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The saying if you pay peanuts, you get monkeys used to be quite a true one. In traditional business models where all suppliers came from the same market that extended to projects as well. Today services are not necessarily procured from the market they are delivered. Competition is much wide ranging to different countries and even continents. Exchange rates can artificially put companies in an advantageous position. A reasonable salary in India or China will be significantly less than in the United States, Europe, Australia or New Zealand. This pits companies providing services in their own markets into a challenging situation. How can they compete?

Reposted from my blog Project Management in Practice.

Some companies have taken the route of your “local” as the reason to do business with them. Unfortunately, the world is a more savvy place today than some years ago … mostly. This tactic does not work as well today as once it did. The scenario is not limited to services being offered from cheap offshore companies. The response of many companies in these jurisdictions that seek to be competitive is to eliminate overheads by cutting training, limiting remuneration and benefits, removing office locations etc. to provide services on the cheap. Challenges are even higher competing against such organisations.

If you wish to maintain a semblance of quality, retain capable staff and intellectual property and seek to provide job satisfaction then there is a cost to that. The organisation cannot absorb all the cost. They are in it to make a profit at the end of the day. This cost has to be passed on to the client to make it work. Is this a futile exercise? It may seem the only way to compete is to trim expenditure at the cost of everything else.

I was having a conversation with a former colleague, who was of the opinion that he would seek quality every time. While an excellent idea in principle, it rarely works in practice when money is involved. We as human beings are programmed to look out for the best “deal” out there. You only have to look at the roaring trade retailers do around festive season. It is the appearance of value for money that attracts many. Think yourself … if you can stay at a 5 star hotel for 2 nights and for the same cost stay 7 nights at a 3 star hotel, which one would you choose? Maybe you choose a 4 star accommodation for 4 nights instead as a compromise? Companies are constantly balancing quality against cost.

A look at the car industry can help us take a guide in the IT world. Tata manufactures the cheapest car – Nano in India. It is not even marketed outside of India because cheap itself will not sell. There are quality criteria for entry into other markets. US manufacturers have for years relied on being the home brand to trade. As the petrol prices rise consumers have become more aware of better value for money with Japanese cars. At the same time many German manufacturers remain as premium brands that trade less on quantity and more on quality.

What IT companies need to do is to focus on showing value to the customer rather than trying to be cheap. There will be a set of customers that will equate cheap with value. In some cases companies will need to evaluate whether those customers are worth servicing. Some customers will go for cheaper option from an incumbent supplier, rather than an innovative and higher quality option, not because it is cheaper but because they are averse to change. These are customers that you need to keep in touch with if you believe you can offer a higher quality. They may one day develop the courage to change. Focus more on the end of the market that will recognise quality.

How do you communicate this quality? Change emphasis. You are local. What value is in it for the customer? You can respond quicker, have coverage for the full business hours, speak the same language, aware of business processes and local legislations. Trumpet your retention rates and certifications or technical skills of your staff. Build a relationship with your clients outside business – social or sport. You actually have selling points that cheaper ones do not or cannot have.

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