Information and communications technology to the USA

(Last updated: 22 May 2008)

Trends and opportunities

The market

The Australia-United States Free Trade Agreement offers significant opportunities to Australian ICT companies. One of the most important outcomes for the services sector is the obligation to provide ‘national treatment’, that ensures that Australian individuals and firms that supply services will not be discriminated against. This means that Australian businesses will be able to compete in the US market on equal terms with their US ICT competitors.

A number of measures that are likely to have a positive effect on increasing US interest/confidence in investing and partnering with Australian companies include bringing intellectual property (IP) protection in line with the US standards, enhancing IP enforcement, and reducing differences in law and practices.

While spending in financial services, telecoms and hi-tech sectors (all traditionally big spenders) has slowed, federal and state government spending is accelerating. The US federal government spending on information systems and services, according to a report by Input Inc., will increase 11 per cent annually to $63.3 billion by 2007 from a base of $37.1 billion in 2002. Five agencies will account for nearly 70 per cent of the total federal spending on information systems and services by 2007 - the Department of Defence, the Department of the Treasury, the Department of Transportation, the Department of Justice and NASA. Homeland security and e-government sectors are currently the highest IT priorities for federal agencies.

The US market is the world's largest producer and consumer of information and communications technology products and services, spending more than US$812.6 billion per annum on ICT. Although recent economic and corporate data (including jobs, tech spending and venture funding growth) suggest a coming turnaround in the North American market, the slow pace of business spending continues characterised by overall widespread business caution.

Given the growing optimism across most sectors, the huge US market offers opportunity for innovative technology solution providers to establish or expand a regional position. As a market of 280 million consumers the US represents many markets and regional areas of opportunity. In most markets firms are still targeting cost reduction technologies and programs. As such, products and solutions that provide quick ROI through cost-savings and improved efficiencies are well positioned in the current markets. Many CIOs are feeling burned by the enormous amounts of money spent on large-scale IT projects during the late '90s, with often limited resultant business value. Business units and business goals take priority over 'technology-for technology-sake' IT projects and this is especially true for the Fortune 1000 enterprise market.

Although each market sector and each buyer has its own subtleties, Austrade finds companies look for five key criteria when assessing a new supplier:

• Clear value and ROI
• A unique advantage over competing solutions
• Long-term viability and commitment to the global market
• A solid track record at home in Australia
• Strong and reputable local partners

Opportunities

Austrade has identified a number of areas of opportunity where Australian IT companies have outstanding skills including:

• Financial services: security, transactions, compliance
• Government: security, records management, compliance
• Intelligent transport: logistics, traffic management
• Data security: identity management, single sign-on
• Entertainment: games, online, mobile
• Wireless: mobile, wi-fi, remote monitoring
• E-learning: simulation, corporate training, distance education
• Healthcare: outcomes tracking, records management

Several new government regulations in the US (such as Sarbanes-Oxley - compliance, USA PATRIOT - money laundering prevention, HIPPA - health care records) are creating opportunities for Australian firms in security, networking and database management. Australian technology providers are strongly encouraged to tie their product or service to these issues as a way to access growing budgets and management attention.

Corporate IT spending priorities include network security, enterprise application integration, web services applications, business and technical simulation, and other areas. Non-enterprise opportunities exist for intelligent transportation systems, wireless applications, gaming and entertainment, and many niche vertical and horizontal market applications.

Competitive environment

The North American market for technology goods and services is the largest in the world, but it is also one of the most competitive, attracting an array of domestic and international companies all competing for a share of the market. Australian companies seeking entry must develop a competitive, well-formulated, long-term market strategy.

Tariffs, regulations and customs

Tariffs, regulations and quotas apply on a case-by-case basis (if at all to ICT products and services) and should be reviewed by a knowledgeable source. Austrade can assist in this research.

Industry standards

While different standards apply to different market segments, some common themes apply to all companies selling technology products and services in the USA:

ROI is king - Return on investment  (ROI) drives all technology decisions in large enterprises, and aspiring vendors must come to grips with the implications of this trend. Real-world examples are central to ROI-driven sales. All enterprise buyers now demand concrete references from any prospective vendor. This usually means written case studies as well as contact details for senior IT executives at major reference sites. It’s not uncommon for customers to demand a dozen or more references for valuable or strategically important purchases.

Case studies should be succinct, factual and not overwrought with marketing spin. The most convincing references are those that get down to brass tacks. Potential clients want to know what ROI the solution delivered for the referee, including dollar figures wherever possible (such as costs saved or new sales generated) or relative measures of improvement (for example, percentage increase in productivity or number of steps cut from a business process).

Who is your customer? Another significant change in recent years is the nature of IT decision-making. In years gone by, IT managers enjoyed significant autonomy and budgetary freedom. Today it’s far more likely that the IT manager or chief information officer (CIO) needs to justify any proposed decision to senior non-technical managers, including the chief executive officer, the chief financial officer and sometimes the company board.

This change means technology vendors need to adjust their sales messages to ensure they resonate with the real decision-makers. Technical benefits must take a back seat to business benefits, and products should be sold as solutions that utilise technology to deliver specific business outcomes.

Marketing your products and services

Market entry

There are a number of different market entry strategies that can be used to bring your product or service to the USA. Choosing the right one is a critical decision in your export marketing plan. You should carefully assess which methods best meets your export marketing needs, factoring in production volumes and financial requirements with each option. Market entry strategies include:

• Setting up a local office
• Partnering with US companies
• Establishing a channel of distributors and value added resellers
• Hiring a US based sales representative
• Acquiring US companies with established market share and brand recognition
• Sales via the Internet

Your US sales representative will be responsible for attracting channel sales partners and assisting in growing sales of your products, heading up North American trade shows, liaising with your public relations firm and assisting with overall marketing efforts. Choosing the right sales representative is a vital first step in successful entry to the USA:

• A US representative should have at least four to six years experience in sales in North America with a broad background in the IT industry – preferably in your company’s product sector.
• Your US sales representative should also have experience in both sales and marketing because as your company first enters the US market they will probably handle these multiple responsibilities.
• As your sales representative will be the first point of contact for all sales and marketing in the USA, it is important that this person is well established in the industry and has a strong network of contacts.
• Remuneration packages will differ according to each specific product and vertical market, but generally should be part base salary and part commission.
• Initially, there will be a ramp up period during which there will not be very high sales revenues, so most sales representatives require a guaranteed salary during that time.

You will also need to be prepared to make a significant commitment of time and resources in order to effectively enter this market and you should be prepared to visit the US several times and undertake significant research to sound out the depth of the opportunity and the competitive forces in your market before making a long-term commitment.

The USA is a highly sophisticated, sales-orientated market. Potential buyers will expect a high degree of professionalism in preparation and presentation. You will need to be well prepared and to have researched competing products thoroughly. A clear positioning statement that outlines the benefits of your offering over the competition's products and services is essential. You will need to clearly differentiate your product from any similar products (either direct or indirect competitors) that are already available in the USA.

The USA consists of many regional markets that need individual strategies for penetration and marketing. You need to develop an understanding of the hierarchy and the workings of the market in the region you are seeking to target. Getting distribution and logistics right is extremely important in the US.

Exporters should have a marketing budget and adequate funding in place before attempting to enter the US market. One major misconception Australian companies often have is that their US partners will provide all the marketing and sales support for their products.

Successful exporters to the USA create demand for their products by directly supporting their resellers by providing them with technical support and training and ongoing incentives to sell their product. They also use marketing tools such as:

• Hiring a public relations consultant or agency with targeted focus on media and analysts
• Influencing analysts and press by creating comprehensive press kits
• A solid demonstration given by knowledgeable and personable spokesperson
• Press tours, regular communication with the press, and good story angles
• Marketing collateral
• Direct mail
• Marketing (both online and print)
• Advertising
• Trade shows

Corporate websites are a mandatory business tool in the USA. Through the Internet, your company can market itself and your products internationally. Customers can easily search your latest design specifications and directly buy your products. Any questions or comments your customers may have can be quickly directed to you through email.

Companies mainly set up websites to market their products and better service their customers. Websites can effectively generate revenues and leads, lower customer service costs, and build valuable relationships. For Australian companies a web presence offers several additional benefits:

• Low-cost medium to present product literature to American buyers and distributors
• Increase in credibility level and corporate image
• Reduction in the relative distance between Australia and the USA

Important factors in selling to the USA over the Internet:

• A dot-com address is preferred (rather than ‘.com.au’) as US consumers are more comfortable in dealing with companies that they perceive to be American.
• Service and technical support are often critical in the purchase of technology. How do you plan to compensate for time zone differences in your online support model? Is there a way you can use the Internet to facilitate this?
• Use US spelling and terminology if your website is aimed at the USA.
  If you need to ship your product make sure you have streamlined, efficient distribution channels in place.
• It is important that you publish prices in US dollars, and if necessary allow the buyer to select their preferred currency.
• GST is not payable on goods that are exported but there may be local customs and import duties so it is important to check this before calculating the US purchase price.
• Americans are quite comfortable with using credit cards for online purchasers but security is a major factor and it is important that you make the purchaser feel safe.
• Privacy is also a highly sensitive issue for US consumers, so make it clear what registration data will be used for and avoid passing on data to third parties as this could have a negative impact on your reputation.
• Your marketing campaign should utilise online and offline tactics to draw people to your site.

The Internet has created a new set of connections between buyers and sellers. It offers great possibilities because it creates the opportunity for businesses to deal with customers that they could never reach before. It is a medium that can excite customer interest, can close sales quickly, conveniently and cost-effectively. One major problem with the Internet is how to get paid, and so far there’s only one technique in widespread use, and that is credit cards.

Distribution channels

It is critical to understand how the distribution channel works, what the hierarchy is, what your company is required to do and what you should expect in return from your channel partners. When setting up a channel strategy for the US, you must first look at hiring US sales representatives and finding appropriate channel partners - this is one of the most important decisions you will face.

There is a broad range of resellers in the US. Some resellers will only sell general pre-packaged software and hardware products, while others are specialists in particular vertical markets. The complexity of your product will determine which types of resellers to pursue. The first step in setting up a channel program is to carefully look at your company’s objectives in the US market and plan a program to meet those objectives. Factors to include in your company’s program are:

• Outline of program - explaining how the program works.
• Program benefits - listing benefits provided to the reseller such as training, local representation, access to existing customer base to up-sell, demonstration products, discounted pricing for employees, free product for reaching goals, technical support, and sales literature, (each company will need to come up with their own benefits based on their product).
• Marketing collateral (literature) - professionally developed marketing collateral, demonstration CDs and literature for each of your products. Other channel partners, such as catalogue companies, will require data sheets and brochures for each of your products that they will be selling (keep in mind that you will also need these things to hand out at any trade shows that you participate in).
• Program requirements - lists specific quarterly buy-in and sell-through requirements.
• Written reseller and dealer agreement and authorisation which should be written by a US lawyer and outline the terms, the rights of the dealer, dealer obligations, license to use your logos and trademarks, ownership of proprietary rights and non-disclosure, warranty, termination and any exclusivity rights (regional or by state but should be discussed with your US legal counsel).

Australian exporters should have a ‘reseller and dealer kit’ ready before approaching any potential channel partners in the US. This kit should contain:

• The outline of the program
• Program benefits and requirements
• A profile form for them to fill out and return to you
• A sample of your written agreement
• Brochures/marketing collateral on all of your products
• Demos of each of your products
• Order forms and additional information

Resellers may need to be fully informed about your program and be able to sign up. Be prepared to provide on-site training for any new channel partners. If your resellers will require technical support, plan and budget for this before making any agreements. Start by developing your program in the top North American channel cities: San Francisco, Seattle, Los Angeles, Dallas, Chicago, Boston, Cleveland, Minneapolis and Atlanta.

Some other key cities in the US may be big, but they are quite competitive and more difficult to get into include Phoenix, Houston, Washington DC, Detroit and New York.

Links and industry contacts

Tech stocks and venture capital

Venture Wire - www.venturewire.com
vfinance - www.finance.com
Venture One.com - www.ventureone.com
Vcapital - www.vcapital.com
Internetstocks.com - www.Internetstocks.com

Industry publications and news

Wired News - www.wired.com
Line56 - www.line56.com
Slashdot - http://slashdot.org
CNET - www.cnet.com
AdAge - www.adage.com
Ziff Davis - www.ziffdavis.com 

Australian resources

These federal government agencies may be of assistance to ICT businesses:

Department of Communications, Information Technology and the Arts - www.dcita.gov.au
National Office of the Information Economy - www.noie.gov.au

Each State Government has ICT focused initiatives within their Departments of Trade or State Development. These Departments often run missions to the US and can be a useful resource.

NSW Department of State and Regional Development - www.business.nsw.gov.au
Queensland Department of State Development - www.sd.qld.gov.au
South Australian Department of Industry and Trade - www.southaustralia.biz

Tasmanian Department of State Development - www.development.tas.gov.au
Victorian Department of State and Regional Development - www.business.vic.gov.au
Western Australian Department of Industry and Resources (DoIR) - www.doir.wa.gov.au

Contact details

The Australian Trade Commission (Austrade) is the Australian Government’s trade and investment development agency, operating as a statutory agency within the Foreign Affairs and Trade portfolio.

Austrade assists Australian businesses contribute to national prosperity by succeeding in trade and investment, internationally, and promoting and supporting productive foreign investment into Australia.

Austrade:

• Delivers services that assist Australian businesses initiate, sustain and grow trade and outward investment.
• Promotes Australia as an inward investment destination and, with the States and Territories, supports the inflow of productive foreign direct investment.
• Administers the Export Market Development Grants scheme.
• Undertakes initiatives designed to improve community awareness of, and commitment to, international trade and investment.
• Provides advice to the Australian Government on its trade and investment development activities.
• Delivers consular, passport and other government services in designated overseas locations.

A list of Austrade offices (in alphabetical order of country) is available.

More information

For further information please contact Austrade on 13 28 78 or email info@austrade.gov.au

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