in the chapter about the competences of INTECH, INTECH has developed a very good new product called NetPBX. The idea is to sell the product or the solution to the customer and generate in that way more contacts with potential other customers. Also, because the product has to be integrated in the systems of the customer, INTECH can create much work at the customer and provide additional services. In both cases, the work can be done either in Mexico or in the Netherlands.

In the marketing plan in Chapter 6, we will further describe how INTECH can market these three different services/products.

Another (but less important) service that INTECH can deliver is helping Dutch companies to enter the (Latin) American market. This can be for example the translation of software in Spanish or making software suitable for the (Latin) American market. Also, INTECH can help out to strength the presence of Dutch companies doing software development or selling products into the Americas (for example, a Dutch company established a Software Research and Development

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centre in the northern part of Mexico to support its activities for the USA market, reducing cost and having the same time zone support).

Offshoring vs. Subcontracting

As already mentioned in this thesis, INTECH wants to be a subcontractor for projects in the Netherlands, by offering resources, doing projects or product delivery for Dutch companies. There is a difference between offshoring (moving or outsourcing labour to low cost countries.13) and subcontracting. A subcontract is a contract that assigns parts of an existing contract to a third party14. In this case, INTECH can take over small parts of a contract that already exists in the Netherlands. INTECH is therefore not trying to take over a part of the market of software development, but wants to add value to existing projects that can not be done by Dutch engineers only or where there is limited availability of resources. In this thesis, we continue to use the words “offshoring/outsourcing” because these terms are used in different findings in literature and reports. However, for INTECH, it is important to keep in mind that they want to subcontract projects and resources.

§ 4.2 Mission, Vision and Objectives

To get a good view of what INTECH actually wants to do in the Netherlands, we first determine the mission, vision and objectives for the company.

§ 4.2.1 Mission

To help Dutch ICT companies in the area of software development to increase revenues, increase customer satisfaction and to reduce costs

§ 4.2.2 Vision

To be one of the top five preferred strategic business partners for Dutch ICT companies for subcontracting software development activities in the area of Telecommunications applications, Web Solutions and Vo-IP products.

§ 4.2.3 Objectives

The objectives are defined by the number of resources that can work on projects in the Netherlands and the number of customers that can subcontract INTECH. In the table, the objectives are shown by quarters. 2006 Q3 means the third quarter of 2006. The average number of resources in 2008 and 2009 are respectively 15 and 20, with an average of 4 and 5 customers.

13

Ter Beek, Offshoring in de Nederlandse ICT, 2005, p. 1

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25 Table 2: Objectives for INTECH in the Netherlands

§ 4.3 Dutch software development market analysis

In this part, the Dutch market for software development is described. First, the whole Dutch market is analyzed. After that, we will zoom in to the Telecom market because Telecommunications applications is one of the core competences of INTECH. We also identify what the trend and developments in the Dutch market for software development are. Further, an analysis is made on what the resource requirements are for the Dutch market. What kinds of competences are asked? And can INTECH deliver these competences?

§ 4.3.1 The Dutch ICT market

In 2005, there was a growth of the Dutch ICT-, Telecom- and office market of 4,18% from 27,79 billion Euro to 28,95 billion Euro. The share of the ICT sector in the Dutch GDP has therefore grown to 5,8%. For 2006, stabilization on this level is expected. The IT market has a growth of 5,5% which is 12,30 billion Euro. The Telecom market has a growth of 3,2% to 15,85 billion Euro. The office automation sector has grown after some difficult years with 2,6%. For 2006, the expectation is that there will be a growth in the total IT sector of 4,5% which is 29,93 billion Euro.15

2005 Expectation 2006 IT 5,5% 4,5% - Hardware 4,2% 2,1% - Software 8,1% 7,6% - Services 5,4% 5,5% Telecom 3,2% 2,6% Office Automation 2,6% 1,8%

Total ICT sector 4,2% 3,4%

Table 3: Expected growth in the Dutch ICT market 16

Especially, the software, services and Telecom sectors are interesting for INTECH. The software sector had a growth of 8,1% in 2005, which is above all expectations. Since the year 2000, all ICT market segments have positive figures again.

15

ICT Market monitor 2005-2006, p. 19

16_{ICT Market monitor 2005-2006, p. 21}

# of resources # of customers 2006 Q3 2 1 2006 Q4 5 1 2007 Q1 8 2 2007 Q2 10 3 2007 Q3 13 3 2007 Q4 15 3 Av. 2008 15 4 Av. 2009 20 5

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In the report of Ernst & Young17, 600 managers and professionals in the ICT sector were asked what their expectations are for the ICT budget in the next 12 months. 45% of all respondents think that the budget for ICT will increase in the next months. Also, around 50% of the respondents think that the spending on software will increase in the next year. Around 36% of all respondents expect an increase in the spending on external ICT services. 15% of all respondents think the spending will decrease. The rest of the respondents notice no difference. Compared to the figures on this topic from 2005, we can conclude that the expectations are again adjusted positively.

Conclusion for INTECH

The conclusion we can draw from this information is that the Dutch market is interesting for INTECH. Growth is expected in the next couple of years which means that there is room for new companies to do business. Dutch companies are willing to invest in the next years in software so here is an opportunity for INTECH.

§ 4.3.2 The Telecom sector

Because the competences of INTECH are especially in the Telecom sector, we will give a separate analysis of the Telecom sector.

In the table above, we can see that expected growth in the Telecom sector is 2,6% with a turnover of €16,3 billion in 2006. This is less than the growth in the years before18. Again in 2006, the fixed telephone service market is the weakest market segment for the coming year. The development has lost some of its pace, but especially in fixed infrastructure (-11,7%) and fixed telephone services (-1,1%), the transfer from mobile to Voice Over IP is clear19. As more and more businesses and, slowly, private individuals as well change to this type of telephone service, the telecommunications companies like KPN feel additional pressure to their turnovers. So within a number of years, internet providers will also turn into telecommunications companies. The growth of mobile telephone services and data traffic will lose strength in 2006, but will still represent a significant share of turnover growth for (Carrier) Services. Just like last year, the telecommunications hardware market is growing fastest (5,4%)20.

17_{Ernst&Young, ICT barometer May 2006, p. 16} 18

ICT Market monitor, 2005-2006, p. 44

19

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Table 4: Growth and growth expectations Telecom sector 2005-200621

As we can see in table 4, the total Telecom sector is expected to grow with 2,6% in 2006. For INTECH, especially the growth in PBX systems is interesting. Although this table shows figures about the hardware of the Telecom industry, it is interesting for INTECH because every piece of hardware needs some services to integrate it. According to a research of MarketCap22, many companies in the Netherlands will have to replace their old PBX systems. Many systems are around six years old right now, because most of the systems were installed in the year 1999 or 2000. A PBX system has an average life span of five to eight years, which means that there will be a strong increase of replacement projects in the next years. We can conclude that these developments in the Telecom market can be very interesting for INTECH.

§ 4.3.3 Trends and developments in the Dutch ICT market

As above mentioned, the Dutch ICT market is growing again. There are some developments we can identify for the Dutch software development market23:

1) Dutch IT companies bring their ICT activities to low cost countries like India, China and Eastern Europe

2) There is a shortage of qualified and experienced personnel in the next years

3) On the long term the low inflow of students at Beta studies will decrease the amount of highly educated ICT specialists

21

22

MarketCap Navigator Services for ICT, March 2005

23_{http://www.rabobank.nl/kennisbank}

2005 Growth in % 2006 Growth in %

Telephone sets 112 -0.9 112 0.0

Mobile telephone sets 548 3.3 564 2.9

Other terminal equipment 136 4.6 142 4.4

End-user equipment 796 2.8 818 2.8

Transmission 487 4.3 504 3.5

Circuit switching equipment 103 -14.9 91 3.5

PBX & Key systems 182 6.4 191 4.9

Cellular mobile radio infra 344 17.4 391 13.7

Other network equipment 234 5.9 246 5.1

Network equipment 1350 6.0 1423 5.4

Fixed voice telephone services 3901 -1.1 3859 -1.1

Mobile telephone services 5731 4.9 5953 3.9

Fixed data services 3168 5.7 3306 4.4

CaTV services 942 0.9 947 0.5

Carrier services 13742 3.0 14065 2.4

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Ad1) Offshoring/Outsourcing

Offshoring can be defined as: moving or outsourcing labour to low cost countries.24 In this context, this means offshoring ICT activities to low cost countries. This phenomenon is not new, in the nineties of the last century, many American companies were offshoring their ICT activities to countries like India. Outsourcing can be defined as: the delegation of non-core operations or jobs from internal production within a business to an external entity25. In this sense, when a company is bringing activities to another country, it is called offshoring. When outsourcing, the activities are staying in the same country.

As we can see in figure 1, in 2006 a total of 13% of all respondents in the research of Ernst & Young use offshoring of ICT activities to low cost countries like India, China or Eastern Europe. This is an increase compared to 2005 (9%) and 2004 (6%). It is expected that this trend will continue in the next few years. According to the research of Ernst & Young, 21% of all respondents expect to offshore activities within 5 years. In this case, especially the larger companies with more than 100 employees expect to offshore more ICT activities within the next 5 years. As we can see in figure 7, especially professional services and production companies relatively often use outsourcing of offshoring to low cost countries.

Figure 7: Offshoring /Outsourcing to low cost countries26

With help of interviews with Dutch ICT managers and CEO’s and with the help of research findings about offshoring/outsourcing, we can identify the reasons and needs of Dutch companies in the area of offshoring/outsourcing. The results of the interviews are stated in the Appendix of this thesis.

24

Ter Beek, Offshoring in de Nederlandse ICT, 2005, p. 1

25

http://www.wikipedia.com

26_{Ernst&Young, ICT Barometer May 2006, p. 32.}

Offshoring/Outsourcing Dutch ICT Market

13 16 6 1 23 0 5 10 15 20 25

Total Production Distribution Government Professional Services % O ff s h o ri n g /o u ts o u rc in g

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29 Difference in labor costs

Total costs in relation to productivity Availability of qualified employees Focus on core business

Strive for worldwide presence and “ follow the sun” Increase of quality

Especially difference in labor costs is a reason that managers often use28. Dutch managers think an ICT project is successful when:29

There is a match with the expectations

There is a good implementation at the customer There is good monitoring of costs and effort

The biggest threats of offshoring according to ICT managers are communication problems (53%), loss of knowledge and core competences (42%) and cultural differences (31%). The 3 biggest advantages of offshoring are: cost reduction (76%), more focus on core competences and innovation (33%) and more flexibility (31%). The criteria for choosing a foreign ICT specialist are:30

Knowledge Price/quality ratio

Speed on product delivery Service and solving problems Customer orientation

Low fees

ICT suitable for outsourcing is:31 Software development Web design

Maintenance/support Helpdesk/call-centers

For INTECH, it is therefore important to have attractive prices, have extensive knowledge and communicate in a very clear way with the Dutch customer. We can also conclude that the software development activities that INTECH can offer are very suitable for outsourcing.

27_{Ter Beek, Offshoring in the Dutch ICT, 2005, p. 1}

28_{Appendix, Interview with managers in the Dutch ICT market} 29

Ernst&Young, Trends in ICT 2006

30

Ernst&Young, Trends in ICT 2006

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Figure 8: Countries for Offshoring/Outsourcing32

In the figure, we can see the percentages of offshoring to different countries. It is clear that India is the most popular country, with 66%.

The top 3 of countries and regions in which organizations have the least confidence in offshoring their activities are: Middle and South America (53%), Russia (53%), and Eastern Europe (with exception of Poland) (37%). The top 3 of countries and regions in which organizations have the most confidence for offshoring are: India (54%), China (49%) and Southern Europe (Spain, Portugal and Italy) (34%).

Ad2) Labor

The market for higher educated ICT specialists (Bachelor or Master degree) has improved further in 2005. In 2004, there already was a decrease of the surplus of higher educated specialist. This trend will continue in the next years. The growth of the labor market is the same as the growth in turnover in the ICT sector. In 2005, there were 248.000 people working in the ICT sector, of which 125.800 ICT professionals with a Bachelor or Master degree (51%).33 From the year 2004 to the year 2005 we can see a very clear growth in the number of vacancies in the ICT sector from 1300 to 1900 vacancies. Also, the number of jobs increased in 2005: 2900 more jobs, which is almost three times as high as the growth in 2004. For 2006, it is expected that the number of ICT professionals will grow to 132.000. Although a shortage of 900 to 1000 jobs is nothing to really worry about, with a growth in turnover of 5% per year there will be a shortage of around 8000 ICT professionals in 2010.34 The figures are shown in table 5 (A negative shortage in this case means that there is a surplus of ICT professionals).

32

Ernst&Young, ICT Barometer May 2006, p. 39

33

34_{ICT Market monitor 2005-2006, p. 61}

Countries for offshoring/outsourcing

0 10 20 30 40 50 60 70 Indi a Eas tern Eur ope Ro ma nia Cze ch r epu blic Pol and Hu ngar y Ch ina Sou th A fric a Oth er Un kno wn

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31 # of ICTprofessionals Average # of vacancies Outflow Job growth Short-age 1997 98.000 3.550 800 6.000 8.850 1998 104.000 4.700 900 5.750 9.850 1999 110.400 5.000 1.090 11.400 15.990 2000 122.700 4.280 1.140 2.480 6.400 2001 120.700 1.930 1.120 -1.000 800 2002 114.800 670 1.550 -3.880 -4.850 2003 116.000 990 1.470 -3.330 -4.540 2004 120.200 1.300 1.670 864 -860 2005 125.800 1.880 2.040 2.856 190 2006 131.700 2.030 2.200 3.792 810

Table 5: Labor, Job growth and shortages of ICT professionals

Ad3) Education

The shortage of higher educated ICT specialists has three reasons: the growth in the Dutch ICT market, the changes in the ICT market that asks for broader educated and usable employee and the decreasing inflow of ICT students of Bachelor and Master level.35

In this section, we discuss the inflow of ICT students. For the fifth consecutive year there is a decrease in the inflow of students at studies of informatics. In 2004 there were 5500 applications; in 2005 there were only 5300 applications. The inflow at studies of informatics at universities decreased with 7%. At technical universities in Delft, Eindhoven and Twente, the inflow decreased with more than 25%. This gives a good picture of the situation at this time in the Netherlands. One of the reasons for the decreasing inflow is the image of the ICT sector. Very often, the sector is regarded to be too technical and difficult. Due to the current pressure on graduating within four years, students choose for a less difficult education. This trend starts already at high schools: students do not choose for a Beta profile when choosing their subjects.36

§ 4.4 Resource requirements: fit of competences

In this part, we will evaluate which requirements are needed to provide quality in services that INTECH wants to deliver. Only the resources needed to provide the services are mentioned here. In the Chapter 7 about Management, Organization and Scheduling, we will discuss what is needed to support and manage the activities of INTECH in the Netherlands.

In Chapter 3, we discussed the competences of INTECH. In order to get a good view of what is needed to provide good services in the Netherlands, an analysis with the help of the internet site of Intermediair was made. Intermediair37 is one of the largest internet jobsites in the Netherlands. On this site it is possible to search for jobs in all different areas. This site not only gives a good impression on what kind of jobs are asked, but also how many vacancies there are in a particular area. According to the market analysis in the previous part of this thesis, there will be a shortage of

35

36

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qualified ICT professionals. The site of Intermediair is therefore a good way to check if this statement is true.

In the case of INTECH, a search was made on the key word “software engineer”. This word represents very well the service that INTECH can offer. There were two different subjects that were evaluated:

1. Which qualifications are asked? (e.g. programming experience)

2. Which activities does the job involve? (e.g. software engineering activities) The qualifications and software engineering activities are all derived from the company analysis of INTECH. In this way, we can get a good idea if the competences/knowledge of INTECH fits the market requirements of the Dutch ICT market.

The results of the analysis on the Intermediair jobsite is processed in the figures below mentioned:

Figure 12: Programming experience asked on www.intermediair.nl

In total, there were more than 100 vacancies in the database of Intermediair. In the table above, the results of which qualifications are asked are stated. The most important programming languages (according to several Dutch ICT managers) are examined. As we can see in the figure, there are some languages that are asked a lot of times: C++, C#, .Net, Java and UML. In the figure of the programming competences of INTECH in Chapter 3, we can see that INTECH has more than sufficient experience in all languages asked in the vacancies. Also, INTECH has many experiences in the other programming languages.

Programming experiences

0 5 10 15 20 25 j2ee C++ C # .Net Java UM L SQ L Syb ase My SQ L SQ L Se rver _XML Vis ual b asic

Dutch software market: A dream comes true?

Dutch software market:

A dream comes true?

Internship International Business

Jitske de Jong

Student number: 1228021

University of Groningen

Groningen/Saltillo, August 2006

Dutch software market:

A dream comes true?

Management Summary

Preface

Table of Contents

Chapter 1

Introduction

Chapter 2

Problem statement and Research Plan

Chapter 3

INTECH competences

Conclusions Company analysis

Chapter 4

Market opportunity

Programming experiences