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Flor Brown Grossman and Lilia Dom

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Can Mexico set up in the Software and IT Global Value Chains as a high value added player? Flor Brown Grossman and Lilia Dom nguez Villalobos – PowerPoint PPT presentation

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Title: Flor Brown Grossman and Lilia Dom


1
Can Mexico set up in the Software and IT Global
Value Chains as a high value added player?
  • Flor Brown Grossman and Lilia Domínguez
    Villalobos
  • Deslocalización de servicios y cadenas globales
    de valor Nuevos factores de cambios
    estructurales en América Latina y el Caribe?
  • Cepal, Santiago de Chile

2
Objectives
  • The process by which firms venture into these
    GVCs and the obstacles faced by them once they
    have been immersed in it.
  • analyze the role of institutions in the GVCs
  • In partiular
  • The linkages between firms
  • the achievements and limitations of governmental
    policies

3
Software production can be classified into the
following four categories
  • Software and IT services have become increasingly
    interrelated. IT services include planning,
    integration, implantation, operation, support and
    maintenance of computing and telecommunication
    systems.
  • Software as a product, that is the shrink-wrapped
    software programs developed for the use in the
    massive market
  • Embedded software which is 'built in' to the
    electronics of products.
  • Customized software solutions. Applications on
    enterprise resource planning (ERP) and customer
    relationship management (CRM)
  • Cloud software. Also known as cloud computing is
    the delivery of software as a service rather than
    a product

4
Inter-firm linkages in the software market
  • Operation traditionally rested in the systems
    departments of firms, but increasingly is carried
    out by outsourcing companies or by cloud
    computing utilities
  • Modular design is an essential characteristic of
    software as a product which is standarized and
    codified. More functions can be added to the
    original software. Ex SAP and ERP and CRM.This
    gave rise to software factories. A software
    factory systematically captures knowledge of how
    to produce the units of a specific product
    family.
  • Customized software, on the other hand, is not
    modular, since producers elaborate software
    according to the needs of customers, thus it is
    not standardized.

5
The software and IT market in Mexico
6
Market structure
  • In 2010 there were 2785 firms with around 500.000
    employees
  • Most of these firms are SMEs, (50 to 150
    employees) and extremely young, in some cases
    less than 15 years old.
  • global firms like Microsoft, Oracle, Sap, HP,
    IBM, Accenture, CapGemini and EDS, which sell to
    the domestic market and operate offshore
    facilities
  • foreign firms constituted by Indian firms led by
    the giants, TCS, Infosys, and Wipro, which are
    expanding their global footprint to better
    compete with the developing nations service
    firms.
  • independent Mexican large IT companies such as
    Softtek, Neoris, and Hildebrando.

7
Government programs and regulations on the
industry
  • Government actions and horizontal programs
  • Smes funding programs for the initial phases
    consultancy and certifications, especial mention
    to TECHBAs and UNDP supplier programs role.
  • Combined with support programs at the federal
    states level and the presence of MNCs and good
    universities have resulted in clusters in
    Jalisco, Monterrey and Baja California.
  • The PROSOFT initiative was launched in October
    2002 as a part of a general policy of shifting
    from labor intensive assembling into high value
    added services.It provides funding for education
    and development of human resources. Most
    important funding is available for projects
    geared towards the certification of companies.
  • prosoft developed an ad hoc norm for
    certification which may be very useful for small
    firms which usually do not have the resources
    (MOProsoft).

8
  • Case studies

9
Softtek (near shore services)
  • India is by far the worlds provider of IT
    services among the emergent countries, Softtek
    illustrates that there are different formulas and
    options that have allowed the entry of emerging
    countries into the IT services GVC
  • Softtek is now a global provider of
    process-driven IT services with 6,400 associates
    across 30 offices in North America, Latin
    America, Europe and Asia.
  • Exports account for 75 of reported revenues of
    the firm

10
Softeks advantages
  • Geographic proximity with US for customers in
    need of swift solutions to business problems
  • A more compatible corporate culture.
  • Everything from easier travel to being in the
    same time zone substantially improves
    communication.
  • The benefits of naftas short term visas and the
    security granted by the Mexican governments
    commitment to wipos trips agreements were deemed
    paramount.

11
Product strategy diversification
  • The activities of the firm moved from software
    development for large and middle sized Mexican
    firms to applications development, software
    testing, application management and application
    security services and SAP and Business
    intelligence software licencing (SAP,
    Informatica, IBM Cognos).
  • Softtek's Software Development Process (SSDP), a
    phase-milestone methodology underlying foundation
    of their application development services (Inc
    Close-Up Media 2011).
  • Their new ventures include embedded software and
    near future provision of services on the cloud

12
Corporate identity Near shore
  • Refers to carrying out services by an adjacent or
    near delivery center.
  • Nine Global Delivery Centers in Mexico, China,
    Brazil, Argentina and Spain
  • GE is their flagship customer. GEs initial
    contract was small however, operations slowly
    increased both in sales and in the variety of
    services rendered

13
Capabilities development
  • 1800 engineers with certifications in specific
    technologies and methodology.
  • Softtek academy where employees are hired for six
    months to be trained also offering scholarships
    to students in the last years of college.
  • Team Software Process (TSP) which enables to
    improve project performance, the speed of product
    offerings with higher quality as well as
    improving the work-life balance for its own
    employees.
  • Self-directed teams.

14
Industrys challenges
  • Scalability as one of the most relevant
    limitations that Softek shares with other large
    IT firms in Mexico.
  • The lack of qualified staff in fluent English
  • Absence of necessary financing in order to
    compete in the global market. This is
    particularly problematic for IT services and
    software entrepreneurs as they can only provide
    intangible guaranties (human capital and
    knowledge) and traditional investors and banks
    are prone to reject financing petitions.

15
SCIO (software services in the cloud)
  • Is a Mexican small firm with no more than 50
    associates which services American, Canadian and
    English software companies.
  • 2003The company was incorporated in Morelia,
    Michoacan providing several IT services.
  • 2005 enrollment in TECHBA consultancy program in
    Silicon Valley
  • 2006 change in product strategy. They identified
    the changing trends in the industry and decided
    to reduce their multi-service efforts and focus
    on software as a service in the internet also
    known as cloud computing.

16
Services and customers
  • Innovative advisory that helps companies build a
    strategy (technical solutions) to go to the cloud
    and understand all the concomitant changes in
    business paradigms
  • Develop software for solutions and applications
    via cloud computing.
  • Flagship customerMicrosoft
  • Only 5 of SCIOs customers are in Mexico Mexican
    firms in general cannot afford Scios services

17
Qualtop (software best practices)
  • Qualtop started with 3 engineers oriented to
    software applications. They have more than a
    hundred now.
  • The competitive edge of this company lies in
    being one of the first to understand this need
    and get all certifications needed.
  • Their start-up business model soon changed as
    they identified opportunities in specialization
    in software optimization processes and CMM
    certifications and left software applications
    aside.
  • The firm is in Guadalajara where policy support
    is particularly efficient. They also have an
    office in Mexico City where most of their
    corporate clients are based.

18
Industrys challenges (SCIO and Qualtop)
  1. Mexico is not yet recongnized as a household name
    in the field of IT services.
  2. Financing seriously limits the potential growth
    of companies.
  3. Prosofts performance is uneven among states.
  4. Lack of an English proficient workforce with
    programming capabilities.

19
Can Mexico set up in the Software and IT Global
Value Chains as a high value added player?
20
On the side of firms
  • We found an increasing presence of
    entrepreneurial talent, willing to risk and
    invest.
  • Firms in the software industry are very young. We
    believe that these firms must invest in their
    human capital at a greater rate.
  • In order scale up the value added chain companies
    must invest continually in capability building,
    certifications and have ambitious goals to get
    international clients and find new niches.
  • The prevalence of very small firms in the
    software industry makes us wonder if Mexican
    entrepreneurial idiosyncrasy has become an
    insurmountable obstacle. Imperative to achieve
    strategic alliances and mergers among small firms
    in order to achieve growth.

21
Adequate support from governmental
institutions?
  • Positive aspects
  • FDI attraction policy
  • Smes funding programs for the initial phases
    consultancy and certifications, especial mention
    to TECHBAs and UNDP supplier programs role.
  • Special support program for the software sector
    PROSOFT and Moprosoft standard for small firms
    with limited resources
  • Negative aspects
  • Insufficiencies in technical education and
    investment in human capital
  • The conacyts innovation initiatives did not
    seemed to perform well for software firms
  • Bank credit is not competitive
  • Lack of long term financing initiatives.
  • Ambitious goals require more programs oriented to
    the specific needs of GVCs horizontal policies
    seem insufficient.

22
Challenges
  • fostering of high impact projects that provide
  • physical infrastructure
  • ii) improve logistics and communications
    conditions
  • most importantly that foster innovation and
    learning capabilities among the pioneers of the
    new chains.
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