Entering the European market for (Industrial) Internet of Things services

Through what channels do (I)IoT services end up on the end market?

As a service provider in a developing country, you can use several trade channels to enter the European market. Figure 1 provides an overview of the trade structure for outsourcing. This structure is more or less the same in every European country.

Figure 2: Trade structure for outsourcing (I)IoT services in the European market

What is the most interesting channel for you?

Your most common and most promising market entry channels are European service providers and consultants/matchmakers. Another option is to work with a local sales office or direct sales (possibly through online platforms).

Selecting a channel depends on your type of company, the nature of your product or service, your target market and the available resources for market entry. You must understand that, regardless of the channel you choose, your own marketing and promotion is a vital part of your market entry strategy, for which you are responsible.

European service providers

(I)IoT service providers from developing countries find a European service provider (ESP) to partner up with either directly or by working together with a matchmaker and/or a sales representative. Because many European companies prefer to deal with a local contact person, an intermediary is a good option. A European service provider that is similar to your IT company would be your most suitable subcontractor. Ideally, this IT company should design, develop, market, sell and maintain (I)IoT solutions that are similar to yours.

The relationship between an ESP and a subcontracted supplier is generally characterised by:

• trust
• interdependence
• a structured relationship (functions, tasks, communication and procedures)
• potentially limited marketing visibility and market access opportunities for the subcontracted supplier
• no intellectual property (IP) rights, or a loss of IP rights for the subcontracted supplier
• work orders on an if/when necessary basis

Consultant/matchmaker

A consultant/matchmaker is a person or a company with a large number of relevant contacts in a specific market segment or industry. As an intermediary they are a door opener, not an agent to make cold calls or send cold emails. Always properly inform your consultant/matchmaker about your company. They speak with many potential customers and often involve in creating long lists of potential outsourcing providers. The more information they have on your company and the better they understand your capabilities, the more they can spread the word about you.

If you work with a consultant/matchmaker:

• the consultant/matchmaker makes appointments with prospects for you;
• the presentation and sales process remains in your own hands;
• you pay a retainer + success fee (which can be expensive);
• the consultant/matchmaker usually has multiple clients;
• you need to set clear expectations and objectives to measure their performance.

A retainer + success fee construction can be expensive. While the success fee depends on what the intermediary has delivered, you have to pay the retainer (usually a fixed monthly payment) regardless of their performance. Together, they should provide a strong motivation for the intermediary to deliver: the retainer should be high enough to cover some of the costs, but low enough to encourage delivery. A properly drafted contract, by a lawyer, is a must.

Matchmakers make appointments with prospects for you. However, the presentation and sales process remains in your own hands. This means that a consultant or matchmaker is a good option for you if you feel comfortable taking care of the presentation and sales process yourself.

You also need to determine an exit strategy in the contract. It is in the absolute interest of the service providers to clearly define a (shorter) period after which the contract can be terminated without any further consequences. This period is usually not longer than three or four months (after which the contract will be evaluated and can be terminated – for non-delivery for instance – or prolonged for another period). For this period, there should be clearly defined delivery expectations and targets for the consultant or matchmaker, such as the number of relevant contacts, meetings and leads). You could also negotiate a trial period.

Direct sales and online marketplaces

You can also try to sell your (I)IoT services directly to European end users. Many European companies are looking for cost reduction and delivery capacity, which developing countries can often provide. This is one of your unique selling points. However, you should be aware that these end users might not have qualified IT staff to work with.

Developing IoT products also offers opportunities for global market expansion. For example, via innovation and development of disruptive technologies, attracting investments possibly via crowdfunding and establishing start-up companies as spin-offs of your company, often in collaboration with the producer of the physical machinery or sensors in question.

Crowdfunding is defined by Fundable as a method of raising capital through the collective effort of friends, family, customers and individual investors via online channels, such as via social media and crowd funding platforms. By making use of different European crowdfunding platforms, you can find potential investment partners based in Europe and raise capital to help further develop business ideas.

Electronic marketplaces are a cheap marketing tool that may make direct sales easier. They are expected to lead to lower transaction costs for searching, evaluating, integrating and monitoring (I)IoT services. Although they mainly contain smaller projects for freelancers, they could lead to pilot projects for companies. However, you would need excellent end-market knowledge.

For most suppliers from developing countries, it is very challenging to sell (I)IoT services directly. Sometimes, suppliers from developing countries team up with other service providers to make an offer for direct sales to European customers. Having one or more customers in Europe will help you find another suitable European customer, as references are a must when you want to enter this market through direct sales.

The main characteristics of direct sales to end users are as follows:

• There must be a direct relationship between the service provider and the end customer.
• You must have a lot of exporting experience.

Direct sales to end users can be interesting if you:

• have experience in the European market;
• are a large company;
• want to target large European end users;
• focus on a small, underserviced niche market.

3. What competition do you face on the European (I)IoT services outsourcing market?

Which countries are you competing with?

India, Poland, Egypt, Bulgaria, Romania and Czechia can be considered your strongest competition.

In general, European companies prefer to outsource services to providers within the same country (also known as homesourcing, or simply outsourcing). When they do outsource to companies abroad, they generally prefer nearshore locations, because of proximity, language, cultural similarities and the minimal time difference. For more information on nearshoring versus offshoring, see our study on the European market potential for software development services.

The Global Services Location Index (GSLI) ranks the competitiveness of ITO/BPO destinations based on 4 categories: financial attractiveness, people skills and availability, business environment and digital resonance. In this chapter, we connected the country scores in the GSLI with the most competitive countries for (I)IoT service providers.

Table 1: Global Services Location Index

Source: Kearney analysis

India continues to lead the Global Services Location Index. This leading position is mainly due to the country’s unique combination of low-cost services and English language skills. This attractive profile makes India a particularly strong contender on the IT outsourcing market. To stay ahead, the country needs to prepare for the shift from lower-skilled jobs that may be replaced by robots to more creative and highly-skilled work. This applies to other low-cost countries as well.

However, India is increasingly known to be a ‘bulk’ destination and not a place where you go to if you are looking for very good quality work. And besides that, their language advantage is getting smaller. Many other countries are catching up, while India’s overall language skills have not improved.

European buyers often associate extremely low developer rates in Asian countries with poorer project quality. They think that cheap service providers must compromise on the skills and experience of the (I)IoT service developers, or even their working circumstances.

This illustrates that although offering competitive rates is important, you should not compete only on price. As relatively simple (and therefore cheap) tasks can be automated, your focus should be on excellent skills, knowledge, and creativity, which have a higher value. Demonstrating your commitment to quality through references and quality management systems is key to building trust among potential European clients.

Poland used to be the highest-ranking Central and Eastern European country. It has since been surpassed by Estonia (12th) and has moved down to the 14th place. But Poland is still a very strong competitor, mainly because its financial attractiveness and start-up activities. Both Warsaw and Krakow are emerging as regional start-up centres.

Egypt ranks 15th in the Index. It is a strongly emerging African destination for IT outsourcing. Its time zone (GMT+2) partly overlaps with Western and Northern Europe, eliminating the time differences generally associated with offshoring. Its considerable investments in infrastructure and cybersecurity are boosting the country’s business environment performance. The new administrative capital (New Cairo) is designed as a Smart City using the Internet of Things and big data analytics, and is meant to create an Egyptian Silicon Valley.

Wages in Egypt are still low, while its workforce is increasingly well-educated. However, the Egyptian government is encouraging tech graduates to become freelancers, which makes it challenging for companies to create a solid team.

Bulgaria now holds the 17th position for the 2nd time (coming from 15th in 2017). It is a stable factor in the top 25. Bulgaria has relatively low compensation costs (all labour costs, including wages, insurance, benefits and taxes) and good ITO/BPO experience and skills.

Romania is another Eastern European country that benefits from its location close to the main Northern and Western European markets and a relatively large talent pool and low wages. Romania ranks 32nd on the GSLI index. Investment in digital resonance would particularly benefit this country.

Romania can be seen as both competition and an interesting market to focus on. This is because its talent pool is drying up and it is increasingly looking for ways to expand its work force.

Czechia is currently in the 34th position, coming from the 33rd in 2019, but ranked 16th in 2017. Czechia is in a similar position as Romania regarding the work force. In 2021, 62% of Czech employers report a long-term lack of suitable candidates for open vacancies.

Which companies are you competing with?

Examples of (I)IoT service providers are:

Rinf.tech – A Romania-based company that also has delivery centres in Bulgaria and Ukraine. They have representation offices in Germany, France, Spain and the USA. Their website is very clear about their offering. They give examples of how their solutions have worked for different industries (success stories), they talk about their delivery models, their methodologies and their certificates.

Memos Software – A Czech-based company that develops its own IoT solutions, but also builds custom software. They included a call-to-action on their landing page. They invite visitors: are you interested in improving business results? Request a free IT analysis. Visitors can then click the button for a free IT analysis.

E.Vision – Has its headquarters in Egypt, but also has offices in Canada, the United Arab Emirates and Saudi Arabia. They are very clear about what they can offer potential customers; concrete business solutions that are also “uniquely attractively designed”. Their website provides examples of (IoT) solutions they have developed. They are clear about their vision and the products and services they offer.

Which products are you competing with?

In the (I)IoT sector, the product is the service. This means that the real question here is: what makes one service provider different from another? The answer is: technical knowledge, available capacity, references, domain knowledge, flexibility, reliability, communication and language capabilities, quality management, security infrastructure, vertical and/or horizontal market focus and niche market orientation, among other things.

There is space in the market for innovation and developing your own products. More space than in generic software development for IoT. It is a challenging market, but it holds a lot of opportunities for companies that want to develop and sell their own innovative product.

4. What are the prices for (I)IoT services outsourcing?

When trying to make a sale in Europe, it is very important to offer the right price. For (I)IoT services outsourcing, price is often not the most important selection criterion, but the price has to be right and competitive. The price of (I)IoT-related services is influenced by factors such as technology requirements, skill levels, complexity of the projects, length of the contract and other SLA requirements.

Unfortunately, it is not possible to make an exact price breakdown. First of all, (I)IoT projects are so diverse that it is impossible to make one price breakdown that suits all (or even most) projects. Secondly, it requires so much estimating and unforeseen elements that even the process itself is an estimation, and definitely not an exact, scientific process. Also, if the project makes use of Agile methodologies, there is no pre-determined specification, which makes estimation a big challenge.

So how do you determine the price of a project in (I)IoT outsourcing services?

Determining the price of an (I)IoT project starts with determining the work that has to be done, the time it will probably take, the skills needed, the people who will do the work and their salaries. With this information, you can make a planned, detailed schedule (including milestones and a delivery schedule), so you know how many people will spend how many hours on the project. You can calculate the salary of the people working on the project by working with the links in the tips section. Do not forget the costs of overhead, unforeseen costs and other costs, and of course your profit expectations. These are all estimations.

Based on this process, you can calculate the total price, the hourly price as well as the average price for the project. This hourly price is the one you communicate to your prospects. In any case, talking with your prospects is the best way to make sure that your prices are competitive. And if they are not, what is the justification (one that the prospects will accept!) for that?

You must choose a price model for your product or service. For (I)IoT, it is most common to work with all-inclusive offers, also known as a fixed-price contract. Other (I)IoT outsourcing models are Time and Material Model, Dedicated Team Model or an offshore development centre.

When you make your prospect an offer, include the price. Be transparent about the number of hours you expect to work on the project and the hourly tariffs. Break down your tariffs by stating the price for each person working on the project (for example: junior developer, senior developer, designer or tester). For more information on pricing models in outsourcing, please read this document. Also, go beyond setting the right price. You should work out your pricing strategy, including your and your clients’ preferred pricing model, payment terms/expectations, how and when you provide discounts and so on.

This study was carried out on behalf of CBI by Globally Cool B.V. in collaboration with Laszlo Klucs.

Please review our market information disclaimer.