This country analysis seeks to determine how national factors of China impact Kingsoft compared to how national factors of Argentina impact Globant. Ultimately, this report will show that the environment which Kingsoft operates in allows Kingsoft to be more competitive than Globant
Introduction
Kingsoft has a stronger competitive advantage over Globant because it is heavily supported by the Chinese government and has a greater access to both talents and capital. The software development industry is very human capital intensive. The software development company with the most innovative people will succeed in the long run. Overall, Globant and Kingsoft are both prestigious and successful software companies in their own country. However, certain unique aspects of their competitive environment, whether political or legal, have had major impacts on their business operations.
Kingsoft's Firm Level Advantage against MNCs
Established in 1989, Kingsoft is a software development company headquartered in Beijing, China. It is one of the largest software development firms in China. In 2009, it had a strong revenue stream of over 1 billion in RMB and a gross profit margin over 87.4%, which is above the market, industry, and competitor's median.1 As a multinational corporation, Kingsoft has a diversified software business spanning from internet security software to gaming software. In terms of its transferable FSA, Kingsoft has the advantage of producing cheap and high quality software products that cater to both Western and Chinese users.2 According to Hill's localization principle, this is an advantage that most MNCs lack.3 The localization and cost advantage will give Kingsoft an advantage when competing with a MNC. Another transferable advantage is that Kingsoft is able to use multiple channels to directly distribute their products. Unlike Globant, Kingsoft developed and sold their software on a B2B and B2C basis. Its products can be delivered within few business days from their multiple distribution centers around the world. Kingsoft's clients range from Malaysian companies to American companies, which is far more diverse than that of Globant.4 Kingsoft's non-transferable FSA is its strong reputation and government support in China. It is difficult to leverage its strong brand name and government support in China to compete in an international country.
In comparison, Globant's transferable FSA is in its ability to provide innovative products and high quality of standardized service to its clients in the western hemisphere. In some cases, its clients can also be its competitors. This allows Globant to develop partnership with different software companies, which helps Globant's development. This is a transferable FSA Globant can carry abroad. Globant's non-transferable advantage is its location advantage in Buenos Aires. Being located in Buenos Aires, Globant can work with its EU and NA clients in the same time zone and provide them with a competitive price of its service.5
Kingsoft's International strategy: Focus on the Asian Markets
Kingsoft's international strategy is to focus largely on China and other East Asian countries. These countries have been the main engines for the global growth since the early 1990's. China's computer users have been growing at the average rate 20% per year since 1995.6 In 2009, China surpassed the U.S in number of internet users. Currently, China has more than 360 million computer users, whereas the US has only 200 million users.7 Because Kingsoft's core competency is in China, Kingsoft has been leveraging its brand name in China and are able to provide cheap and high quality products to consumers in China. The cheap products help eliminate some piracy problems that are experienced by most foreign software companies in China. The products made by Kingsoft are so cheap that people find it unnecessary to buy illegal products. Yet, China is not the only market Kingsoft is operating in. In terms of its MNE archetype, Kingsoft is considered as a Multi-centered MNE. It has offices in the United States and other Asian countries such Vietnam and Malaysia. By localizing its products, each international branch of Kingsoft develops software based on its consumers/clients preference. Kingsoft has also been partnering with South East Asian companies to distribute their products locally. Like Apple, Kingsoft employs retail strategy, which allows its product to be sold in its own retail stores. Kingsoft also partners with American companies such as Dell, which allows its products to be indirectly distributed to U.S consumers. Its investment into foreign countries creates value for Kingsoft. It strengthens Kingsoft's brand image abroad and captures market share for the company.
Globant's international strategy is to focus on countries in the western hemisphere and provide innovative products to their western clients. Globant's MNE archytype is international projector. It has been capitalizing on its success in Argentina. Although the North American Software markets are relatively saturated, Globant has been able to extend their offices in Latin American countries. This will enable Globant to penetrate into the South American markets. However, South American countries do not experience the same pace of growth as that in the Asian countries. The number of internet users in Argentina is only 23 million.8 Thus, Kingsoft's international strategy is better than Globant's international strategy because it targets not only the growth market but also the saturated market in the western hemisphere.
Kingsoft's Location Advantage
1) Governmental Support and Economic Stability
China is a country that promotes high tech and software industry. As shown in the Global Competitive Report (GCR), the government's procurement of advanced tech products in China is ranked 12, where as the government's procurement of advanced tech products in Argentina is ranked 130.9 A strong government support for the software industry will benefit a company that operates in that country. In China, the central government heavily subsidized the IT/software industry. The Chinese's Silicon Valley or "Zhongguancun" was one of the results of Chinese government support. Kingsoft is at the heart of Zhongguancun. Kingsoft receives benefits from the government and supply for capital funding. This is a competitive advantage for Kingsoft as it is part of a technological cluster. In doing so, it is very close with its suppliers and can receive latest information available. This is similar to an Investment Bank operating in Manhattan rather than Kansas. With respect to China's economic and political environment, China has a very stable currency and government. In 1975 to 1990, the Argentinean Peso experienced a hyperinflation of over 300%. Its economy is still very unstable due to the large amount of sovereign debt Argentina took in the past.10 The unstable currency and government could largely affect the profitability and the competitiveness of Globant. On the other hand, the authoritarian government in China does have its disadvantage as it limits and regulates the type of partnership that Kingsoft can have with foreign companies. For instance, in 2008, due to the Chinese government influence, Kingsoft had to favor an online translation software development deal with Baidu over Google, where as Kingsoft's potential deal with Google might have been more profitable.11 But overall, the governmental support and the economic stability gives Kingsoft a competitive advantage over Globant.
2) Greater Access to human capital (domestically and internationally)
On a domestic level, according to the GCR 5th pillar: education and training, the quality of math and science education is ranked 33rd in China, where as it is ranked 106th in Argentina. In addition, in GCR 7th pillar: Labor Market Efficient, the pay and productivity in China is ranked 15th in comparison to the pay and productivity in Argentina, ranked 133rd. The Internet Access for School also plays a crucial role in deciding the amount of experience the people have for computer. China is ranked 22th in the Internet Access for School, where as Argentina is ranked 111th.12 On Average, the Chinese workers are more productive and more experienced with computers than Argentinean workers. Moreover, China has a larger labor force compared to Argentina. As of today, the Zhongguancun Garden employs around 360,000 employees. Among these 360,000 employees, 5000 have a doctoral degree, 25,000 have a master's degree, and 180,000 have a bachelor's degree.13 In comparison, Buenos Aires Technological district only has around 45,600 qualified workers, most of whom do not have a master or doctoral degrees.14 The majority of these workers in Argentina do not have international background. Thus, China is a better breeding ground for talents than Argentina. In Argentina, it is extremely difficult and time consuming for a foreigner to get a work permit visa. In most cases, the process of getting a work permit visa requires personal interviews.15 This may become a problem for Globant as the quality of the new hires in Latin America might not be as educated as the new hires in North America or Asia. In China, the process of getting a work permit visa does not involve personal interviews and only takes 3-4 days for regular service, with 2-3 days for express services. In 2007, almost 3 million foreigners were legally employed in China. The number of foreign workers has been growing at a rate of over 12% every year.16 The Information Technology and software companies have been leading employers of foreign workers in China. Many foreigners are also drawn by the opportunities that are presented in China as well as the stability of the Chinese environment.
According to the survey conducted on 80 students and staff from various universities in North America, 53 of the 80 students replied the survey. 41 students stated that they will choose to work in China over Argentina.
The current computer science and engineering students in top North American universities will most likely be the future employees of these software development companies. Their perspectives on where they will want to work greatly affect the future growth of many software development companies in the upcoming decades. Thus, because Kingsoft operates in China, it will have a competitive advantage over Globant in attracting international talents. As the world becomes increasing more globalized and integrated, it is easy to see the advantage Kingsoft has over Globant and other MNCs due to Kingsoft's firm specific and location advantage. The future of software companies relies largely on human talents and innovation. Clearly, both Kingsoft and Globant have got human talents and innovation. But relatively, Kingsoft will be at a better position in accessing those resources. That is why Kingsoft will have a stronger competitive advantage over Globant.
