Global Government Partners
Tech Firms Jockey For Lucrative Foreign Contracts By Mike Wiebner
U.S. information technology firms seeking a foothold in international markets are finding that getting contracts from foreign governments can be a savvy way to penetrate new markets abroad.
Many foreign countries now are spending hundreds of millions of dollars to build or improve their information and communications infrastructures and are looking to international teams to get the job done. And American IT firms are turning to global partners to help make valuable introductions and provide in-depth knowledge of local business practices.
G2R Inc., a Mountain View, Calif.-based research and consulting outfit that tracks the international public sector marketplace for information technology, projects this market will hit $198.6 billion by 2002, an increase of 38 percent from 1997.
Not surprisingly, many of the same companies that dominate the U.S. federal government contracting arena are making major inroads in the international public sector market. Leading the worldwide systems integration charge are such familiar names as Andersen Consulting, IBM Corp., Oracle Corp. and Sun Microsystems Inc., says Rishi Shood, an analyst with G2R.
Up-and-comers in the international market, such as Unisys Corp., Cisco Systems Inc. and Keyfile Corp., are working their way up the ladder by establishing in-country offices and partnerships with local distributors, resellers and other multinational systems integrators, says Shood.
Keyfile, a Nashua, N.H.-based workflow and document management software vendor, has taken the partnership route to enter the international public sector arena. This strategy has resulted in government-contract wins in Brazil, Singapore and Indonesia, according to Roger Sullivan, vice president of marketing for Keyfile.
And the company's strong relationship with Industrias Digitales, a leading Mexican IT systems integrator and distributor, has paid dividends for Keyfile in Mexico, says Sullivan. Over the past several years, the two companies have teamed on various projects for the Mexican government, including one involving the U.S. equivalent of the Internal Revenue Service and the Customs Department rolled into one. In Mexico, this agency is widely known as the "Hacienda."
"Our international channel efforts date back to the early 1990s," says Sullivan. "To be successful, we knew we had to go offshore. It's very rare to establish a beachhead without local representation. Being a relatively small company, we knew it wasn't possible to establish a direct presence; so we sought out the best and brightest."
Industrias Digitales sports serious, long-term connections to senior Mexican government officials.
"The bidding process employed in virtually every government purchase is extremely complex and different from that of the U.S.," says Jorge Molina, director general of Industrias Digitales, Mexico City. "The specific certification procedures for suppliers are also different, and so are the legal framework and the approach to the business proposals."
Since its installation in the third quarter of 1997, the Keyfile workflow system for the Hacienda now includes 56 servers and 1,500 seats scattered across 70 discrete locations in Mexico.
Keyfile provides partners such as Industrias Digitales with its marketing collateral, including electronic files, film or slides, and allows them to be adjusted to best target the cultural sensibilities of the audience. And with the exception of product development, Keyfile's master distributors provide full representation of the company and products in-country.
This co-marketing effort goes both ways, says Sullivan, who points out that employees of Industrias Digitales worked with Keyfile at the AIIM Show & Conference, an annual trade show for the imaging and electronic document management industry last held in Anaheim, Calif. With a heavy Mexican and Latino turnout due to the show's Southern California location, its partner proved especially helpful, says Sullivan.
Like a Marriage
U.S.-based IT companies are learning that international partnerships must be able to weather difficult times and should be forged with a long-term view. For instance, currency fluctuations can call for some flexible financing with partners, Sullivan says.
"Even through serious dips in the economy or currency fluctuations, we maintain our business relationships, help [our partners] survive and perhaps thrive," he says. "This builds tremendous loyalty in the long haul. The 'ugly American' who swoops in overnight, stays a few days, tries to get business and leaves had better forget about winning."
Jack Pellicci, Oracle's vice president of strategy, solutions and marketing, puts it this way: "Strategic partnerships are like a marriage. It's certainly the right thing to do, but so many don't amount to much. Of course, you sometimes have to go through the separation phase, and you'll even have divorces. But you have to keep working at it."
Two government IT trends likely to spell big bucks for international partnerships are outsourcing and privatization, predicts Shood. Europe and the Asia-Pacific region are expected to embrace these trends as their governments downsize and shift their focus from nationalized industries - airlines, banking and telecommunications, for example - to core services such as social security, human services and public safety.
|Leading Global Public Sector Business Trends: |
| Improving service to the citizen |
| Privatization of previously state-owned enterprises |
| Outsourcing of government services(tax collection, social services distribution, etc.) |
| Demand for information across government agencies, levels of government and countries |
|Source: G2R |
Public safety organizations around the world have driven the proliferation of automated fingerprint identification systems, in which fingerprints are scanned, digitized and stored, for law enforcement and other uses.
Paralleling the spread of these high-tech fingerprint systems has been the growth of smart cards, which can be used as national identification cards or to hold information such as a person's health history or driving record.
For example, Unisys has built a fairly large and sophisticated fingerprint and smart card system for the Spanish government, says Shood.
In the $12.8 million systems integration contract, Unisys provided hardware, software and services in support of a national social security identification card for Spain's Ministry of Labor and Social Security. Through a regional network of public kiosks, Unisys used automated fingerprint identification technology to provide citizens secure access to personal information stored on smart cards, as well as to government health care databases.
Elsewhere, however, smart cards are drawing some resistance, say tech watchers.
"You now see citizens resisting smart cards in Korea and Denmark," says Frank McDonough, a leading figure in the international public sector IT community and chairman of the General Services Administration's Intergovernmental Advisory Board, which addresses federal, state and local government collaboration on IT issues.
However, countries such as Brazil and Chile are turning to national identification cards and other advanced security solutions to help protect their borders, says Shood.
The city government in Curitiba, Brazil, has chosen a smart card solution from San Jose, Calif.-based Schlumberger Smart Cards & Terminals, a division of Schlumberger Ltd., an international IT firm with operations in more than 100 countries and revenues of $10.64 billion.
In the project's first phase, 30,000 municipal employees will be given a smart card that functions as a local government ID and access card, a payment card for retailers and a passport to preferential services with a participating bank. Starting in 1999, the program will be extended to families of municipal employees, and then to the city's 1.5 million citizens.
"Our objective is to give every citizen of Curitiba a card, so that the public services will be available in a quick and efficient manner," says Cassio Taniguchi, mayor of Curitiba.
IT firms marketing to foreign governments also are finding opportunities to sell year 2000 computer problem solutions, financial management and other systems.
Leading Foreign Markets
Outside of the United States, some of the leading public sector buyers of information technology include Australia, the United Kingdom, New Zealand, France and Spain, says Shood.
Australia, for instance, is undergoing a $7 billion privatization effort that will open the telecommunications industry to greater private competition and outsource certain IT functions from government control to firms such as Computer Sciences Corp., IBM, Electronic Data Systems Corp. and U.K.-based integrator ICL, a leading European IT systems and services company that operates in more than 70 countries.
|Top Global Government Solution Areas: |
| Tax and revenue systems |
| Benefits distribution systems |
| Internet- and intranet-based solutions |
| Automated fingerprint identification systems |
| Smart card systems |
| Data warehousing solutions |
| Source: G2R |
The British government also has been active in working with IT vendors to downsize its bureaucracy and increase efficiency. Plano, Texas-based systems integrator EDS>, for example, has inked both outsourcing and privatization contracts with the U.K. Department of Inland Revenue.
EDS is taking "ownership of former public sector employees, making them EDS employees and adding automation," says Shood, of the 10-year, 1 billion pound ($1.67 billion) contract.
U.S. information technology contractors also are taking part in Europe's switch to the euro currency, with the January 1999 compliance deadline looming in their sights. Oracle is a prime contractor on a NATO project to fix its financial management systems to ensure compliance, working with multinational firms such as Germany's Siemens Nixdorf.
With public sector groups in 138 countries, Oracle is starting to reap the rewards of its locally based efforts.
Oracle Government Education and Health now has 4,100 employees, including 2,100 outside the United States, and partners internationally with companies such as EDS and Coopers & Lybrand.
Elsewhere, such as in Eastern Europe and the former Soviet republics, government information technology business is developing more slowly.
Oracle's Pellicci says public sector officials in Eastern Europe have shown considerable interest in learning about U.S. best practices and government reinvention.
"Of course, one guy actually told me, 'We have to invent government first,' " he says.
With its formation of an education and government business unit in 1994, PeopleSoft Inc. of Pleasanton, Calif., a provider of business application software, set out to provide a suite of targeted solutions both in the United States and abroad, says Sherry Amos, vice president of industry strategy for PeopleSoft Education and Government. PeopleSoft has scored recent government contracts in Australia, Canada and Singapore.
Amos points to Singapore's Ministry of Finance, where PeopleSoft has implemented a financial software package that spans 90 departments governmentwide and ultimately will include 2,500 users. PeopleSoft's partners in Singapore include such firms as Foundation Software, Elective Systems and the Hunter Group.
The economic downturn in the Asia-Pacific region and the government restructuring brought on by demands from the International Monetary Fund are providing new incentives to improve government technology infrastructure, says Amos.
Networking Is Critical
San Jose, Calif.-based Cisco Systems' global account managers are looking to take advantage of the growing realization by public sector managers that networks are a mission-critical technology, says Jim Massa, the company's director of federal operations.
"Government officials are looking for a single executive relationship with a CEO, CIO or equivalent in [a company's] federal government division," says Massa. "A critical piece of their long-term development and planning is a successful partnership with a company with a worldwide niche."
In Japan, Cisco has managed an unusual cooperative business deal. Massa said the network-hardware company gained 60 percent to 70 percent of Japan's networking by setting up an independent company, Net One Systems Co. Ltd., with several prominent Japanese corporate fraternities.
In June, Cisco opened a subsidiary company, Nihon Cisco Systems K.K., in Tokyo, which will be responsible for supporting the sales efforts of Cisco's distributor in Japan, Net One Systems, and the company's strategic manufacturing channel partner, NEC Corp. of Tokyo.
Cisco's partners include worldwide IT players such as AT&T, GTE Corp., Computer Sciences Corp. and Unisys, as well as such non-U.S. based companies as Datacraft NZ, New Zealand; Hong Kong Telecom CSL; Kanematsu Electronics Ltd., Japan; and Microland Ltd. in India.
Cisco also provides integrated 24-hour customer support in the customer's native language from technical assistance centers in San Jose; Raleigh, N.C.; Brussels, Belgium; and Sydney, Australia.
For instance, when Unisys is the primary partner providing the solution, Cisco "backs them up with layers of in-country support," says Massa.
The company's non-U.S. government work is done almost solely through sales channel partners working in tandem with in-country resellers.
Cisco has ensured successful international partnerships by actively seeking both short and long-term wins, says Massa.
Sun Microsystems of Mountain View, Calif., has committed considerable resources to going the local route, with major sales support offices in 41 countries, distributors in 150 countries, a resource center in Brussels - with a full slate of program managers, technical writers and systems engineers - and other centers now or soon to be under way in Singapore, China and Japan.
In fact, the company generates about half of its revenue outside the United States, says John Leahy, group manager of government affairs for Sun Microsystems Federal Inc., the company's public sector business unit.
And with annual revenues exceeding $7 billion, that's saying a lot. Sun provides its international customers with products and services in the fields of networking, workstations, multiprocessing servers, microprocessors and its Solaris operating software.
Besides its principal manufacturing base in Milpitas, Calif., Sun operates another plant in Linlithgo, Scotland, and a major distribution center in the Netherlands. Research and development efforts also span the globe, with work being done in Canada, Russia, France, Japan and Ireland, as well as the United States.
For its initial international public sector foray, Sun targeted NATO countries with command and control needs similar to the work it had done for the U.S. Department of Defense.
Since then, the company has expanded its base to include such areas as public administration, taxation, public safety and traffic control, says Leahy.
"We realized we could leverage our U.S. successes into other countries," explains Leahy.
Sun's international modus operandi is to team with an aerospace company or large systems integrator and serve as a major subcontractor. Its list of resellers and partners include Lockheed Martin Corp., Northrop Grumman Corp., Science Applications International Corp., Litton-PRC Inc., EDS and TRW Inc., as well as Siemens Nixdorf and Fujitsu Ltd.
For example, Sun is working with systems integrator TRW of Cleveland on an automated fingerprint identification system for various agencies within the U.K. government.
To best target and win international public sector opportunities, Sun Federal has tasked area government sales managers across various regions of the world.
The division's $1.25 billion in annual government revenue is split about 65-35 percent between domestic and international business and comprises 14 percent to 17 percent of Sun's total business, points out Leahy, who says the company is "pushing for a 50-50 split."
Think Global, Hire Local
Hiring local nationals is another tactic used by U.S.-based multinational firms. "From what I can tell, [U.S. IT firms] really need local people who know the nuances of the culture and can move easily in organizations - both officially and in private," says GSA's McDonough.
"You've got to have relationships and work them," says Oracle's Pellicci. "Most people in the IT business speak English, but when you speak to the customers at various levels, you've got to learn their language and culture."
Global IT powerhouse IBM also has marketing and coverage resources in nearly every country, says John Cherbini, IBM's general manager for global consulting.
The company generally uses local nationals, not expatriates, to lead and staff its operations. Of course, some countries require partnering with local firms in order to do business.
IBM provides training and information access to new international consultants through its intellectual capital management system, a Lotus Notes-based system which provides access to contracts and other information, both business and cultural, to employees worldwide.
"This gives people working in different countries access to contracts and methodologies we use," says Cherbini. "We also make sure our people are certified and the methodologies and practices we use for consulting consistent around the world."
Of course, standard business issues never go out of style. Firms must be properly licensed to do business and deal with the various tariff structures. A product's definition, and resulting tax liability, can differ from country to country.
The effectiveness of local contracting and property laws also varies among countries. A change in political regimes, particularly in a less stable government, can impact a firm's ability to deliver on a contract, says IBM's Cherbini.
To move product outside the United States, IT vendors have to ensure their intellectual property is protected under local regimes, says Susan Nycum, a partner with Baker & McKenzie and coordinator of the Palo Alto, Calif.-based firm's worldwide intellectual property and high technology practice.
Trademark and patent disputes, in particular, have proved troublesome for some firms, unlike in the copyright arena, where international conventions have helped maintain consistency - and keep the peace, she says.
In some international public sector cases, procurement follows the old U.S. model, with public officials going with low bids as opposed to bid packages offering the best value, several officials say.
Establishing relationships beyond the one-and-done style deals favored by some officials will take some patience and education, they say.
Many foreign countries are more interested in what U.S. government officials are doing at the state level than at the federal level, says McDonough.
"Sizewise, many of the countries are more equivalent to state governments," he says. "Our federal government is such a mega-operation."
Foreign governments are eager to learn about the experiences of such agencies in the United States in solving IT-related problems. Industry officials say IT firms have discovered that conferences are a good way to meet international officials and discuss the latest solutions.
Software giant Microsoft Corp. held one such event for public sector officials. The "Empowerment 2001: Government Technology for the 21st Century" conference, which took place in February in Seattle. The conference drew about 300 attendees from 71 countries.
"We saw a tremendous demand not just from technology officials, but also the line-of-business areas of government to find out what Microsoft executives were seeing governments do to use technology to attract business, streamline internal government operations and better deliver services," says Marilyn Byrne, a Microsoft group program manager.
The attendees were mostly high-level managers who were less technology-oriented, although their questions "reflected an extremely high level of sophistication," according to Byrne. "They wanted to learn what governments were doing and what they could bring back and implement."
About 7,000 people from more than 60 countries have visited IBM's Electronic Government Center in Washington, D.C., says Cherbini.
Showcased there are IBM solutions for everything from courtrooms and police stations to financial services agencies.
The global public officials who have trekked to the site have been a savvy bunch, according to Cherbini.
"My customers are up to speed on the latest technology," he says. "They want to leapfrog and get to the latest stuff as quickly as they can - and they're savvy enough to ask the right questions."
The site has proven so popular that another one, though less comprehensive, has opened in Pretoria, South Africa.
Overall, international government customers still look to the U.S. government as a leader in IT and are anxious to hear about what companies have done for government customers with similar problems, industry officials say.
But some changes are in the wind.
"It used to be a few years ago that government customers were risk averse," says Amos. "The government customers I'm speaking to now are far more astute about their organizational goals and less focused on a follow everyone else mentality."