What it Takes for Filipino Software Companies to Go Global

Melvin Calimag, a Filipino journalist and blogger for ZDNet Asia posts in his blog PinoyPost a question on why is it that, unlike in India, there are very few IT/Tech companies in the Philippines who have gone global. He writes:

Need for Filipino IT firms to go global : Pinoy Post : Blogs : ZDNet Asia

Unlike India which has launched quite a number of successful global IT firms, mostly in the BPO (business process outsourcing) sector, the Philippines seems to be content in merely hosting multinational companies in the country. 

A cursory glance at the composition of the largest tech firms in the country would reveal that the majority, if not all, of them are foreign-owned. Even in the field of outsourcing where the Philippines has made some inroads, the biggest names are still those from the United States, United Kingdom, and yes, India.

Sure, there are some Filipino-owned BPO firms which have expanded into foreign shores, but none of them have approximated the level of prominence or success the likes of India’s Infosys, and even Satyam, have achieved–just the mention of these company names would earn recognition of their country of origin.

Sadly, that’s not the case with the Philippines. While the country has somehow been able to market itself as a viable offshore destination, there are no homegrown icons to speak of that can serve as IT ambassadors for the country.

While I certainly share the sentiment, let me share my thoughts on why that is–specially for software product companies (which have a different set of challenges than IT service or IT-enabled service companies). I think the challenge for many software companies in the Philippines (and in Asia for that matter) is that it takes a considerable amount of capital to build a sustainable and profitable business abroad.

Although I have heard of stories and case studies of small, local shops making a nice profit developing casual games, online services or iPhone apps; I have yet to see one scale to a size beyond being a lifestyle business for the owner, or to develop a sizable customer base or presence to be called a truly “global” company. By global, to have the size, reach, stature and success of companies like F-secure (Finland), Trend Micro (Japan/Taiwan), Kaspersky (Russia), ICQ (Israel), Skype (Estonia/Sweden), SAP (Germany), Zoho (India), and many others.

Creating a scalable business with considerable international presence and a sustainable business model in my opinion requires considerable capital. Companies can start out with low cost Internet direct marketing, but to truly grow and to make a name for themselves, they will eventually have to join trade shows, go on trade missions, meet face to face with international analysts/press/decision makers and influencers , or in the case of complex or business applications provide consulting and support, develop partner/reseller channels, and many others.

In order to do this, you need capital. For a company just starting out, often times the only way to do this is to get funding from a) a wealthy angel investor (as in the case of GSCand G2iX as mentioned in Melvin’s blog post); or you would need b) venture funds/institutional investment/debt/capital raised through IPO; or a third route is to c) raise capital purely through organic growth.

Now the first (getting angel investment) is difficult as it requires the right sort of connections or “social capital.” Preferrably you would want to get investment from people who know the industry–who have realistic expectations of the time horizons and amount required to get a software company of the ground and can mentor the software entrepreneur how to best use the funds provided. This is something not all Filipino entrepreneurs have access to, but is something that considerably more Indian entrepreneurs have with the success of many country men who made it big in the US in the 80s and 90s like Vinod Khosla of Sun Microsystems and Sabeer Bhatia of Hotmail (and literally hundreds, possibly thousands of others who found success as software engineers/analyts/testers, etc in the US).

The second (venture capital/institutional investments/IPO) is hard, because the Philippines and many countries in Asia simply don’t have access to the type of capital markets and business ecosystem that entrepreneurs in the US (specially in Silicon Valley) enjoy. In this regard, GSC and G2iX (companies mentioned in Melvin’s article) struggle as well as evidenced by their aborted IPOs.

The third route is hardest as it requires that software companies have a large enough market in its home country for it to be able to grow enough to support and fund that kind of internal growth. This is hardest as it is outside of the entrepreneur’s control. For Filipinos it is difficult because of lackluster economic performance of the country. This is compounded by the fact that the market is just too small (specially for companies developing enterprise/engineering/scientific) applications to fuel the kind of focused expansion/growth required for quick product development, innovation and market penetration (notice how many Singaporian and Australian software companies themselves struggle to create truly global software product companies, simply because their home market is just too small to raise enough capital to build global companies).

Perhaps technical brilliance, innovative products, smart people are not enough? The environment, connections, access to capital, and maybe luck (ie where you were born) plays a part as well. Do you agree? Let me know your thoughts as well.

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2 Responses to What it Takes for Filipino Software Companies to Go Global

  1. Jan says:

    the popularity of cloud computing made most companies use saas accounting software nowadays.

    numia dot biz

  2. Pingback: Topics about Bcon » Archive » What it Takes for Filipino IT Companies to Go Global

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