INTERNAL DOCUMENT: Organic Growth Strategy




Assessing Tecnonexo’s U.S. Market
Entry Strategy through Organic Growth


 ...
Table of Contents


I.         Executive summary

II.        U.S. e-learning Market

III. Suggested markets to explore

IV...
I. Executive Summary
There are many things to consider when entering the U.S. market

♦ There is no single large U.S. e-learning market; the ma...
Tecnonexo must improve its technical capabilities and consulting skills to
compete effectively in U.S. on anything other t...
II. U.S. e-learning Market

  U.S. e-learning industry overview
     −Market size/growth
     −Target company size
     −M...
Introduction


Industry publications and market research

 ♦ Ambient Insight (www.ambientinsight.com)
 ♦ ASTD (www.astd.or...
Market Size and Growth
In 2006, e-learning services outsourced to external vendors represented
roughly $11 billion of $109...
Market Size and Growth
The U.S. corporate e-learning market has been growing at an impressive >30%
rate for the past sever...
Market Size and Growth
Though a traditional classroom setting still represents the majority of
training delivery, e-learni...
Target Company Size
With bigger budgets and better technology, large companies are more
likely to have adopted e-learning
...
Target Company Size
71% of large companies outsource some or all of their custom content
development

                    ...
Target Company Size
Larger companies are the most likely to have invested in an e-learning
infrastructure

               ...
Market Segmentation
Technology, Education and Financial Services are the industries most
likely to use e-learning

       ...
Market Segmentation
 Compliance training converts well into an e-learning format, with 35%
 mostly or entirely online

   ...
Market Segmentation


Top ten largest niche markets

     Mandatory/ Compliance Training
             (Technology)

     M...
Market Segmentation


Business process/function and industry matrix




                                                  ...
Outsourcing Trends
Outsourcing of custom content development is expected to increase in the
coming months

               ...
Outsourcing Trends
As the e-learning market matures, corporate training is the latest business
function to see a surge in ...
Outsourcing Trends
Financial / Insurance and Technology are the verticals where outsourcing
to foreign firms is catching o...
Technology Trends
  As new learning tools are adopted, the complexity of supporting different
  systems increases the desi...
Summary
 As e-learning continues to grow in 2007, content will be developed faster
 and will be created more by users and ...
Summary
The U.S. e-learning industry is highly fragmented, with 1,500-2,000 firms
currently competing


    Size of Custom...
Summary
There is a long tail of niche players in the U.S. market that Tecnonexo will
initially be competing with


       ...
III. Suggested markets to explore

     Mexican e-learning industry outlook
     Opportunities in the Mexican market
     ...
Mexican Opportunity


Mexico and the Mexican Market for Tecnonexo

  Population                                           ...
Mexican Opportunity
 The Mexican e-learning market is approximately $1.4 B, and consists of
 mostly government contracted ...
Mexican Opportunity


Corporate opportunities in Mexico

♦ What to expect
    – Still an underserved market but increasing...
Mexican Opportunity


 Mexico – Some of the “Big Boys”
        Name          Employees         Countries             Indus...
Mexican Roadmap


Roadmap to enter the Mexican market

♦ Option A: Office of Representation with No Income (ORNI)

    – T...
Mexican Roadmap


Roadmap to enter the Mexican market

♦ Option B: Incorporation of a Mexican subsidiary

    – Creation o...
Mexican Roadmap


 Roadmap to enter the Mexican market

♦ Option C: Partnership with a Mexican company

    – Create a joi...
Mexican Roadmap


How much will it cost Tecnonexo? – Some rough numbers
Incorporation of an ORNI:                         ...
Mexican Roadmap


   Mexico sales forecast and assumptions
Sales Forecast                         2007       2008      200...
U.S. Hispanic Market


The Hispanic market in the U.S.
    In the U.S., there are nearly 41 Million
♦
    foreign born imm...
U.S. Hispanic Market


Potential sources of opportunity in the U.S.


♦ Hispanic diversity in the workplace (Develop a pro...
U.S. Hispanic Market


Mexico can be a logical first step to entering the U.S.

    Mexico is the Latin American country w...
Non-Corporate Market
  Tecnonexo also works with non-corporate organizations, and continues to
  grow in this market since...
Non-Corporate Market


Characteristics of the non-corporate market that make it attractive


♦ There is a significant oppo...
IV. U.S. corporate e-learning programs

  Structure of e-learning deployments
  Foreign Language Opportunity
  Vendor Sele...
Interviews conducted with decision makers in a variety of industries

♦ Boeing: Jon Schneider, Worldwide Learning Training...
Structure


Structure of e-learning deployments for U.S. companies is maturing



                                        ...
Structure


The maturation of U.S. e-learning industry and what it means to Tecnonexo


♦ Major companies are investing in...
Foreign Language


U.S. e-learning opportunities in foreign languages are limited


♦ Individual business units make the m...
Foreign Language


Technical terminology ESL holds promise

♦ e-learning is becoming more widely adopted and the business ...
Foreign Language
Experts agree that learning English increases productivity or at least the
perception of worker ability

...
Vendor Selection


Vendors are selected because of expertise and technical execution

♦ When companies outsource their con...
Vendor Selection


Sourcing gets more sophisticated as companies get larger

          Small Firms                    Medi...
Vendor Selection
Companies prefer to have a few e-learning vendors because of steep
learning curves and high switching cos...
Vendor Selection


It’s a small world: Industry groups and organizations

♦ E-learning professionals from the largest comp...
Technical Superiority
E-learning currently most suited for lower order cognitive skills on Blooms
Taxonomy such as knowled...
Technical Superiority
Creating technical superiority to deliver more e-learning training for more
complex skills could be ...
Evaluation Methodology


How corporate training is evaluated: Kirkpatrick Scale

                                         ...
Evaluation Methodology
Creating a sophisticated proprietary methodology for measuring results of
e-learning deployments co...
V. Tecnonexo’s Competitive Advantage

  SWOT analysis
  Lessons learned from U.S. market entry
SWOT


 SWOT

Latin America                                               U.S.A.
    Strengths                            ...
SWOT


SWOT Takeaways


♦ Currently, Tecnonexo has a vastly stronger competitive position in LatAm than in
  the U.S.
♦ Wi...
Partnership Model
 Growth in the U.S. has been stifled by distance, a lack of a dedicated sales
 force, and poor partner r...
Partnership Model
To move to a higher point in the industry value chain, Tecnonexo must own
its client relationships

♦ Di...
VI. Findings/Recommendations
There are many things to consider when entering the U.S. market

♦ There is no single large U.S. e-learning market; the ma...
Tecnonexo must improve its technical capabilities and consulting skills to
compete effectively in U.S. on anything other t...
Tecnonexo needs to start off as a niche player with domain expertise and
slowly build the skills, scale and reputation to ...
Business process/function and industry matrix




                                                                        ...
Tecnonexo focused on custom content development and technology
   infrastructure in but in the U.S. services will become m...
Potential specialized content niches identified for further evaluation


♦ Technical ESL
    – Technical ESL to train empl...
Potential capability/methodology niches identified for further evaluation


♦ Technology leader: simulation, storytelling,...
Implementation tactics

    Different sales force requirements in U.S.
♦
     – Must have resident sales force that has in...
VII. Appendix

  ESL training in the U.S.
ESL courses through content partner
• Learning to speak English well is a great value added
proposition for the Hispanic p...
Caso Tecnonexo - MIT Sloan School of Management
Caso Tecnonexo - MIT Sloan School of Management
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Assesing Tecnonexo's US Market
Entry Strategy Through Organic Growth

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Caso Tecnonexo - MIT Sloan School of Management

  1. 1. INTERNAL DOCUMENT: Organic Growth Strategy Assessing Tecnonexo’s U.S. Market Entry Strategy through Organic Growth Buenos Aires January 2007
  2. 2. Table of Contents I. Executive summary II. U.S. e-learning Market III. Suggested markets to explore IV. U.S. corporate e-learning programs V. Tecnonexo’s competitive advantage VI. Findings/Recommendations I. Appendix I: ESL training market in the U.S.
  3. 3. I. Executive Summary
  4. 4. There are many things to consider when entering the U.S. market ♦ There is no single large U.S. e-learning market; the market is actually comprised of numerous smaller niches ♦ The vast majority of firms are custom content players whose competitive advantage is domain expertise in a specific niche ♦ The most lucrative opportunities are with large companies in general training but less sophisticated 1st customers might be smaller companies or specialized training for a business units ♦ It is a small world of e-learning experts which lowers the cost of sales but makes reputation very important ♦ U.S. market characterized by stricter technical standards and high touch consultative relationships ♦ Most U.S. firms have their own LMS and competition is fierce in this space making it more prudent to focus on custom content ♦ Diversity training issues are on the horizon for major U.S. firms but training in foreign languages is limited ♦ Using Mexico as a stepping stone would make U.S. entry easier ♦ In addition to industry vertical and business process niches, capability and methodology expertise can be a competitive advantage
  5. 5. Tecnonexo must improve its technical capabilities and consulting skills to compete effectively in U.S. on anything other than low cost ♦ Phase I: Continue growth with Mexico expansion while developing technical and consulting capabilities (0-18 months) – Use Mexico as a stepping stone to U.S. • Large opportunity, close ties to U.S. market, lower technical expectations, Tecnonexo currently well positioned – Start with small U.S. businesses where Tecnonexo can be a complete solution provider • More price sensitive, less influence in e-learning community, more in line with Tecnonexo’s core competencies ♦ Phase II: Enter the U.S. by targeting a niche and expanding (6-24 months) – Focus on a niche where Tecnonexo can compete with boutique players – Expand to adjacent industry verticals or training functions eventually becoming a consultative integrator
  6. 6. II. U.S. e-learning Market U.S. e-learning industry overview −Market size/growth −Target company size −Market segmentation Industry trends, 2007 Competitive landscape
  7. 7. Introduction Industry publications and market research ♦ Ambient Insight (www.ambientinsight.com) ♦ ASTD (www.astd.org) ♦ Bersin & Associates (www.bersin.com) ♦ Chief Learning Officer Magazine (www.clomedia.com) ♦ Eduventures (www.eduventures.com) ♦ E-Learning! Magazine (www.b2bmediaco.com) ♦ Elliott Masie (www.masie.com) ♦ HR Institute (www.hrinstitute.org) ♦ IDC (www.idc.com) ♦ Gartner (www.gartner.com) ♦ New England Learning Association (www.nelearning.org) ♦ Simba (www.simbanet.com) ♦ Training Magazine (www.trainingmag.com) ♦ Training & Development (http://www.astd.org/astd/publications/td_magazine)
  8. 8. Market Size and Growth In 2006, e-learning services outsourced to external vendors represented roughly $11 billion of $109.25 billion in total U.S. training budgets U.S. Employee Learning & Development Budgets, 2006 $109.25 billion Internal learning $79.75 budgets External non-tech $29.5 billion spending $10.89 billion $18.61 $18.61 $10.89 $10.89 $10.89 e-Learning Total Employee Learning External Services E-Learning & Development The proportion of technology-based training-related spending continues its growth as The proportion of technology-based training-related spending continues its growth as companies become better able to quantify cost savings and efficiency gains to e-learning. companies become better able to quantify cost savings and efficiency gains to e-learning. *Source: 2006 ASTD State of the Industry
  9. 9. Market Size and Growth The U.S. corporate e-learning market has been growing at an impressive >30% rate for the past several years Corporate E-learning Training Revenue Market Share: 2006 Growth Rates: 2004- ‘06 40% 35% 37% 35% 30% 31% 25% 29% 20% 48% 52% 15% 10% 5% 0% 2005- '06 2004-'06 10 Largest Firms 10 Largest Firms Rest of Sector Rest of Sector The growth rate of the smaller firms outpaced the 10 largest e-learning firms in 2006. The growth rate of the smaller firms outpaced the 10 largest e-learning firms in 2006. *Source: 2006 Simba Information
  10. 10. Market Size and Growth Though a traditional classroom setting still represents the majority of training delivery, e-learning is growing in U.S. companies Training Delivery Methods 2005 2006 Virtual Online, Other Other Virtual Classroom Self-Study 7% 9% Classroom 16% 7% 14% Online, Self-Study 15% Instructor-Led Instructor-Led Classroom Classroom 70% 62% A year-over-year comparison shows that Online Self-Study more than doubled in 2006, A year-over-year comparison shows that Online Self-Study more than doubled in 2006, making it the area of training with the fastest growth. making it the area of training with the fastest growth. *Source: Dec. 2006 Training Magazine Industry Report
  11. 11. Target Company Size With bigger budgets and better technology, large companies are more likely to have adopted e-learning Training Delivery Methods by Company Size Instructor-Led Classroom Online Self-Study Virtual Classroom Other >10,000 employees 57% 24% 12% 7% 1,000 - 9,999 65% 20% 8% 7% employees <1,000 employees 62% 14% 15% 9% Training modules must be designed to teach at least 100-200 students for e-learning to Training modules must be designed to teach at least 100-200 students for e-learning to make sense economically. make sense economically. *Source: Dec. 2006 Training Magazine Industry Report
  12. 12. Target Company Size 71% of large companies outsource some or all of their custom content development Custom Content Development Amount Outsourced by Company Size No Outsourcing Some Outsourcing Most/All Outsourced >10,000 employees 29% 62% 9% 1,000 - 9,999 58% 36% 6% employees 73% 22% 5% <1,000 employees Companies outsource custom content development to e-learning firms with a perceived Companies outsource custom content development to e-learning firms with a perceived expertise in a specific subject or a technical skill (e.g. simulation). expertise in a specific subject or a technical skill (e.g. simulation). *Source: Dec. 2006 Training Magazine Industry Report
  13. 13. Target Company Size Larger companies are the most likely to have invested in an e-learning infrastructure Technology Usage by Company Size LMS LCMS 75% 75% 51% 50% 37% 28% 24% 25% 11% 0% 1,000 – 9,999 >10,000 Employees <1,000 Employees Employees It is difficult to convince companies to switch away from a legacy LMS; smaller companies It is difficult to convince companies to switch away from a legacy LMS; smaller companies are better targets for end-to-end solutions. are better targets for end-to-end solutions. *Source: Dec. 2006 Training Magazine Industry Report
  14. 14. Market Segmentation Technology, Education and Financial Services are the industries most likely to use e-learning Training Delivery Methods by Industry Instructor-Led Classroom Online Self-Study Virtual Classroom Other Technology 52% 23% 18% 7% Financial / 57% 18% 21% 2% Insurance Healthcare 8% 5% 72% 15% Manufacturing 84% 10% 2%4% Retail 76% 9% 5% 9% Education 57% 8% 21% 13% As a result, there are more specialty e-learning firms currently competing in these industries. As a result, there are more specialty e-learning firms currently competing in these industries. *Source: Dec. 2006 Training Magazine Industry Report
  15. 15. Market Segmentation Compliance training converts well into an e-learning format, with 35% mostly or entirely online Types of Training Conducted Online No Online Some Online Mostly Online All Online Mandatory/ 31% 33% 17% 18% Compliance Training Industry-Specific 26% 64% 6% 4% Training Desktop Application 13% 1% 33% 52% Training 37% 50% 12% 1% IT/Systems Training Mgt./Supervisory 44% 41% 13% 3% Training Executive 54% 33% 9% 4% Development 54% 40% 4%2% Interpersonal Skills Customer Service 55% 44% 1% 0% Training 57% 41% 1% 1% Sales Training *Source: Dec. 2006 Training Magazine Industry Report
  16. 16. Market Segmentation Top ten largest niche markets Mandatory/ Compliance Training (Technology) Mandatory/ Compliance Training (Financial / Insurance) Industry-Specific Training (Technology) Desktop Application Training (Technology) Mandatory/ Compliance Training (Healthcare) IT/Systems Training (Technology) Mgt./Supervisory Training (Technology) Industry-Specific Training (Financial / Insurance) Desktop Application Training (Financial / Insurance) Executive Development (Technology)
  17. 17. Market Segmentation Business process/function and industry matrix g in nc / r y re ra al tu n og e tio su ci ca ac ol In a n a th uf hn uc l ai n al an Fi c Ed t He Re Te M Mandatory/ Compliance 278 218 182 121 109 97 Training Industry-Specific 202 158 132 88 79 70 Training 186 146 122 81 73 65 Desktop Application Training 177 139 116 77 69 62 IT/Systems Training Mgt./Supervisory 175 137 114 76 68 61 Training 145 113 95 63 57 50 Executive Development 124 97 81 54 49 43 Interpersonal Skills Customer Service 106 83 69 46 41 37 Training 106 83 69 46 41 37 Sales Training
  18. 18. Outsourcing Trends Outsourcing of custom content development is expected to increase in the coming months Planned Outsourcing in Next 12 Months More Outsourcing Less Outsourcing 15% 14% 10% 7% 5% 0% Custom Content Development As the benefits of e-learning become better quantified and more widely known, companies As the benefits of e-learning become better quantified and more widely known, companies will outsource more content development in areas where they lack internal expertise. will outsource more content development in areas where they lack internal expertise. *Source: Dec. 2006 Training Magazine Industry Report
  19. 19. Outsourcing Trends As the e-learning market matures, corporate training is the latest business function to see a surge in outsourcing Outsourced Services Instruction 44% LMS Operations / Hosting 30% Custom Content 29% Development LMS Administration 24% Learner Support 23% Almost 30% of companies outsource at least some custom content development. Almost 30% of companies outsource at least some custom content development. *Source: Dec. 2006 Training Magazine Industry Report
  20. 20. Outsourcing Trends Financial / Insurance and Technology are the verticals where outsourcing to foreign firms is catching on the fastest Use of Offshore Firms for Custom Content Development by Industry Financial / Insurance 13% Technology 11% Manufacturing 2% Healthcare 1% Retail 0.2% Education 0% Outsourced projects tend to be relatively simple in terms of bells and whistles but high- Outsourced projects tend to be relatively simple in terms of bells and whistles but high- volume to take full advantage of the difference in labor costs. volume to take full advantage of the difference in labor costs. *Source: Dec. 2006 Training Magazine Industry Report
  21. 21. Technology Trends As new learning tools are adopted, the complexity of supporting different systems increases the desire for an integrated platform Usage of Learning Tools and Technology Virtual Classroom 58% 39% LMS Application Simulation Tool 30% Rapid e-Learning Tool 24% LCMS 13% EPSS* 12% Podcasting 5% * Electronic Performance Support System *Source: Dec. 2006 Training Magazine Industry Report
  22. 22. Summary As e-learning continues to grow in 2007, content will be developed faster and will be created more by users and communities Key Trends Outlook for 2007 from Bersin While payrolls decreased an average of 11% in 2006, learning organization continue to Increased spend on technology. A defined outsourcing strategy will lower costs while providing a Outsourcing stable technology investment Talent management will change the role of Human Resources New Focus Areas Leadership and management training will be the largest program area spending Traditional corporate training departments will be less widespread Centralization Learning will be driven by the central training group, with less emphasis on company divisions and departments Content created by and defined by users, who can publish material quickly Less control over content since there will be more avenues for publication Content Management Social networking will be integrated into e-learning programs Users will publish courses in fraction of time Courses will be smaller, and created more rapidly --> attractive for today’s media New oriented youth Approaches Gaming, simulation, and wikis will enhance user experience, and community feedback *Source: Bersin & Associates 2007 Predictions
  23. 23. Summary The U.S. e-learning industry is highly fragmented, with 1,500-2,000 firms currently competing Size of Custom Courseware Vendors (Number of Employees) Tecnonexo ♦ There is no single large U.S. e-learning 100-499 50-99 market; the market is actually comprised 6% 500 5% of numerous smaller niches. 3% ♦ The vast majority of firms are custom content players whose competitive advantage is domain expertise in a specific niche. 26-49 22% ♦ The market sustains so many firms < 25 because many of these custom content 64% firms are essentially “one man shows”, with relationship owners who lack the cash flow and/or motivation to expand. * Source: Brandon-Hall.com
  24. 24. Summary There is a long tail of niche players in the U.S. market that Tecnonexo will initially be competing with Biggest firms fall into three categories 1. LMS companies 2. Off the shelf content creators 3. Consultative integrators Firm Revenues Vast majority of firms are custom content niche players whose competitive advantage is domain expertise 1,500 to 2,000 e-learning companies in the U.S. If Tecnonexo wants to be competitive in the U.S. market it will have to develop expertise in a niche to compete with small firms – once this is established, it can build its brand, reputation and capabilities to eventually become a consultative integrator.
  25. 25. III. Suggested markets to explore Mexican e-learning industry outlook Opportunities in the Mexican market Hispanic market in the U.S. Why Mexico will be a logical first step to further development Non-corporate market
  26. 26. Mexican Opportunity Mexico and the Mexican Market for Tecnonexo Population Ciudad Juarez 106 Million People Hermosillo Gross Domestic Product Monterrey 743.07 BN USD (Adjusted) Internet Users 28 Million internet users Tijuana Cancun Number of Personal Computers 13 Million Guadalajara Number of Business PC’s Puebla 5.1 Million (60% of them with internet access) Educational Expense as percent of GDP Mexico D.F. 7.07% Key cities to consider Unemployment Rate 4.02% Source: INEGI
  27. 27. Mexican Opportunity The Mexican e-learning market is approximately $1.4 B, and consists of mostly government contracted work* ♦ Value and growth of the market – Estimated at $1 billion (USD) in 2004 and forecasted to increase 40% by 2006 – Strong growth predicted for the coming years, due in part to the current administrations E-Mexico initiative and increased corporate learning investment by multinationals, larger Mexican companies and financial institutions – Mexican Small & medium enterprises (SME’s) will increasingly demand E-Learning solutions and custom content ♦ E-Mexico government project – The national E-Mexico project is aimed at encouraging the use of information technology in Mexico – one specific objective is to get 98% of the Mexican population on-line by 2025 – One section of the project concerns e-learning – Currently, there are some 28 million Web users, that is, nearly 27% of the total population – This increase in Internet use in Mexico points to growing demand for e-learning technology ♦ Business opportunities – Explore opportunities with larger Mexican companies and with transnational companies in Mexico by cold calling or leveraging Argentina and Ecuador’s successful ventures through HR manager’s recommendations – Position Tecnonexo as idle partner for booming SME’s. Franchising companies a great opportunity. – Keep abreast of calls for tenders from the Mexican government to find out about new projects under the E-Mexico project – calls for tenders can be seen at www.compranet.gob.mx – Explore potential synergies with ILCE (a multilateral organization with presence in LATAM and HQ in Mexico) – they provide most of the content for the Mexican Government *Source: Government of Quebec; http://www.mdeie.gouv.qc.ca/page/web/portail/en/exportation/nav/market_sheets.html?page=details.jsp&iddoc=55765
  28. 28. Mexican Opportunity Corporate opportunities in Mexico ♦ What to expect – Still an underserved market but increasing competition from foreign competitors (CISCO, TATA, and smaller cross-border e-Learning companies from the U.S.) – Mexicans are not very used to training for their benefit, but they will engage in training required by their companies – Many Universities (UNAM, IMAC, ITESM, UAdeG, etc.) are engaging in content creation and delivery methods for companies – Mexican government a very big player (E-Mexico, PEMEX, CFE, CNA) – SME’s are great targets, however will have to educate them in the benefits of e-Learning and presenting content in an intuitive, pedagogical way ♦ If Tecnonexo were to enter the Mexican Market – Building a physical presence in the country will be important because high physical interaction is expected during the sales process – There is a hierarchical decision making process in large companies so work your way up through the ranks – Active participation in chambers, organizations, symposiums and conferences highly recommended to network, show commitment to the market and gain visibility – Mexico is a franchising leader in the region, and they are growing very fast. Use solution selling: These companies represent an interesting opportunity to provide E-training – Crucial for Tecnonexo to engage in direct relationship with the people providing the content. Content is more valuable than technology for Mexican companies
  29. 29. Mexican Opportunity Mexico – Some of the “Big Boys” Name Employees Countries Industry Trademarks PEMEX 145,427 MEX Oil Pemex Gas, Refinacion Grupo CARSO 160,000 MEX, USA, LATAM Conglomerate Telmex, Telcel, Sanborns, Sears, Cti, Banco Inbursa CFE 79,969 MEX Electricity Electricidad CEMEX 51,771 USA, LATAM, EurAsia Cement Construrama, Patrimonio Hoy FEMSA 90,731 USA, LATAM Beverages Coca Cola, Jugos Del Valle BBVA-Bancomer 60,000 MEX Banking Bancomer BANAMEX 59,000 MEX Banking Banamex/Citibank Grupo ALFA 38,315 MEX, USA, AmCentral Conglomerate Alpek, Sigma, Onexa Grupo BAL 39,856 MEX Conglomerate ITAM, Palacio de Hierro Grupo Mexico 19,143 MEX, PER Mining Grupo Minero, Ferrosur Grupo BIMBO 81,072 MEX, USA, ESP, ARG Food Bimbo, Marinela Grupo Salinas 50,871 MEX, USA Retail/Congl. Elektra, TV Azteca, Banco Azteca, Iusacell, Unefon Comercial Mexicana 35,837 MEX Retail Comercial Mexicana, Sumesa, COSTCO Grupo Posadas N.D. MEX, USA, ARG, BRA Leisure Mexicana, Hoteles Posadas, Caesar Park CIE N.D. MEX, USA, ARG, BRA Entertainment Ticketmaster, OCCESA Aeromexico 10,000 MEX, USA, UE Airline Aeromexico, Aeromar
  30. 30. Mexican Roadmap Roadmap to enter the Mexican market ♦ Option A: Office of Representation with No Income (ORNI) – This is the equivalent to a sales agency. Any transaction will be done between the Mexican company and Tecnonexo Argentina. The Mexican company can deduct the payment under Rule 2.4.31 of the Federal Tax Miscellaneous – This will minimize the people that are necessary in Mexico (Accounting, Bookkeeping) while allowing Mexican companies to physically perceive Tecnonexo’s presence in the country – Certain formalities such as registry in the National Registry of Foreign Investments and filings before the tax authorities are required ♦ Pros: – Lower cost alternative to incorporating. Will allow for an initial exploration, yet more formal incursion into the Mexican market. Less paperwork than to have everything sourced from ARG. No employee liability in Mexico, no hassles with social security (labor laws are harsh) ♦ Cons: – Some companies might prefer dealing with a Mexican company. Many government contracts might not be open to bidding by foreign companies. Many day to day items are easier to deal with a Mexican company (local employees payroll, lease of equipment)
  31. 31. Mexican Roadmap Roadmap to enter the Mexican market ♦ Option B: Incorporation of a Mexican subsidiary – Creation of a legal entity in Mexico, either a S.A. de C.V. or a S. de R.L. de C.V. – If the Mexican market is profitable for Tecnonexo, eventually it will have to incorporate. – The whole process can take more than 40 days from start to finish. It requires a fair amount of formalities and consequences that need to be further discussed with a Mexican lawyer – It only makes sense to incorporate in either Mexico City or Monterrey, because of the concentration of company headquarters and ease of travel to other parts of the country ♦ Pros: – More solid structure creates positive signaling to Mexican companies. Transfer pricing between Mexico and Argentina to take advantage of tax benefits. Easier to obtain credit, leases, and to hire more than a few employees. More international positioning for Tecnonexo ♦ Cons: – Incorporation is more expensive, takes more time and demands administrative staff
  32. 32. Mexican Roadmap Roadmap to enter the Mexican market ♦ Option C: Partnership with a Mexican company – Create a joint venture agreement between Tecnonexo and a Mexican company – The characteristics of the partner company must be a company that deals with corporate training and that has not explored the E-Learning solution, however is aware of its potential and recognizes Tecnonexo as a leader in Latin America – This will allow Tecnonexo to leverage their brand name and value proposition, without competing with the Mexican company’s offering, thus aligning incentives, and not resulting in another partnership fiasco for Tecnonexo. – It will be hard to find a decent sized company with these characteristics, and especially hard to find this without deeper knowledge of the Mexican Market. ♦ Pros: – Very low cost solution to begin exploring the Mexican Market. Tecnonexo’s leadership in LatAm can be better leveraged with a Mexican company than with an American company ♦ Cons: – Hard to find a company that fits the profile. It can take a while before they truly understand Tecnonexo’s value proposition. Tecnonexo can not capture the Whole PIE that they could alone.
  33. 33. Mexican Roadmap How much will it cost Tecnonexo? – Some rough numbers Incorporation of an ORNI: Incorporation of a Company (SA de CV or S de RL de CV): Legal Fees/Permits $ 5,000 USD : Legal Fees/Permits $ 10,000 USD : Employees: Employees: Directors: Directors: Argentinean Salary + $ 36,000 USD Argentinean Salary + $ 36,000 USD Ex-Pat Bonus $ 30,000 USD Ex-Pat Bonus $ 30,000 USD Staff: Staff: Manpower Outsource $ 10,000 USD Administrative $ 8,000 USD Salespeople (x2) $ 24,000 USD plus comm. Salespeople (x2) $ 24,000 USD plus comm. Office: Office: B+ Office space B+ Office space $ 24,000 USD $ 24,000 USD Polanco/Lomas/Insurgentes Polanco/Lomas/Insurgentes Office Costs: Office Costs: Telephone $ 5,000 USD Telephone $ 5,000 USD ADSL Internet $ 1,000 USD ADSL Internet $ 1,000 USD Furniture $10,000 USD Furniture $10,000 USD Supplies $10,000 USD Supplies $10,000 USD Company Car $ 8,000 USD Company Car $ 8,000 USD Trade Organizations Trade Organizations AMIPCI, AMITI, etc. $ 300 USD AMIPCI, AMITI, etc. $ 300 USD ----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- TOTAL (Per Year in USD) $168,000 USD TOTAL (Per Year in USD) $165,000 USD
  34. 34. Mexican Roadmap Mexico sales forecast and assumptions Sales Forecast 2007 2008 2009 2010 2011 Assumptions to Consider Transnational Companies Revenues 50,000 250,000 500,000 700,000 800,000 Experts: e-Learning in Mexico will grow ♦ Clients 1 5 8 10 11 very rapidly for next 3 years, specially for larger Mexican companies and SME’s Large Mexican Companies Revenues 45,000 350,000 450,000 550,000 650,000 Clients 3 8 10 12 14 Transnational companies are educated ♦ SME Mexican Companies about e-Learning opportunities, it will take Revenues 200,000 320,000 550,000 750,000 1,100,000 a lot more to sell. Forecast underestimates Clients 10 15 25 35 50 corporate premium Mexican Government (All areas) Revenues 80,000 300,000 480,000 700,000 800,000 Clients 2 6 8 10 10 Franchises (prime e-Learning clients) will ♦ grow 17%, have been steadily growing Mexican NGOs Revenues 10,000 20,000 30,000 45,000 60,000 Clients 1 2 2 3 3 Government is harder to get in, but they ♦ Multilateral Organizations in Mexico will pay a premium and quickly assign a Revenues 40,000 80,000 150,000 180,000 200,000 hefty project quota. 2006 – 2012 cycle. Clients 1 2 3 3 4 Schools Local NGO’s are not big players, and Revenues 0 10,000 30,000 80,000 150,000 ♦ mostly corporate Spin-offs Clients 0 1 3 8 15 TOTAL REVENUE 425,000 1,330,000 2,190,000 3,005,000 3,760,000 Schools have great potential, yet small ♦ TOTAL CLIENTS 18 39 59 81 107 budgets
  35. 35. U.S. Hispanic Market The Hispanic market in the U.S. In the U.S., there are nearly 41 Million ♦ foreign born immigrants and over 75% from them come from Latin America & the Caribbean. Unauthorized Naturalized Immigrants Citizens 11.1 Million (30%) 11.5 Million (31%) 74% of Hispanics connect to the Internet ♦ every day and 78% access the Web from home. Temporary Legal Residents 1.3 Million (3%) Legal Hispanics are currently spending 55% of Permanent ♦ Refugees Residents their online time on Spanish sites. 2.6 Million (7%) 10.5 Million (28%) Hispanics purchasing power in the U.S. 46% of Hispanics are Spanish-dominant speakers, 23% ♦ are bilingual, 63% speak Spanish at home surpassed the $800 BN frontier. Marketers have focused on Hispanics acculturating vs. assimilating. Now: Retro-Acculturation. ♦ U.S. society wants Hispanics to assimilate: Create a diverse, yet national culture. ♦ Hispanics want to preserve their roots: They usually live in Ethnic Enclaves (Ghettos), holding on to ♦ their language and customs. The Result: In many cities throughout the U.S., Spanish dominant consumers are able to live and work ♦ without having to learn English or give up their culture and traditions. It is better if they are trained in English, yet they retain more if they are taught in Spanish. Source: Transpanish
  36. 36. U.S. Hispanic Market Potential sources of opportunity in the U.S. ♦ Hispanic diversity in the workplace (Develop a product with Tecnonexo’s expertise) – Educate the customer on the differences that exist within their Hispanic employees, positioning Tecnonexo as the one company that understands different cultural/ethnic backgrounds labeled under a broader “Hispanic” category – Similar in offering to Global Training (www.global-training.com), which teaches about diversity in the workplace, yet dedicated exclusively to understanding Hispanics – Educate about diversity within the Hispanic diversity. There are at least 14 distinct groups that make up the Hispanic/Latino American population, whose members trace their lineage to North America (Mexico and the Caribbean), Europe (Spain), and South America, as well as from the isthmus of Central America ♦ Minority (Hispanic) supplier training programs – Provide e-learning solutions for large corporations who have a minority supplier business program, which includes Hispanic businesses – It is large companies’ best interest that their suppliers are well trained and understand the policies of the client company. To ensure this, some content in Spanish and a thorough understanding of the Hispanic/Latino population in the U.S. might be desired – Potential partnerships include U.S. Hispanic Chamber of Commerce, National Minority Supplier Development Council, among others – Areas of opportunity are Quality Assurance, Operations, Client Company Culture
  37. 37. U.S. Hispanic Market Mexico can be a logical first step to entering the U.S. Mexico is the Latin American country with the largest number of domestic transnational ♦ companies Competitiveness in Mexico is pursued very aggressively by multinational companies ♦ Mexico has the largest number of American companies (2600) and the largest FDI from the U.S., ♦ which means there is a great potential of cross selling to U.S. counterparts Tecnonexo enjoys good reputation in the Mexican market because of media coverage and self ♦ published e-learning magazine Mexico is the largest economy in the region (followed closely by Brazil) ♦ There is more assimilation of U.S. culture in Mexico than in any other country in Latin America ♦ The Hispanic market in the U.S. is comprised of 66% Mexican origin immigrants, therefore a ♦ presence in Mexico can provide some leverage when pitching to the U.S. about understanding the Mexican/Hispanic market There is a better competitive landscape in Mexico, therefore the experience gained in that ♦ market will be useful when entering the U.S. market in full force.
  38. 38. Non-Corporate Market Tecnonexo also works with non-corporate organizations, and continues to grow in this market since its entry in 2006 PAHO PAHO Staff Development Unit Staff Development Unit Current Non-corporate Clients Current Non-corporate Clients UNDP (Argentina) UNDP (Argentina) World Bank (US) World Bank (US) Pan American Health Pan American Health Unidad de Género, Unidad de Género, Organization (US) Knowledge Organization (US) Knowledge Legal Affairs Legal Affairs Operation Unit Operation Unit Grupo Étnico y Salud Grupo Étnico y Salud Fundación del Saber (Panama) Fundación del Saber (Panama) AMIA (Argentina) AMIA (Argentina) Fundación CDI (Argentina) Fundación CDI (Argentina) ASAE (Argentina) ASAE (Argentina) World Health World Health Organization Organization World Health Organization World Health Organization Several new projects and clients have been referred to us as a result of our success with PAHO, our first NGO client in 2006; leading to one of our largest current projects, The WHO
  39. 39. Non-Corporate Market Characteristics of the non-corporate market that make it attractive ♦ There is a significant opportunity to leverage past successes in the non- corporate market in the U.S. because of the highly networked nature of the industry – skjd ♦ The government bid process is highly consolidated such that once Tecnonexo gets approval as a preferred service provider they will be invited to bid on a wide array of projects – Key U.S. government vendor approval organizations for e-learning (www.usalearning.gov) • Office of Personnel Management (OPM) – Training Management Assistance (TMA) – Go Learn (www.opm.gov/hrd/tma) • Foreign Service Institute (FSI) – (http://www.state.gov/m/fsi/) • Fastrac (http://www.wbtrain.com) • National Technical Information Service (NTIS) www.ntis.gov ♦ The partnership model still may hold promise in this industry because of the vendor selection process – If Tecnonexo cannot get on the list of government approved vendors it may be possible to become a subcontractor for firms that are and still maintain brand visibility and profit margin • Advanced Distributed Learning (ADL) – (www.adlnet.gov)
  40. 40. IV. U.S. corporate e-learning programs Structure of e-learning deployments Foreign Language Opportunity Vendor Selection Technical Superiority Evaluation Methodology
  41. 41. Interviews conducted with decision makers in a variety of industries ♦ Boeing: Jon Schneider, Worldwide Learning Training and Development Leader ♦ Bank of America: George Selix, Service Delivery Executive for Global Human Resources Technology ♦ Carrier (a United Technology Company): Patrick Preux, Vice President of Human Resources and Brenda Keaton, Vice President of Leadership and Development ♦ General Motors: Donnee Ramelli, CEO of GM University ♦ Intel: Coco Yackley, Human Resource Chief Information Officer ♦ Hawaiian TelCom: Tom Pipal, Director of Corporate Training ♦ Tesoro: Bill Thomson, Manager of Learning Solutions ♦ Dell Computer: Paul McKinnon, Sr. Vice President of Human Resources ♦ Accenture: Dan Bielenberg, Accenture Capability Development Strategy ♦ e-learning Consultant: Ann Marion ♦ W.R. Grace: Craig Walloch, Manager of Technology Transfer and Training
  42. 42. Structure Structure of e-learning deployments for U.S. companies is maturing Impossible to compete Best opportunity, General Training but most stringent (Compliance/Regulatory, Business ethics, New Employee Orientation) RFP process Less Business Unit #1 Business Unit #3 stringent RFP Business Unit #2 process ♦ New product training ♦ Technical skills ♦Supervisory skills ♦ Technical skills ♦ Sales training ♦ Health and safety ♦ Customer training As the e-learning market matures there will be more unified technology platforms and a more consolidated vendor selection process increasing the importance of the corporate training department
  43. 43. Structure The maturation of U.S. e-learning industry and what it means to Tecnonexo ♦ Major companies are investing in one Learning Management System that can handle worldwide e-learning needs – The ability to easily integrate with these systems will be imperative – Tecnonexo needs to keep up-to-date on how to integrate with U.S. LMS systems (ie be SCORM and AICC compliant) ♦ Purchasing process will become more defined forcing business units to select vendors dictated by the corporate training department – Corporate training department will be making the majority of vendor selections for business units – Tecnonexo should target a niche in general training where it can create contacts within corporate training departments – Tecnonexo can use this foot in the door to sell into individual business units and other areas of the business ♦ These trends are just starting to take effect and it is important to note that there is still a long way to go (5+ years) before they become a reality – Still it is important for Tecnonexo to position itself correctly from the start while still maintaining the entrepreneurial spirit kept them agile and flexible in the short term – LMS is becoming a commodity in the U.S. and so therefore not worth wasting resources on for the U.S. market – a partnership with a major LMS provider might be a better option
  44. 44. Foreign Language U.S. e-learning opportunities in foreign languages are limited ♦ Individual business units make the majority of the custom content purchases and see little need to purchase e-learning in a foreign language – There is no market for foreign language specific training in U.S. based business units – Tecnonexo should approach the foreign business units directly (i.e. Mexico) ♦ Training in foreign language purchased by U.S. based firms is generally a mere translation of a module that was developed in English – The only value in a U.S. based firm hiring an e-learning company that specializes in foreign language is for translation (low value) • The exception to this would be if Tecnonexo could provide language-diversity needs for any language so that firms that need things in multiple languages could have one service provider addressing all of their language-diversity needs (Spanish, Portuguese, Chinese, Vietnamese, etc.) – Tecnonexo should avoid selling itself as a foreign language expert but might consider doing some translation as a way to get a foot in the door (entry tactic – not long-term strategy)
  45. 45. Foreign Language Technical terminology ESL holds promise ♦ e-learning is becoming more widely adopted and the business world is becoming more global – The need for effective cultural training among multinationals is increasing – Technical ESL to train employees on technical terms (generally English) that are used globally becoming important (especially for companies that manufacture globally) ♦ Cultural training – Content provided by the company and Tecnonexo to train employees on different cultures and more effective interaction techniques ♦ Technical ESL – The content would come from the client but Tecnonexo would have to hire technical/language experts, which will increase up-front costs – Some of content could be reused for future projects in that same industry – Secure a relationship with reputable, credible sources of technical expertise where a projects might take place and hire once the project is sold Source: U.S. Census Data, 2004
  46. 46. Foreign Language Experts agree that learning English increases productivity or at least the perception of worker ability ♦ Kossoudji (JLE, 1988): – Employers perceive English language ability as positive signal of worker ability; reduces the “general uncertainty about productivity” and provides “extra signal that, by overcoming the language barrier, [English speakers] have higher levels of ability and drive than the average person with the same measured characteristics.” ♦ Carnevale et.al.: – Economists “assume that English ability is a skill that makes a worker more productive and, hence, brings greater rewards in the U.S. labor market” – “…after having achieved a given level of understanding of the spoken word, then improved skills in speaking, reading, and writing do matter to employers” and can lead to “subsequent incremental increases in productivity” ♦ Mason: – Mexican-Americans NOT fluent in Spanish “receive an annual premium of 13%, more than $1,200 per year” – Is English acquisition attractive to employers beyond workplace proficiency – economic AND ethno-social assimilation? Source: Kossoudjj, Carnevale, Mason
  47. 47. Vendor Selection Vendors are selected because of expertise and technical execution ♦ When companies outsource their content development to a third party provider, they must be convinced that: – Integration will be smooth (technical compatibility and execution) – Third party has expertise not possessed in-house ♦ Top 5 vendor selection criteria (order shifts in importance depending on project) Subject Matter Expertise: industry vertical, business function – Quality: references, demos, instructionally effective, adult education, edutainment – Accuracy: no mistakes, professional looking – Easy to work with: frequent reviews, good use of in-house experts, professional interaction – On-time delivery – ♦ Flawless technical execution in the U.S. is a minimum expectation – Server problems, crashes, bugs, etc. are not tolerated and will immediately eliminate you from any bid process or preferred vendor list – Technonexo needs to invest in the proper technical infrastructure and quality assurance if they want to enter the U.S. market as anything other than a low cost provider *Source: Dec. 2006 Training Magazine Industry Report
  48. 48. Vendor Selection Sourcing gets more sophisticated as companies get larger Small Firms Medium/Large Firms Large Firms Shop vendors for Issue request for Form a partnership • • • each individual proposal with one system project with very periodically and integrator that in little coordination of create a short list of turn sources to entire e-learning preferred vendors other providers solution for use on different when the request is projects beyond capabilities More price sensitive • Sophisticated LMS Few e-learning • • Less sophisticated companies even • selection process Rigorous selection have this capability • process The greatest opportunity will be with the larger firms but Tecnonexo does not currently have the capabilities necessary to compete so it will have to start out with small to medium firms and move up the value chain
  49. 49. Vendor Selection Companies prefer to have a few e-learning vendors because of steep learning curves and high switching costs ♦ More companies are looking for e-learning “partners” with the capability to implement comprehensive solutions that and help shape e-learning strategy – Building a variety of skills in different areas will be important ♦ Because e-learning vendor switching costs are very high, companies tend to conduct thorough vendor evaluations, complete with on-site visits, reference checks, and reviews of sample content – RFPs typically used if high-volume content is needed – May also retain a few (2 or 3) trusted contractors for smaller, one-off learning projects – Big companies and big projects will have long difficult sales cycles ♦ Because of the high perceived risk in selecting an e-learning partner you must come off as a reliable, trusted advisor – Beware of unhappy customers because it is difficult to overcome a poor reputation
  50. 50. Vendor Selection It’s a small world: Industry groups and organizations ♦ E-learning professionals from the largest companies are part of a small highly networked group that share information making referral and reputation important – Few RPP’s, cold calls difficult – Generally trusted vendors started out by doing a small piece of work very well – Imperative to not ruin your reputation before it is built Organizations Identified by Interviewees ♦ ASTD – American Society of Training and Development (www.astd.org) – ASTD Benchmarking Forum (http://www.astd.org/astd/Research/benchmarking_forum) ♦ Chief Learning Officer (www.cloevents.com or www.clomedia.com) ♦ Elliott Masie – Industry thought leader (www.masie.com) ♦ ISPI – International Society for Performance Improvement (www.ispi.org) ♦ E-learning Guild (www.elearningguild.com) ♦ Corporate University Exchange (www.corpu.com) ♦ ACM – Association for Computing Machinery (www.acm.org) – eLearn magazine (www.elearnmag.org)
  51. 51. Technical Superiority E-learning currently most suited for lower order cognitive skills on Blooms Taxonomy such as knowledge transfer and basic comprehension Learning Objectives Blooms Taxonomy To make judgments, defend Synthesis opinions, and combine information & in different ways to solve problems Evaluation To solve problems in new situations Application by applying previously acquired & Analysis knowledge Knowledge To recall and demonstrate & understanding of facts, terms, basic Comprehension concepts and ideas Trend: As e-learning becomes more interactive and provides the ability to simulate complex work scenarios it will start to be used more and more for higher order skills training
  52. 52. Technical Superiority Creating technical superiority to deliver more e-learning training for more complex skills could be a competitive advantage ♦ Enabled by advancements in learning technology – Increased bandwidth – More sophisticated simulations – Advancements in gaming technology including more sophisticated logic trees, graphics and storytelling – “Smart” programs that identify how each individual learner learns best and adapts over time ♦ These advancements are being used more and more to teach higher order cognitive skills – Less complex training is becoming commoditized and is increasingly sent offshore to India – Tecnonexo could develop a unique technical ability as a potential niche and differentiator
  53. 53. Evaluation Methodology How corporate training is evaluated: Kirkpatrick Scale Evaluation tools and methods Relevance and Practicality Description and characteristics What they thought and felt Post training surveys or Quick, easy to obtain but time questionnaires consuming to analyze Reaction of the about the training Student The resulting increase in Assessment tests before and Relatively simple to set up for knowledge or capability after the training clear cut quantifiable skills, Learning more difficult for complex learning Extent of behavior and Observation and feedback from Behavioral change requires capability improvement & the manager 90 days later to cooperation of line managers Behavior assess change in behavior and can be time consuming implementation/application Impact assessment via the The effects on the business Very difficult to set up a way management systems already in or environment resulting to directly attribute to training Results place from the trainee's but if possible very effective performance Developing methodologies to help clients measure behavioral change and attributable results of e- learning programs can solve a customer pain, increase sales and become a competitive advantage
  54. 54. Evaluation Methodology Creating a sophisticated proprietary methodology for measuring results of e-learning deployments could be a competitive advantage ♦ e-learning most easily justified in budgets when impact can be quantified – Find a niche with measurable business processes (ex. Sales) ♦ Companies historically have viewed training as an employee “benefit” – Need to convince customers that training is an “investment” ♦ Moving down the Kirkpatrick scale to help your customers start measuring behavior and results could be a potential niche
  55. 55. V. Tecnonexo’s Competitive Advantage SWOT analysis Lessons learned from U.S. market entry
  56. 56. SWOT SWOT Latin America U.S.A. Strengths Strengths ♦ ♦ – Market leader position; reputation and brand – Exchange-rate driven cost advantage name Weaknesses – Experience in various niches – many more ♦ implementations than competition – No reputation or brand name – Ability to act as integrator, managing – Lack of subject matter expertise subcontractors and offering an end-to-end – Technological infrastructure, both internal and solution client-facing – Scale and expertise to handle large projects (e.g. – No in-person sales presence; limited U.S. Argentine IRS) sales experience – Stigma of offshore outsourcing as low-cost (as Weaknesses ♦ opposed to high perceived quality) – Technological infrastructure, both internal and client-facing Opportunities ♦ – End-to-end solutions for smaller companies Opportunities ♦ adopting e-learning for the 1st time – Mexico – Companies previously serviced through – NGOs partner – Trusted provider of custom content to large Threats companies with established e-learning ♦ – Large foreign firm (e.g. Tata) to seriously make a Threats play for the Latin American market ♦ – Disaster affects servers with no backup – Exchange rates change, evaporating cost advantage
  57. 57. SWOT SWOT Takeaways ♦ Currently, Tecnonexo has a vastly stronger competitive position in LatAm than in the U.S. ♦ Without differentiating expertise in a particular industry topic or technical aspect, Tecnonexo’s primary strength in the U.S. is its cost advantage ♦ In order to overcome the company’s current competitive disadvantages and establish a foothold in the U.S. market, Tecnonexo should: – Initially focus on small to mid-size U.S. companies who are price-sensitive and currently not offering e-learning – Leverage relationships with LatAm clients who have presence in the U.S. to make contacts, become included in searches – Approach U.S. clients formerly served through partners, as Tecnonexo will have some initial credibility when describing firm capabilities and approach – Use Mexico as a gateway to the U.S. market
  58. 58. Partnership Model Growth in the U.S. has been stifled by distance, a lack of a dedicated sales force, and poor partner relationships Key Issues: Barriers to execution: Substantial physical distance between Argentina and U.S. Distance Distance No local presence; difficulty in building consultative client relationships Cultural and language differences No dedicated salespeople “on the ground” in U.S. Sales Force Sales Force Sales force must understand both Latin and U.S. culture AXG regarded by partners as a low-cost, last-minute outsourcing option Partnership Partnership Low visibility, low collaboration, little control focus focus Prevention of building consultative client relationships
  59. 59. Partnership Model To move to a higher point in the industry value chain, Tecnonexo must own its client relationships ♦ Discontinue partnership model in order to “own” relationships – Consultative, high perceived quality approach allows for higher fees – “Trusted partner” long-term client relationships represent recurring revenue streams – Cross-sell potential within client organizations Solution Solution ♦ Target acquisition of U.S. firm with strong “front office”, while sourcing technical work to Argentina to capitalize on cost savings – Achieve efficiencies by increasing scale, spreading fixed costs across larger client base and utilizing capacity of Argentine back office – Acquiring U.S. and European-based sales and relationship management functions while maintaining offshore back offices is the model being used by Indian companies such as Tata and NIIT ♦ Build a strong sales force from scratch that is on the ground and able to build the necessary consultative client relationships
  60. 60. VI. Findings/Recommendations
  61. 61. There are many things to consider when entering the U.S. market ♦ There is no single large U.S. e-learning market; the market is actually comprised of numerous smaller niches ♦ The vast majority of firms are custom content players whose competitive advantage is domain expertise in a specific niche ♦ The most lucrative opportunities are with large companies in general training but less sophisticated 1st customers might be smaller companies or specialized training for a business units ♦ It is a small world of e-learning experts which lowers the cost of sales but makes reputation very important ♦ U.S. market characterized by stricter technical standards and high touch consultative relationships ♦ Most U.S. firms have their own LMS and competition is fierce in this space making it more prudent to focus on custom content ♦ Diversity training issues are on the horizon for major U.S. firms but training in foreign languages is limited ♦ Using Mexico as a stepping stone would make U.S. entry easier ♦ In addition to industry vertical and business process niches, capability and methodology expertise can be a competitive advantage
  62. 62. Tecnonexo must improve its technical capabilities and consulting skills to compete effectively in U.S. on anything other than low cost ♦ Phase I: Continue growth with Mexico expansion while developing technical and consulting capabilities (0-18 months) – Use Mexico as a stepping stone to U.S. • Large opportunity, close ties to U.S. market, lower technical expectations, Tecnonexo currently well positioned – Start with small U.S. businesses where Tecnonexo can be a complete solution provider • More price sensitive, less influence in e-learning community, more in line with Tecnonexo’s core competencies ♦ Phase II: Enter the U.S. by targeting a niche and expanding (6-24 months) – Focus on a niche where Tecnonexo can compete with boutique players – Expand to adjacent industry verticals or training functions eventually becoming a consultative integrator
  63. 63. Tecnonexo needs to start off as a niche player with domain expertise and slowly build the skills, scale and reputation to be a consultative integrator Biggest firms fall into three categories 1. LMS companies 2. Off the shelf content creators 3. Consultative integrators Firm Revenues Vast majority of firms are custom content niche players whose competitive advantage is domain expertise 1,500 to 2,000 e-learning companies in the U.S. Tecnonexo can’t compete with current U.S. based consultative integrators because they have higher perceived quality and does not want to compete with foreign consultative integrators because that is all about price
  64. 64. Business process/function and industry matrix g in nc / y r re ra al tu n og e tio su ci ca ac ol In a n a th uf hn uc l ai n al an Fi c Ed t He Re Te M Mandatory/ Compliance 278 218 182 121 109 97 Training Industry-Specific 202 158 132 88 79 70 Training 186 146 122 81 73 65 Desktop Application Training 177 139 116 77 69 62 IT/Systems Training Mgt./Supervisory 175 137 114 76 68 61 Training 145 113 95 63 57 50 Executive Development 124 97 81 54 49 43 Interpersonal Skills Customer Service 106 83 69 46 41 37 Training 106 83 69 46 41 37 Sales Training Penetrate and propagate strategy to move into adjacent markets (example: Plateau started with Red Cross and Navy and now is a major industry player)*
  65. 65. Tecnonexo focused on custom content development and technology infrastructure in but in the U.S. services will become more important Vendor Positioning in E-learning Segments Custom Content Developers (CCC) Infrastructure Providers Content Technology Digitalize content provided by Design, implement and customers using in-house WBT Systems Skilllsoft support LMS systems and Interwise development methodologies to Logic Bay NIIT other software that manages WebEx OUtStart optimize learning experience Netg and administers the training OneTouch Vuepoint Global Knowledge content Content Sellers AXG (LatAm) Create and sell their own GP e-Learning THINQ SumTotal content AXG (U.S.) Plateau Saba Intellinex KnowledgePlanet Service Providers Deloitte Consulting EDS Consult clients in the Accenture Learning IBM Learning strategy, planning, and Services implementation of e-learning services Source: “Market overview 2003: Corporate eLearning” - Forrester Research (2003), Booz Allen Hamilton
  66. 66. Potential specialized content niches identified for further evaluation ♦ Technical ESL – Technical ESL to train employees on technical terms (generally English) that are used globally becoming important (especially for companies that manufacture globally) ♦ Mandatory/compliance training for technology, financial services, or healthcare industries – This is the most attractive niche in the U.S. that would make it a good place to start from a market perspective ♦ Non-corporate market – Governmental, non-governmental and non-profit organizations that need custom content e- learning solutions ♦ Cultural training or localization of content – Position Tecnonexo to capitalize on an emerging trend as the one company that understands different cultural/ethnic backgrounds ♦ Multiple language capability – Address firms that need training in multiple languages and want one service provider addressing all of their language-diversity needs ♦ Minority supplier training programs/Hispanic owned businesses – U.S. based businesses that are predominantly made up of Hispanics that need e-learning solutions
  67. 67. Potential capability/methodology niches identified for further evaluation ♦ Technology leader: simulation, storytelling, gaming, etc (example Wisdom Tools) – Creating technical superiority to deliver more e-learning training for more complex skills could be a competitive advantage ♦ Advanced behavior and results measurement methodology – Creating a sophisticated proprietary methodology for measuring results of e-learning deployments could be a competitive advantage
  68. 68. Implementation tactics Different sales force requirements in U.S. ♦ – Must have resident sales force that has in-depth knowledge of local e-learning industry and Tecnonexo’s capabilities in order to develop relationships through high touch consulting services Leverage current relationships ♦ – Get introductions from current LatAm multinational customers to sell work in the U.S. – Approach U.S. clients formerly served through partners, as Tecnonexo will have some initial credibility when describing firm capabilities and approach Raise visibility through thought leadership ♦ – Publish white papers, speak at conferences, provide interview to media Penetrate and propagate ♦ – Start with general training (i.e. compliance) at the corporate level and move to more specialized training at the business unit level later – Start off doing simple translation to build the relationship It is a small world ♦ – Leverage initial successes into adjacent industries – Use the small, tight-knit universe of e-learning professionals to get referrals/recommendations – Act as a reliable, trusted advisor rather than simply a vendor • Talk about successes and thought leadership in Latin America Mexico’s unique challenges ♦ – Set up a local office to show commitment to region and provide necessary service, be aware of very hierarchical structure, use chambers to network and build credibility – Explore potential synergies with ILCE (a multilateral organization with presence in LATAM and HQ in Mexico) – they provide most of the content for the Mexican Government – Target transnational's where relationships can be leveraged into the U.S.
  69. 69. VII. Appendix ESL training in the U.S.
  70. 70. ESL courses through content partner • Learning to speak English well is a great value added proposition for the Hispanic population, low educated, English Acquisition, Earnings, and Employment: Foreign-Born 20-64 Year more assimilation which yields higher income. Olds in the U.S. • Partner with a prestigeous content company and create English-Speaking Proficiency Mean Annual Earnings Unemployment rates an ESL E-learning Platform (Berlitz, Harmon Hall) Only Speaks English $32,560 5.1 •No “nationwide” ESL programming! Speaks English Very Well $32,695 4.5 Program Types and Venues: Speaks English Well $22,230 5.8 Does not Speak English Well $13,815 8.4 • State- and locally-run programs (fed and local public funds) Does not Speak English $8,923 13.1 • Nonprofit-run programs (public and private funds) All — 6.3 Wage Differentials: Only Speaks English/Speaks Well: 196% • Workplace/vocational ESL (VESL) (public and private Only Speaks English/Not Well: 236% funds) Only Speaks English/No English: 365% • Community centers, nonprofits, local clubs, community colleges, prisons, offices, workplaces, etc. Reasons for Participating in ESL Programs Insufficient Supply, some examples: Help children with school work Get U.S. citizenship New York City—Most ESL programs keep waiting lists Get new job with a different because of demand, but use lotteries. Learners must wait employer several years. Get raise or promotion Phoenix, Arizona—State 
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