CREATING MORE VALUE THROUGH THE INTERNATIONAL NETWORK-The Case of a Business-to-Business E-Commerce Software Producer and Value Added Resellers

For systemic software products the role of channel intermediaries is twofold. There is a need for a distributor/retailer and the product co-developer at the same time. In this paper, a network model describing the business-to-business software industry is proposed. This model presents activities that enhance value creation. INTRODUCTION Growing e-commerce markets are a challenge for software producers willing to internationalise. As technology advances rapidly there is a need to be present at the marketplace extremely fast. In fact, the products may become obsolete before the markets have even been reached. There are several alternative routes for a firm to enter international markets. This paper focuses on the internationalisation through the network of value added resellers (VARs). The marketing dictionary defines the role of VAR in the channel as a retail intermediary, which modifies equipment, integrates several components into a system solution, or provides additional services to offer customised solutions to the customer (Bernet 1996). The main advantages of VARs compared to traditional exporting are that by using a VAR it is possible to respond more effectively to market needs and through the good relationship the value of the product increases. VARs are particularly beneficial for high-technology firms as their products usually require supporting activities, adjustments to the customer’s own applications and technologies and education of the users. Additionally, the offerings are often systemic, i.e. part of the more complex product/service packages. Relationships between the producer and VARs at different market areas are normally dyadic. The situation can be seen as a “hub and spoke” arrangement, in which the exchange occurs only between the producer and a single VAR. In the worst case, the flow of information is even one-way traffic. The producer trains the reseller and gives advice when needed without getting any real information about the enduser needs. On the other hand, the firm may not communicate enough with VARs. The aim of this research is to build a conceptual model of the network, which could be applicable for a systemic software producer and its value added resellers. The suggested model emphasises the importance of communication and transfer of the tacit knowledge. There are many benefits to be achieved in the product development if the whole network interacts and collaborates frequently, i.e. changes ideas and experiences. However, also some challenges need to be overcome before the win-win situation can be reached in the relationship. In practice, the issues that should be dealt more carefully include e.g. learning, commitment, trust, benefit sharing, information and motivation. This paper presents early drafts of the model and it is based on our earlier experience from software industry and conducted interviews and discussions with anonymous professionals in the field. The model rests on the network theory. THEORETICAL BACKGROUND In business-to-business markets relationships are often complex. There are a number of actors involved in these relationships. However, it was not until the 1980s that relationships gained importance in research earlier, and before, according to Håkansson and Snehota (1992, p. 24): “...the phenomenon [of long-lasting relationships] was largely ignored”. Today their importance is recognised and there are several models and frameworks which have been developed to describe business relationships, first, mainly within the Industrial Marketing and Purchasing Group (IMP) (e.g. Håkansson et al. 1982; Ford 1980), and later on also by others. Studies focusing on relationships can be found in different fields of research such as relationship marketing, purchasing and supply chain management. Until recently, distribution and channel intermediaries have been rather a neglected research area. The first model by the IMP group stated that both the parties (i.e. buyer and supplier) are active participants in the market and there are different elements and processes of interaction between them. Furthermore, the environment and the atmosphere within which interaction takes place have an effect on the process (Håkansson et al. 1982). Later, this ‘interaction approach’ that focused on dyadic relationships has been enlarged into ‘network approach’ in which the whole business network is observed (e.g. Håkansson and Snehota 1989). Business networks can be seen as sets of connected relationships between the firms. Network approach has been found useful in the research focusing on internationalisation of the small and medium-sized (SME) firms, especially in the field of software firms (see e.g. Bell 1995; Coviello and Munro 1995; 1997). Johanson and Mattsson (1988) emphasised that the internationalization of the firm means that the firm develops positions in relation to counterparts in networks at the foreign markets. However, there has been a lack of studies which focus on value functions in the software industry. This may be due to the fact that the concept of value and value creation has not been defined clearly (Blankenburg Holm et al. 1999; Ramírez 1999). Here the assumption is that the value is built through the linkages in the network and the emerging concept of value network is used. In a value network, a company makes the most of the strengths of each value provider and coordinates production and delivery across companies (Weiner et al. 1997, p. 30). In this study the concept of value network is employed to describe the interaction between the software producer and its VARs, which at the same time develop and add the value of the core product. CHANNEL ALTERNATIVES IN B-TO-B SOFTWARE SECTOR There is a range of possible channel alternatives available for the business-to-business software provider to be present at the international markets. These are shown in Figure 1. Although there has been considerable research on channel relationships in general, Matear et al. (1999) stated that international channel relationships have not been examined widely. Figure 1. Main Channels in B-to-B Software markets Direct sales by the software company might be seen as the most favourable and efficient channel. This view is supported by the fact that setting up the solutions requires diverse competencies, which may be difficult to find in the market. The company is most familiar with its complex solutions and thus, able to serve the end-users in the best possible manner. Also the feedback is acquired directly from the end-user with no filtering by the channel intermediaries. However, all these potential benefits are frequently offset by the high costs of arranging the direct sales in global scale. The role of agents in the channel is to locate the potential customers. Typically, agents are not technically experienced. They are not capable of handling the implementation, training and technical support services. Therefore, they must cooperate with e.g. VARs or system integrators with the needed skills. Furthermore, this makes the channel structure rather rigid and more difficult to manage. The OEM (Original Equipment Manufacturer) channel refers to the situation where the company’s product is sold as an integrated and inseperable component of another company’s software. This approach provides “easy access” distribution to some market segments. However, the negative side of this alternative is that only OEM manufacturer’s brand is End-user Local