Is being in the Philippines bane or boon for founding a tech startup?

Last January 10th, I posted a topic which I hoped would get insights from the community to help not only budding technopreneurs better understand the challenges they face in not only starting their own technology venture, but also help them create truly sustainable, wealth-creating companies which can emulate the success of organiations such as F-secure (Finland), Trend Micro (Japan/Taiwan), Kaspersky (Russia), ICQ (Israel), Skype (Estonia/Sweden), SAP (Germany), Zoho (India), and many others.

I was surprised and happy to find that it generated a  lot of insightful comments from very knowledgeable people in the industry (many of whom have actually lived through, going through, or are helping others through the experience).

The gist of the discussion: Filipino technopreneurs face several challenges in getting their company to a point where it can become a truly world class company (initially the discussion was confined to software, but is applicable as well to any technology venture). Here are some of them:

1) Access to capital:

  • according to Carlos Perez: “Easy and cheap capital helps you avoid distraction of having to hunt for money”
  • But Jay Fajardo had a counter point saying: “Tech startups nowadays require less capital to launch because of very cheap access to web and cloud infrastructure. The focus [has] shifted from raising money to getting a product out fast.”
  • Francis Egenias shared that organic growth is possible

2) Timing
(need to catch an inflection point in the industry, take advantage of discontinuous shifts in technology and business models)

  • Jay Fajardo mentioned leveraging new developments such as cloud computing; but applicable here as well are new trends such as open source, social/Web 2.0 technologies, mobile applications (ie iPhone apps), virtualization, etc.

3) Focus
(dominate a niche, target specific verticals, get into markets where size and capital is not an issue, target the needs of a larger, international market, go into markets similar to your local market, leverage local unique culture/economic/social conditions–>ie as in the case of wireless/SMS technologies; or English speaking talent in the case of customer service and distance learning solution providers)

  • Here strategy was mentioned

4) Talent
(access to world class engineering talent, product management and product marketing talent, executive talent, ability to recruit and retain talent–> not losing them to greener pastures abroad or to multinationals with local operations)

  • Paco Sandejas and Joey Gurango talked not only about engineering talent but product management talent.
  • Giancarlo Angulo mentioned a lack of critical mass of talent

5) Leadership
(of course!)

  • Joey Gurango, Paco sandejas and Michael Hamlin talked about competence and experience of the leader (they themselves are leaders of their own enterprise)

6) Attitude/orientation/commitment
(to have confidence to stay the course when faced with challenge)

  • Miguel Ladios shared his experience working in a multinational environment and the importance of attitude
  • Floyd Piedad shared that we should have an attitude that focuses on solutions instead of over-analyzing problems

7) Enabling infrastructure
(ie government, education, IP protection, etc)

  • Michael Vincent Yap and Albert de Cera talked about IP protection
  • Ody dela Merced and Ruben Canlas talked about the role of government and education in creating the right environment for entrepreneurship to succeed

I’m intrigued however by Michael Hamlin’s last post about:

8) how effective communications plays a key part in gaining success on the world stage.

I agree that communicating effectively is crucial (but unfortunately is often missed as I have). Communication plays a key role in the lifecycle of any enterprise/product from startup to maturity–ie getting attention, creating awareness/interest, driving adoption, creating loyalty, building on success.

But just out of curiosity (and in the context of Filipino technopreneurship and what it takes to communicate effectively to the global market), is being in the Philippines (and being associated with the “Philippine brand” if there is such a thing) bane or boon to founding a tech startup and its marketing communication efforts? Does it matter at all?

A review of the communication strategies service companies employ in the IT and IT-enabled services sector seem to prominently tout the advantages of being in the Philippines (or for that matter India, China, Mexico, Poland, etc). But what if you are a product company?

Social responsibility and nationalism aside, does it make business sense to prominently display that your company is “proudly Filipino?” Or that your product was developed by Filipino talent?

Can it be a liability? (ie shows narrow focus? insular thinking?). Should the fact that your enterprise is a Filipino company employing Filipino talent be buried in the marketing copy? Should it be mentioned at all? Some companies I know (both here and abroad) make it a point to highlight the fact that they have international offices (even if its just a one bedroom apartment or PO Box somewhere) to show their global ambitions. At a time where distance is made almost meaningless by technology, does it still matter? Does it really help?

If I were an entrepreneur wanting to set up the next revolutionary open source/cloud computing/social networking/mobile gaming startup right now—what advice would you give?


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.

Philippine Software Industry Association Announces “Global Domination” Campaign in E-services 2009 Conference

mapofthephilippines.gif Philippine Software Industry Association or PSIA announced its “global domination” campaign last Tuesday at the 9th Philippine e-Services Global Sourcing Conference and Exhibition at the SMX Convention Center in Manila.

The software industry wants to get a piece of the estimated USD 6 billion in revenues in revenue generated by the IT  and IT-enabled outsourcing business in the Philippines, which officials in the country are aiming to double by 2010 to USD 12 billion. This will put the Philippines firmly in the minds of decision makers as a top alternative outsourcing destination to India.

Revenues from outsouring in the Philippines are however dominated largely by outsourced voice services such as call centers and back-office processing services. Outsourced software development and software exports contributed only about 10% of 2008’s revenues, with the PSIA reporting about US$624 million in net earnings in 2008.

This will certainly be a tough challenge, with the current global financial crisis and the competitive market for software services from not only India, but countries like Romania, Brazil, Ireland, Czech Republic, Pakistan, Vietnam and many others.

My take on what area perhaps the Philippines can focus on where it can have an advantage? Open source software. Filipino software development companies (estimated at around 400 nationwide), can capitalize on the growing trend in the use of open source infrastructure such as Linux and open source dynamic languages such as Python, PHP and Ruby on Rails. And in a country where annual software developer salaries are just around USD 7,250, open source software lowers the barrier to entry for many small, innovative, entrepreneurial companies to enter the industry.

Industry experts seem to agree. In a visit last year to the Philippines, Reggie Hutcherson, head of Sun’s technology evangelism group, said that there is a lot of opportunity in learning various open source languages and providing services around it for companies around the world:

“The real challenge for the Filipino developer is learn various open source technologies and use them in heterogeneous environments and provide services to local and foreign companies,”

Meanwhile, David Mitchell, UK-based Ovum’s senior vice president for IT research, said the Philippines needs to focus on niche areas where it can compete better in terms of higher-value services. He said:

Smaller economies in emerging markets need to have focus, and avoid competing with larger economies on cost alone.

He said open source is one such area, citing plans to open new IT parks focusing on developing businesses around open source. He adds:

However, the key will be to ensure that the open source businesses that are created develop high-value assets, rather than developing as low-value services businesses.

There is a danger that too many areas of focus emerge in the Philippine ICT economy, meaning that it will become difficult to gain the depth of skills required to develop globally competitive business that can sustain premium rates–as opposed to the low-rate economy associated with much outsourcing and BPO activity.

One such Philippine company (with venture capital funding) focused on global development services around open source is Exist Labs and sister company–which does SaaS platform hosting using open source  scripting languages such as Ruby on Rails. Another venture (disclosure: that I am involved with) is (non venture-funded) is an ERP software platform with a Web 2.0-ish spin called ComUnionERP.

It remains to be seen whether ventures like these will become successful and if the Philippines can truly create a cohesive and differentiated strategy to create a niche for itself (open source or not). Its clear that it needs a critical mass of players launching a concerted effort to do it. I hope the PSIA can take the lead in doing exactly that.

Primer on FOSS–from a Philippine Legal Perspective

I read an interesting blog post today from Michael Dizon, who used to be a Senior Lecturer at the UP College of Law and whose interests, among others, is ICT law, policy and practice, and Free and Open Source Software or FOSS.

He offers a nice primer on FOSS, but more interestingly, provides a perspective on the legality and enforceability of FOSS in Philippine law:

In general, FOSS licenses are valid contracts. They comply with the essential requisites of a contract: consent (implied consent through the use of the program), object (use, access, modification and subsequent distribution of the program) and cause (obligation of the user to grant subsequent users the right to access, modify and distribute the program or any derivative thereof).

However, FOSS licenses may be subject to the provisions of technology transfer arrangements (TTA) under the Intellectual Property Code. A TTA refers to contracts or agreements involving the transfer of systematic knowledge for the manufacture of a product, the application of a process, or rendering of a service including management contracts; and the transfer, assignment or licensing of all forms of intellectual property rights, including licensing of computer software except computer software developed for the mass market. If they are considered TTAs, FOSS licenses must contain the mandatory provisions but none of the prohibited clauses enumerated in the Intellectual Property Code.

You can read the rest over at Michae’ls blog. This is new insight for me and find the information really useful–as its very hard to find thoughts around open source (other than trechnology) locally.

Some of the facts seem dated though. He says that:

Technical support: FOSS has limited technical support.

Warranty: Source code availability and the lack of centralized control over the code limits, limits, if not totally eliminates, any form of warranty over the FOSS products.

A lot of popular open source projects nowadays are released as “commercially supported” code or have dual licensing. This marries the advantages of commercial software in that control and support is centralized and coordinate, with the inherent advantages of open source such as code transparency, low cost, flexibility, etc. Check out projects such as MySQL, Acquia, SugarCRM, Alfresco, and many others. These projects, often are released with a dual license, which if clear legal protection is an issue for an organization–they can opt to get.

Intel Closes 20-year Plant in the Philippines. Crisis Hitting Us Hard

As predicted, we are now starting to feel the full effects of the global financial crisis. Intel announced yesterday that it will be closing its 20-year old testing and assembly plant in the Philippines.

Business – Intel to close down Philippine plant –

MANILA, Philippines — Intel Corp., one of the biggest foreign operations in the Philippines, has told employees that it will close down its over 20-year-old testing and assembly plant outside Manila, sources in the company said.

The announcement was made via email around 10 a.m. Wednesday, the sources said. It gave no date for the closure. Officials of the US-based chipmaker and its local public relations agency told they were not ready to give an official statement at the time of this writing.

This is bad news for the industry as this move is expected to impact the lives of thousands of computer engineers and support staff, not to mention limiting the future career options of thousands more in the future. Intel had been one of the largest employers of computer hardware engineers in the country for the past few years. This comes in the heels of an an announcement by Texas Instruments (based in the Northern part of the Philippines) to lay off 400 employees from its factory last December.

Open Source Gaining Ground in Southeast Asia

Read some posts, news items and press releases today about the growing adoption of open source in Southeast Asia:

In Malaysia, open source software adoption is set to experience a steady growth in Malaysia, this accoding to Daniel Ng (an affable and lively guy I met at a partner conference), Director for Marketing at Red Hat Asia Pacific said. He was there recently with Michael Tiemann (whom I also met at a conference), Vice President for Global Open Source Affairs from Red Hat.

In a statement to the media, Tiemann said that at the enterprise level, open source solutions allowed companies to modify and build solutions that best suit their needs. “Proprietary solutions may offer the same features but they don’t give users the licence to modify the source codes to fit their needs,” he said. He also said the Malaysian government has taken open-source technology seriously by setting up the Open-Source Competency Centre, which comes under the jurisdiction of the Malaysian Administration and Modernisation Planning Unit (Mampu).

Ng added that the current financial crisis is also a blessing in disguise for Red Hat and other open-source players.”A little more than six months ago some companies we approached shied away from open-source, but now the same companies are coming back to us to weigh the possibilities of running open-source solutions,” Ng said.

The Malaysian government it seems has grand plans for open source it seems, intending to grow 15 global open source corporations within two years. But this might pale to the ambitions of Vietnam.

From news reports, the Vietnamese government wants to use 100% open source in government by 2010. IT divisions at government agencies comprise the IT departments of ministries and government agencies, provincial and municipal Departments of Information and Communications. Open source software products are OpenOffice, email software for servers of Mozilla ThunderBird, Mozilla FireFox web browser and the Vietnamese typing software Unikey.

This is in sharp contrast to the Philippines, where a bill on the use of open source in government has been languishing in Congress for more than two years.

But the trend clearly shows adoption of open source growing in the region. This seems consistent with market research firm Gartner’s own survey which says that 85 percent of companies all over the world are using open-source software. This helps companies but also the economies of these countries as well, helping the local software industry improve its competitiveness, develop local talent, and compete on a global scale by lowering barriers to distribution and adoption.