Johannesburg, 19 Mar 2004
Just as government put in place policies and laws regarding black economic empowerment, it should do the same for the IT industry if local vendors are to grow and be accepted as being as good as their international counterparts.
Victoria Vaksman, MD of local software development house Tilos, says: "Support for locally developed solutions should first come from government, which should reward businesses using local solutions, in the same way that government insists on and rewards black empowerment policies."
The government should lead this initiative by using local products itself. It is, in fact, doing the opposite, says Vaksman, referring to a recent tender document issued by a government department, which clearly stated that South African companies need not apply.
She cites the example of India, where government funding elevated the country to its current prominence as the software development outsourcing capital of the world. "India had no skills, no funds, no history of IT development. The government invested millions in education to put it in the position in which it finds itself now.
"SA is equally well positioned for outsourcing, but it needs similar government support, as well as the elimination of monopolistic telco policies, which Gartner cites as the biggest obstacle to growth in SA, not just in the IT arena, but in all areas.
"We have analysed our costs in the UK, which is an expensive market compared to SA. However, their telecoms costs are one-tenth of what we pay here."
Vaksman says while local products can compete against their international counterparts in terms of price and functionality, "the perception among large corporates is still that nothing good can be produced locally.
"In big corporations no one will be fired because they chose an international vendor as a supplier. However, there are serious consequences if they choose a South African company and the implementation fails. Then they will in all likelihood be fired."
Local companies need to establish their brands before they will be considered on the same level as international vendors, both locally and overseas, says Vaksman. For this reason, Solit rebranded itself as Tilos in line with its product name, "just as Oracle has Oracle products and SAP sells SAP products", says Vaksman.
Another problem facing local companies is they have to prove to potential clients that they will still be in existence tomorrow. Primarily for this reason Tilos sought the financial backing of Ethos, the biggest private equity fund in South Africa, with more than R10 billion under management and 49%-owned by Rand Merchant Bank.
Vaksman bemoans the fact that local venture capital companies and financial institutions do not support South African entrepreneurs and locally built products. "The majority of venture capitalists are former bankers and are so conservative that there is no real culture of venture capital. It is more a culture of loans or credit that you would get from a banking facility.
"There is a big difference between that and venture capital, but the majority of organisations calling themselves venture capitalists do not make that distinction. Venture capital companies should be more adventurous than bankers - and they are not. The aim of venture capitalists is to invest in start-ups, but I don`t know one that does."
Vaksman says local solutions often have more functionality than overseas products. "The reason is South Africans are innovative because the country was isolated for so many years. When you are part of an isolated economy you have to be innovative and find workarounds. That has helped develop the brains of South African IT people."
Another factor is that the requirements of big corporations in SA are very much secondary to solution providers in Europe or America. "South African companies have to stand in a queue for the functionality they require to be included in a release. International vendors do not take their requirements seriously. South African vendors do. When our clients ask for functionality, we provide it."
Support is another major reason to buy locally. "For a major vendor from the US to lose a big banking client here might not be that important, but for local vendors it is a big thing, so their support is far superior." Local suppliers are also immediately available if a client has a problem, says Vaksman. "Customers don`t have to wait eight hours to phone a US vendor. Additionally, getting international support costs a lot more. It is shocking that big corporations are still prepared to pay millions for consultants from overseas, yet are loath to pay for local people."
Total cost of ownership is another reason to buy local. "At the moment the rand is doing quite well, but who can be sure that it will not change tomorrow? When the rand went to 20 against the British pound, many of those organisations that had products from the UK realised they could not pay their licence fees. They did not have the budgets required to pay their licence fees."
Tilos has had customer wins in Germany, the UK, Denmark, Russia and France, where it has delivered through a dedicated channel. There has been a broad acceptance of its philosophy and approach to delivering solutions, which are based on a modular approach. This allows the integration of its Web-based applications into existing systems, regardless of the client`s current architecture.
"Big corporations have invested millions in systems that support their processes and core operations, but when they need to add functionality and new business processes, especially Web-based ones, they sit with two alternatives: either to buy a new core system and replace the existing one (which is not very cost-effective), or to add additional functionality on top of an existing core system.
"We provide our customers with substantial return on investment, because they don`t have to throw away what they have. This formula is very attractive to customers, especially in Europe, where the economy is slow. When an economy is doing well, corporates can spend millions on new systems. When it is not, they look for innovative solutions and approaches like ours," says Vaksman.
Tilos is aggressive, yet cautious, in its approach to international expansion. "While certain South African companies are withdrawing from Europe, we are seriously entering the European markets. Our strategy is not to waste money on opening an office and selling directly. Rather, we work with well established partners in specific areas. Our German partner has been in the market for 20 years, and employs 900 people. Because it is extremely strong in the market, if it promotes our product, there will be better acceptance than if we, Tilos from Africa, go in there," Vaksman concludes.