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CASE STUDY
Ekomate Systems and the Indian software industry: leveraging network relationships for international growth
Shameen Prashantham
The case study looks at the importance of developing and maintaining a network of relationships in international markets and in the local milieu as a critically important capability for smaller firms seeking international growth. It also illustrates how the indirect benefit of acquiring new knowledge (learning) through network relationships is likely to be more sustainable than the direct benefits of gaining new business opportunities.
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Origins of Ekomate
Ekomate Systems was founded in 1996 by Tom Thomas upon his return to his hometown of Bangalore after obtaining an MS in computer engineering at the University of Texas in Austin. The son of an entrepreneur, Thomas felt that starting a business would be considerably more remunerative in comparison with employment. Moreover, he had gained some work experience at Intel, while in the USA, and was acutely aware of the great potential of the Internet. He was therefore keen to start a company that would ‘enable client companies to get on the Web’. According to him, when utilising Internet technology, companies ‘not only have the public side [that is, a website] that any visitor would come in and see but also a private side where their customers, suppliers and vendors also interact through the Web’. His company, Ekomate, works in this area as a software services company. The Ekomate website describes its offering as follows:
Ekomate uses the offshore development model to help its clients get their IT work done, maintaining international quality at reasonable costs, thereby resulting in tremendous cost advantages to its clients. Ekomate follows ISO compliant processes for software development.
The Bangalore software industry1
In founding Ekomate, Thomas was riding on the crest of what would prove to be a substantial wave, the ripples of which have since been felt throughout the world – the development of the Indian software industry. With Bangalore as its focal point, the Indian software industry has attracted several international companies from high-cost advanced economies to outsource, at least partially, their software development needs. The outsourcing of software development has been especially pronounced in the USA, although latterly European countries such as Germany and the UK have followed suit. Regional shares of Indian exports are approximately two-thirds to North America, a quarter to Europe and the rest to other markets including Asia–Pacific. It has been suggested that Bangalore’s software industry emerged quite by accident, facilitated by historical factors. In the years following independence (1947), a strategic decision was taken by the Indian government to locate certain key defence laboratories away from
1
For a more detailed discussion see S. Prashantham, ‘Local network relationships and the internationalization of small knowledge-intensive firms’, Copenhagen Journal of Asian Studies, vol. 19 (2004), pp. 5–26.
This case was prepared by Shameen Prashantham, lecturer in management at the University of Glasgow. It is intended as a basis of class discussion and not as an illustration of good or bad practice. © Shameen Prashantham 2007. Not to be reproduced or quoted without permission.
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the nation’s capital of New Delhi owing to its proximity to potentially hostile neighbours. Thus Bangalore, a city located in the South Indian peninsula and with an established military presence from the days of British rule, was chosen as the location of such vital public sector undertakings as Hindustan Aeronautical Limited. These organisations attracted technical personnel from around the country and from the prestigious Bangalore-based Indian Institute of Science. The resultant pool of talent was arguably the forerunner to the supply of software professionals now available in Bangalore. Numerous engineering colleges have since been established in India where over 150,000 English-speaking engineering and science graduates are produced every year. A parallel development that has latterly had an impact on the development of the Indian software industry was the steady emigration of engineers from India over the past three decades, many of whom have attained positions of importance in the US IT industry, notably in Silicon Valley.
obtained through these connections with fellow Indians working in the US IT industry. Often, it would be a case of a US-based former classmate or family friend referring Ekomate to prospective clients. Thomas notes of NRIs that: definitely for someone coming from India, or someone having an Indian perspective, it’s very easy for them to talk to us. For example, the visitor we had from Chicago two days ago is a friend of my best friend at college. . . . For us NRIs have been a powerful source of business. They know our working conditions. If you say Republic Day is a holiday or some other day is a holiday, they’ll know why [chuckles]. It is difficult to explain to an American client how many holidays we have in India or why we have to work on Saturdays . . . NRIs just need the trust factor [that] this guy will not screw up, they’ll deliver when they say; otherwise it is their neck on the line there. So I think the NRIs definitely play a very important role and it’s a role that we have consciously been cultivating.
Ekomate’s ‘emergent’ phase (1996–2002)
For the first couple of years Ekomate’s clientele was solely domestic. A notable success was the development of a website for the leading English daily in the city. However, it had always been Thomas’s ambition to attract international business, especially from the USA. Not only was the USA without doubt the leading market for Indian software development outsourcing, but also Thomas had useful connections there through his Master’s education in Texas and his stint at Intel. So he had been putting out feelers to former classmates and other contacts, seeking potential clients. These informal efforts paid off in 1998 when he secured his first US contract. This breakthrough heralded a considerable change in Ekomate’s geographic focus: the emphasis now clearly shifted to international business. Subsequent business deals followed from the USA, many of which were the consequence of connections with persons of Indian origin who are often referred to as non-resident Indians (NRIs). Thomas narrates various anecdotes that illustrate the benefits of information, advice and opportunities2
2
S. Prashantham, ‘Foreign network relationships and the internationalization of small knowledge-intensive firms’, International Journal of Entrepreneurship and Innovation Management, vol. 6, no. 6 (2006), pp. 542–553.
Also around the same time, early 1998, Ekomate unexpectedly won a business contract to develop software for a client in another foreign market, namely the UK. This transpired when a British software entrepreneur learned of the emerging software industry in India through a documentary on television, and proceeded to identify prospective software firms in India via the Internet. He subsequently e-mailed these firms and visited in India those he had shortlisted. Ekomate ended up as the software outsourcing company of choice; apparently the British entrepreneur was particularly impressed by Thomas’s speed of e-mail replies. For a young, growing company, the string of business contracts signed provided sustenance and excitement. By 2002, fully 90 per cent of Ekomate’s revenues were accounted for by international business. From a standing start in 1996, the company had grown to a size of about 20 employees. The USA remained the largest market. Ekomate wanted to maintain the strong focus on international markets. By that stage, Thomas saw international growth as being synonymous with the growth of his firm. In early 2002 he observed: ‘If I have only Indian customers, then I cannot make payroll.’ The international clients that Ekomate serves tend to be software SMEs that outsource some or all of their software programming to Ekomate. Thomas sought to continue his focus on working with software companies abroad rather than directly with end-users:
Our clients are basically small to medium firms – IT firms, essentially. We have one of their tech people
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EKOMATE SYSTEMS AND THE INDIAN SOFTWARE INDUSTRY interact with us and we develop software to their specifications. We have seen that working with the end-user is very difficult, as a small firm. We cannot afford to send people there and get specs.
Ekomate dabbled with a few other markets as well. For instance, in 1999 Thomas took advantage of a trade mission to New Zealand and sought business leads there. Also, he was able to get some business from Germany which prompted him to incorporate a German translation on his website at one stage. These initial inroads did not, however, lead to further success, in large part because Thomas did not have the same level of network relationships in these other markets compared with the USA. Consequently, Ekomate struggled to consolidate on the initial business obtained from or contacts made in these markets. Much more promising, however, was the British market and Thomas turned his attention there in the ensuing years. He talked of his targeted markets in the following way:
Definitely the US market is key because they adopt technology very fast. And all the trends are being driven from there. Followed closely by Europe, I would say – especially the UK because it is Englishspeaking and easier to break into. We have done some work for Germany also. It has not been the level we wanted to achieve. We wanted to do much more . . . I think Japan is a lucrative market from what I’ve seen, but those I have seen who have succeeded in Bangalore are only people who are married to Japanese, or have lived there, or have some other connection. I think it is very hard for a company to just go in and break into Japan. It takes years.
in a local tennis club. Thomas, in a manner not uncommon among (although by no means exclusive to) Indians, sought the guidance of this highly experienced person who agreed in November 2002 to play a mentoring role to Thomas and Ekomate. Thomas believes that much value has been added through this association. In his words:
I think, as they say, providence brought us together. Basically we play tennis together at the Indiranagar Club. So he has seen me for many years and he’s quite close to my dad also. I knew that he was a great person in the field of IT and I also knew when the downturn came that I needed guidance.
In the light of the slowing US economy, compounded by the 9/11 terrorist attacks, by 2002 Thomas felt it imperative to diversify Ekomate’s portfolio of markets so as not to be overly reliant on the USA, the most lucrative market for Indian software firms and also the market where he had the most network relationships.
Ekomate’s ‘deliberate’ phase (2002 onwards)
Another related development at the time that strongly influenced Thomas’s thinking was the mentoring he received from a seasoned Bangalorebased software entrepreneur. This individual had been part of the founding of team of a highly respected Indian software company. He was a social acquaintance that Thomas’s father had made
The mentor’s influence on Ekomate was manifold. For instance, he emphasised the need to ensure the robust management of quality in the firm’s processes; subsequent efforts culminated with Ekomate successfully applying for ISO accreditation of its software processes by mid-2005. One of the major areas in which the mentor influenced Thomas’s thinking was Ekomate’s internationalisation process. One strong recommendation that the mentor made was to seek actively additional international business with a view to achieving further growth and thereby stability for Ekomate. While this was consistent with Thomas’s own views, hearing it from the mentor spurred him to a more urgent, yet also a more deliberately strategic approach than before. Consequently, Thomas’s attention shifted to the UK. However, this time he decided not to rely purely on happenchance or serendipity. Given that he lacked the same level of network relationships compared with the USA, Thomas decided to look for useful connections with the UK on his doorstep, as it were. He began to engage with the Indiabased representatives of British trade organisations. This brought him into contact with the India manager for Scottish Development International, which promotes trade to and from Scotland. As a result, he found himself on the guest list when a delegation of Scottish software firms visited Bangalore later that year. Thomas observed that:
We definitely realised that just looking at the US alone is not a good strategy, so we’re looking at parallel markets in Europe. So we’ve successfully built good relationships with trade organisation representatives of different countries. I have a good relationship with the Scotland country manager. . . . The point is just to get exposed so that whenever Scottish companies visit India we are invited for events, we know what they are looking for.
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The interaction with the Scots made Ekomate aware of the relatively high concentration of software companies in that part of the UK. Moreover, virtually all of these firms were software SMEs – exactly the type of firm that Ekomate was interested in dealing with. Based on prior positive experiences in dealing with fellow Indians in the USA, Thomas’s strategy for the UK in general and Scotland in particular was to partner with a nonresident Indian business based in Scotland. The local partner would provide the front-end interface with the client while Ekomate would provide the back-end software programming. In the event, in the autumn of 2004, Thomas visited Scotland and an agreement was signed between Ekomate and a Scottish partner. Although the main individual involved at the Scottish end was not himself Indian, the connection had been made through a Scotland-based Indian contact that Thomas had cultivated in the interim. Thus, a strategy of tapping into ethnic ties overseas was continuing to be adopted. Thomas was very optimistic about the new relationship and business targets were agreed by the partners for the forthcoming quarter. The partnership was, however, short-lived. By early 2005 it became apparent that a personal crisis for the individual in Scotland made the relationship unsustainable. This was a setback for Ekomate, which had pinned great hopes on the additional growth that would accrue through new business in Scotland. Thomas was none the less sufficiently convinced of Scotland’s viability as a market for Ekomate that he went about building another partnership along a similar front-back-end principle. It took a further two years before this could be achieved. Once again, the Indian contact in Scotland played a part
in identifying partners albeit this time in a more circuitous fashion. During the visit to Scotland in 2004, Thomas had been introduced to a software SME in Glasgow through the Indian contact. This company had, the following year, referred another Scottish firm to Thomas and it was eventually this firm that Ekomate signed up to do business with in November 2006. The outcome of this partnership remains to be seen.
Future directions
While the business development efforts in Scotland are at a nascent stage, Ekomate has continued to obtain repeat business from clients elsewhere in the UK and in the USA. The resultant growth has seen Ekomate’s headcount almost double since 2002. Going forward, Ekomate is consciously targeting what Thomas describes as ‘sustaining work’, that is software projects that were likely to lead to continuous repeat business (such as maintenance service contracts) as opposed to merely one-off contracts to build some software for a client. One of Thomas’s main dilemmas, however, has been the choice between focusing on a few core areas of competence and diversifying the portfolio of technologies on the basis of client needs. With a view to keeping customer loyalty, he has chosen the latter option. However, there is a continued focus on Internetenabled technologies. Furthermore, Ekomate is in the process of diversifying into IT-enabled services commonly referred to as business process outsourcing, with a view to further augmenting international revenues. 