The Software Industry in Asia

Foreword

 As part of Russell Reynolds Associates’ commitment to understanding the current and future trends and challenges that our clients face, we publish reports which examine the transformations taking place across the world’s major business sectors. In each of our studies, we look at an industry from the inside by gathering the views of experts, senior executives and industry commentators. This research explores the changing dynamics of the software industry in Asia and the impact on the type of individuals and skills that are required to ensure future success. The report draws on interviews and conversations with senior executives in the sector.

The Changing Dynamics of the Software Industry in Asia

Big Potential...

The breakneck pace of economic development in Asia is changing the dynamics of many industries. Until recently, the software market was driven primarily by the innovation, labor and customers of Europe and the United States. Today, India, China and other Asian tiger economies stand out as the primary drivers of the sector’s promise and prospects.

The Asia region is almost universally expected to be the engine of growth for software companies for the foreseeable future. “Our company is not looking for incremental growth but leapfrog opportunities here,” said a senior executive from the software group of a leading global IT conglomerate based in China. “You will not be able to survive if you do not have the vision and ability to continuously create new businesses in this part of the world.”

While multinationals are stepping up their efforts to penetrate the emerging markets in Asia, there are many Asian software companies, particularly in China and India, that are already strong in their own regions and are now starting to look beyond their own borders. For example, a number of Indian outsourcing companies, such as Wipro, Infosys and TCS, are becoming world leaders in software integration and application management services. Chinese companies, such as UFIDA and Kingdee, have overtaken their foreign competitors as the largest enterprise resource planning software providers in China. Chinese firms also dominate the local telecom business and operations support software market and have recently started to export to other developing countries.

...With Big Challenges

However, as the software industry becomes more global, competitive and challenging, so does the task of getting the right people into the right positions. CEOs are discovering that achieving strong growth is based as much on their companies’ talent strategies as on their overall business strategies.

Whether focused on launching new products or developing new markets, a software company’s ultimate success in Asia may very well rest more on the quality of the executives leading the business than on the business plan itself. Finding and retaining a strong leadership team is key.

Integrity has long been an issue in emerging Asian markets. Many companies are struggling to keep their sales leaders motivated to perform while respecting international standards of professionalism and integrity. Some Asian sales executives have let personal greed tarnish their track records. Others have crossed the line because of pressure to achieve overly aggressive sales targets. One retired senior executive of a major software multinational noted that, “After so many years, of all the sales people I have worked with in China, only two have integrity.” As these markets become more mature and as governments become more determined to crack down on corruption, it is vital to have clear rules and standards, and to practise irreproachable business ethics from the top.

Key Functional Leadership Roles

Our research indicates that the majority of multinational software companies are localizing their senior management teams at the country level in order to better understand and fulfill the needs of local customers, while locally based software companies are looking for senior executives who can provide a global perspective. Ongoing moves toward the full convergence of communication, content and computing are creating a real demand for entrepreneurial leaders with business development skills and cross-domain knowledge to identify and seize opportunities.

Relationship Management

Executives who nurture client and channel relationships: Sales leaders who take responsibility for and “own” customer relationships are certainly the most pursued talent in this market. In addition to being able to build and maintain close ties with important customers and having a deep understanding of local market dynamics, a senior executive of a leading digital information management software company noted that the ideal key account sales manager is expected to have, “strong functional and industry domain knowledge, as well as a consultative solution selling approach.” Due to the sheer size and complexity of the small and medium enterprise market segment in Asian countries, many software companies have adopted a channel model. Identifying executives who can successfully cultivate these channel relationships and identify and groom partners is challenging for Asian software companies, though the need for them is vital.

Research and Development

R&D executives who combine market understanding with strong leadership skills: Sophisticated and unique requirements from customers in Asia are resulting in greater investments in localized research and development efforts. For software companies with operations in the region, particularly in India and China, visionary research and development leaders are highly sought after. A top priority is to find R&D leaders with international experience and a global perspective, men and women who can bring transformational changes to the organization, enabling the firm to penetrate overseas markets and be competitive beyond the borders of its own country.

It is interesting to note that the individuals whom the Chinese call “sea turtles”—professionals who studied and worked in Europe or the United States and then returned home—are often R&D professionals without standing engineering skills and a good entrepreneurial spirit but nevertheless rarely in possession of the leadership qualities or management competencies that are necessary to be successful top managers.

Human Resources

HR leaders who can provide structure and support: Somewhat ironically, the profile that is perhaps most urgently needed in software companies in Asia is that of the human resources executive.

With such a clear gap between talent demand and supply in the software industry in the region now, and no silver bullet to resolve the problem, it is clear that strong HR leadership—with the ability to drive long-term recruitment and retention strategies—is critical for software companies.

There are certain traits and expertise that these HR leaders must possess to effectively guide their companies through the growing complexities of the global talent market.

• Proven expertise in strategic recruitment is critical, particularly in hiring the “core” team that so many companies are having trouble attracting in this competitive, high-stakes industry.
• Experience in talent engagement and retention strategies is key. This includes the development and implementation of mentoring programmes, long-term incentive schemes and learning and development initiatives.

HR executives need to understand the core competencies required for specific roles within their organization and to have the courage to seek talent in other relevant industries, such as leading technology consultancies and Internet companies. Such people bring fresh views on convergence, software as a service, outsourcing and other market opportunities.

Skills Requirements for Long-Term Business Growth

Our research identified six core competencies that are essential for successful senior executives in Asia:

1. Knowledge and experience of Asia, within a global context: Asia is currently the most dynamic market in the world, with some of the most creative business models. It is not enough for the leaders of software companies in the region just to learn about these trends; ideally they must know how to anticipate them and understand their implications in a global marketplace.
2. Business acumen built on cross-domain, cross-industry knowledge: Taking advantage of the infinite opportunities in the region requires commercial acumen and broad business knowledge that may have been acquired outside the software industry, or even outside the technology sector.
3. The ability to define a go-to-market strategy and to share a clear vision: Asia is a market with a great deal of uncertainty—in business as well as in macroeconomics and politics. Software company leaders often have overly myopic views of the market and, as a result, tend to adopt inconsistent or “firefighting” strategies. This is particularly true of companies where expatriates assigned to a two- or three-year tour are in charge. A clear, long-term vision with a strong commitment to investing the necessary resources during “down times” is fundamental to success in the region.
4.  A thirst for results and for driving change to achieve aggressive goals: Asian software executives are definitely feeling the pressure: Expectations are high. The competition is ferocious. A successful leader must have the courage to challenge fundamental assumptions, discover new ways to grow the business and implement such changes across an organization.
5. The talent to build relationships and leverage ecosystems: The customers of software companies in Asia are experiencing dramatic growth. They have unique challenges that raise complex functional requirements, for which no single company is likely to be able provide a “one-stop shop” solution. Moreover, very few firms have a broad enough reach or strong enough relationships to be able to capture all the major opportunities. The leaders of successful software companies in Asia .need to cooperate, complement, co-invest and leverage each other's strengths to win.
6. The skills to build and lead diverse teams: As a leader, it is always easier said than done to hire someone better than or different from oneself.

In a market as large and fast-paced as Asia, it is nevertheless crucial to have a diverse team that brings together people with rich and varied experiences. Consider China, for example: Not only is China different from Korea, but customer buying behaviors are very different within China by province, by company size, by industry segment, by ownership structure, etc. Only a diverse team can truly address the multiple requirements and succeed in the region.