Zoho – Coming From an Emerging Market Has Its Advantages

Several weeks ago, I had the opportunity to talk with Sridhar Vembu, CEO of Zoho Corp, a strong player in the SaaS software market. The company’s corporate headquarters are in Pleasanton, California and the majority of its about 1000 employees are based out of India and China. These and other characteristics make Zoho and Sridhar, who has spent half his life in India and half (presently) in the states, an excellent model for digital innovation in Latin America.

First off, what really struck me about Sridhar after our chat was the balance of three key characteristics of his personality that came across: 1) His passion for the “people aspect” of building a business, 2) his practicality and incisive thoughtfulness and, finally, 3) an underlying, intense pride (in his people, what they’ve accomplished, etc.) and competitiveness.

I won’t go into a ton of detail about the company because there’s a wealth of information on their site and in other articles. In a nutshell, Zoho bet on cloud computing and the SaaS delivery model early and are just now really hitting their stride in the market with about 2M users. As a recent article in BusinessWeek Magazine states, Zoho competes with behemoths such as Google, Microsoft and Salesforce.com. All this from a point in 1999 when, as Sridhar mentioned, they had one key goal: survival. Now that’s a goal many small business people can identify with, but particularly, those in emerging countries such as in Latin America where capital is in even shorter supply.

So what happened after 1999 to garner them so much success? It had nothing to do with getting Venture Capital (VC) funding since they’re a private company which has bootstrapped itself since the beginning. Sridhar mentioned that their strategy has focused on depth of functionality, breadth of offerings, integration and support. The integration focus is a boon to usability because they are able to integrate key functionality from their applications into the work processes of their customers. Through “contextual information integration” things like email (even Gmail) are integrated with the CRM product so that customers can get their work done faster.

In terms of support, at least one person I referred Zoho to here in Latin America, has had an incredible experience in this regard. Sridhar mentioned that part of their engineers’ training entails alternating time on the support lines as well as monitoring the support database helping them into the customer mindset from the outset. In order to execute such a strategy, Sridhar mentions a trait that the company must possess: patience. Patience to develop employees straight out of high school into productive professionals, patience to solve what Sridhar describes as the small business “IT problem” and patience to build an organization for the future.

What a terrific model for Latin American companies to follow. There’s a ton of talent down here and, Sridhar and Zoho’s journey can be a lesson for many. As he mentioned, Sridhar himself looked to a number of Japanese companies such as Honda as models to follow. After WWII, Japan was a developing country (like India or all of Latin America) and through patience and dedication, they were able to achieve the economic and technological feats we take for granted today. It’s important to note that modeling yourself after someone doesn’t mean cloning them and Sridhar has certainly adopted some characteristics of the Japanese model, but not all.

This last point is an important one. Just this week I was in a meeting with some entrepreneurs when someone asked me if Colombia’s path to success was, among other things, in finding an instantiation of a Stanford University (the context of the conversation was the lack of an ecosystem in these countries such as exists in Silicon Valley). I feel that Zoho’s example shows that you don’t need a carbon copy of another country’s ecosystem, you need to build on the strengths you have and, in Zoho’s case, that was patiently sticking to their strategy and building their organization.

Sridhar made a great point about the fact that in Silicon Valley there’s quite a bit of talent to choose from no matter what expertise you need. It seems to me, Sridhar has taken a disadvantage in emerging markets (scarce talent pool with world-class expertise) and converted it into an advantage. By giving young people without a college degree a chance to successfully prove their mettle and compete with international powerhouses such as Google and Salesforce, Zoho benefits from the resulting highly committed, passionate and dedicated group of employees it is nurturing. Aside from this, such a highly motivated group of collaborators injects much energy into the company and, according to him, “keeps [him] young”

While I was speaking with Sridhar, I was reminded of John Hagel’s book, The Only Sustainable Edge. In it, Hagel mentions two important areas touched upon by the Zoho CEO. The first one has to do with Zoho’s ability to offer customers value at an affordable cost which is in synch with Hagel’s assertion that technology innovations are opportunities to “create more value at less cost.” Zoho’s location, recruiting, training and company culture paired with its bet on cloud computing make are certainly aligned to a goal of creating more value at less cost for their customers. Additionally, Hagel points out in his book that managing across two cultures “can create new opportunities to enhance performance by drawing on the best of both cultures.” Certainly, this is not news to Sridhar who lives and breathes it every day.

In Latin America, many discussions on entrepreneurship center upon the disadvantages of the region when compared to the U.S. This runs the gamut from lamenting the scarcity of investment capital; the lack of the right human capital and other ecosystem and infrastructure components that are missing. However, anyone from Latin America who could listen to Sridhar speak about his particular voyage, would actually start to feel as though companies coming out of emerging regions such as Asia or Latin America are at a distinct advantage when compared to US companies. What a great perspective!

While players such as Salesforce.com, Microsoft and Google have solid and focused SaaS offerings, Zoho has been adding applications to its suite at a blistering pace. Though the company’s user base also continues to grow, it’s only a fraction of Google’s user base. Sridhar has heard this observation before and I’m sure can read between the lines of the sometimes veiled (sometimes not) insinuation that this means that they will eat Zoho’s lunch some day. Nevertheless, I believe Sridhar is correct (at least for the time being) in asserting that Google’s rising tide can lift all boats floating in the SaaS “sea” since they are helping to educate customers on the value of these new SaaS offerings.

The company is profitable and is free to follow its long term strategy. While the Google threat (and others) will probably get more palpable as time goes by, I agree with Sridhar’s view that companies don’t get killed by competition; they commit suicide. Nevertheless, one area where I believe that the company needs to improve is in its customer messaging or marketing in general. For instance, instead of a list of applications on the homepage, it would make more sense to quickly set up customers depending on their specific vertical or business process. Fortunately, this is precisely one of the areas for improvement that the company has targeted and openly acknowledges that it could do better on the marketing front.

I think it’s obvious that I truly enjoyed my conversation with Sridhar on a number of levels. He mentioned that he is quite passionate about the topic of how emerging market companies can compete with companies based in developed markets, which is also a strong passion of mine. During our talk, I got the sense that Sridhar has a firm conviction that companies from emerging countries can truly compete on equal footing with “marquee companies” and actually possess advantages that they need to leverage. Hopefully, at a later time, I can speak a bit more in depth with Sridhar about the topic of digital innovation in emerging markets.

As a VC in my previous life, I had the opportunity to speak with extremely intelligent and capable entrepreneurs and investors. After my conversation with Sridhar, I’m as impressed with him as with any other person I’ve met. Different people are remarkable for different reasons. For instance, Google’s founders had the insight to understand the need for organizing the world’s information with the oncoming, accelerated adoption of the Internet. Even more importantly, before they fully saw how big and successful they could become as a company with an actual business model, they jumped in and started solving the problem.

Solving such grandiose and ambitious problems is something that is handsomely rewarded and rightly so. Nevertheless, there are a number of dynamics, which are creating the need for new types of companies: ones that offer digital innovation at a lower cost. New technologies such as cloud computing, virtualization and SaaS delivery provide the digital foundation. Also, as it turns out, emerging markets such as Asia and Latin America, actually offer advantages that astute entrepreneurs can leverage. As Zoho’s trajectory points out, to execute this correctly takes a number of competencies such as a clear vision, competent leadership, focused development of human capital and above all…patience.

Creating Innovations in Fast Emerging Markets – Where Do We Go From Here?

Guided with an improving economy that is expeditiously moving, it is the most desirable time to think about making fast decisions and regain your business. It is time to rethink and carry on with the flow of the speedy recovery. As an entrepreneur, it is up to anyone to position himself in order to survive the rapid advances of technology and make things happen, but with proper timing and the right balance, anyone destined to succeed.

Hastily enough, it is extremely beneficial to make those decisions quickly, as fast as possible for such action is one of the most essential elements in the fulfillment of your mission. It is the right time to implement your business strategy effectively and become successful with money. Yes, swift success is inevitable only when those decisions are primarily focused to defend, serve and satisfy the needs of your customers. Moreover, it is also beneficial to the consumer’s mind when the same person becomes an ally to them. This is the greatest secret of business success.

In a business sense, this is certainly a noble thing inasmuch as people will engage; even if this business relationship changes that can be construed as a challenge to them. Such is a fundamental part of life that finding the proper harmony of friendship is a must in order to satisfy each personal, as well as, social need. Suffice it to say, all these are basic human factors to assist anyone in doing what it takes to make money; but, by the same token, one will always have the best chance to make money when he does whatever it takes to serve his customers.

Courageously face all the risks and think about the value one can provide his customers. Redefine your own motivation and confidence to step up your strength in reaching your goals. Learn the techniques; come along with new methods, plus a confident take from the basics. Then use it to focus on the need of the customer and finally, reaching your goal by bringing value to them. Connect with emotions and know what they want and seek to provide all their needs.

Anyone will reap the rewards when he is not afraid to take risks. For in every business, many are always dealing with unknowns and choices accompanied with opportunities. Throughout history, no matter what the present or past generation’s lifestyles and environment, there is always a relevant economic growth since the beginning of times. While the world population increases, there is even an insatiable need for almost everything, and everyone is battling to avail of all the advances of modern technology to get through life with ease.

We are living in the most advanced society of all times and undeniably there is an abundance of wealth and ease of modern life. Surely, there is always a feeling of discontent due to a lingering fear of the unknowns, as in health, wellness and survival, among other things. It is for this same reason why people wanted and needed more things than ever before. In an entrepreneurial society, one may capitalize on the current market conditions. Creative as it may seem, in order to succeed, one may simply find a way to satisfy and serve the needs of consumers.

It is common to many that opportunity breeds out of every necessity. Today is certainly the best time to create innovations in fast-emerging markets. Therefore, what can one do to capitalize on these economic conditions?

1. If need to start from scratch then do something new. Innovate and figure out a way to be the first to implement a new approach of serving your customers. Determine which of their experiences need improving and which parts deserves to be fixed.

2. Invent new ideas. Know that there are other people out there who have made money off their own ideas. Crazy ideas nowadays can be the norm, but think of new ways that people want to apply and consume. Further implement those new ideas and new value proposition and forward-looking perspective to satisfy the need of your customers. Remember that people made inventions because of the necessity.

3. Connect with the customer. Revolutionize a way to open and develop a framework to create a personal experience with your customers.

4. Kick in your survival instinct. Determine a way to sustain the work that started, explore ways to keep a sense of success, and stick to it. The customers will respond in kind as it drives business demand.

5. Enjoy a happy disposition and fun experience. When one is happy and passionate about what he is doing, the yoke on his shoulder does not seem to be a burden. Each time, such stunning experience provides people clues about where to find the best business opportunity.

Clearly, learn a few principles and employ it in your life. Focus for a brief moment to imagine your success, with a burning desire to achieve those ultimate goals no matter what. Promptly make decisions and create innovations that will allow becoming a part of building a better world in this fast-paced modern society.

Should You Invest in Emerging Markets Funds?

Emerging markets funds have arguably been the growth phenomenon of the 21st Century. Led by the powerhouses that are the Chinese and Indian economies all the emerging markets have seen unprecedented success, which has meant superb returns for investors too.

The social, political and economic factors behind the growth of the emerging economies were not immune to the recent global recession however. Growth slowed significantly, although an actual recession in these countries was never likely.

Because of this strong grounding in economic growth it was the emerging economies that enjoyed the fruits of a market recovery through 2009. The numbers say it all:

In the last 12 months the MSCI Emerging Markets Index went up by 72.9%. In the twelve months before that it went down by exactly 50%. In the three twelve month periods before that it went up each time by 37.8%, 28.4% and 34%.

It’s easy to see how the higher return that this type of investment provides goes hand-in-hand with higher levels of risk that the capital values can also fall dramatically. This is the typical risk and return trade-off you would expect from a higher risk investment i.e. the higher the risk the higher the potential return.

Because of this it’s important to get a balance with your investments. The best way to put together a suitable set of investments is to invest in a mix of different funds. This will ensure that your entire holding of funds will contain a balance of higher and lower risk assets, with money invested all over the world and in different asset classes such as bonds and shares. Emerging markets funds can certainly provide an important and potentially profitable investment and for that reason could form a vital part of your portfolio.

However it is essential that you consider your own attitude towards risk. That is, how would you react to a fall in the value of your investments? Would you be comfortable knowing that you have invested for the long term and that short term values don’t concern you? Or would you have sleepless nights worrying about whether you will get your money back?

Knowing and understanding yourself as an investor will save you a lot of grief in the long run. If you invest in a mix of assets that is in keeping with what you are happy with then you will be much more comfortable with your investments. Having an external assessment of your ‘investor profile’ by taking some wealth management advice could make all the difference.

So in considering whether you should invest in emerging markets it is more a question of getting the right balance of funds. In practice UK investors are most likely to be comfortable with a mix of bonds, UK equity, international equity, emerging markets and smaller companies funds. How much you invest in each of these will depend on you.

Cold Chain in Emerging Markets – The Heat is On

For many Chinese and Vietnamese consumers, frozen food is still a foreign concept. Large retailers in China and Vietnam continue to focus on fresh food options such as live chickens and in-store fish tanks. However, consumer shopping and buying patterns are changing. Chilled products, including juice and frozen foods are increasingly becoming popular in emerging markets such as China, Vietnam, and India. Young people in particular, are driving consumer demand. This is true especially in cities that are undergoing rapid urbanization. The growth is fueled also by new legislation in the retail environment that gives foreign investors and retail chains greater access to these markets. In all this retail frenzy, the cold chain is becoming a hot topic.

The challenges

One of the key challenges in emerging markets is a dysfunctional supply chain that is highly fragmented in the retail section. In a fragmented retail segment, companies struggles to achieve economies of scale on both the retail and supply sides. With the projected growth in these key emerging markets, even given the current financial crisis, there are great opportunities for both local and foreign investors. Unfortunately, a lack of cold chain facilities is hampering expansion into these markets, especially in second and third tier cities. Even in first tier cities, such as Shanghai, Ho Chi Minh City, and Mumbai, multinationals struggle to find the right cold chain partners and facilities. Foreign investors currently view the lack of an established cold chain as one of the major barriers to market entry.

How does the traditional system work?

Agricultural produce typically travels from farmer to trader to agent to wholesaler to retailer. In some countries local administrators add extra distribution layers. In some cases, state-owned companies will distribute products to provincial distributors before reaching local markets. Each step in the process adds additional handling and cost. Often products are transported without boxes and with limited or no refrigeration. Products are exposed to the elements and, consequentially, many products end up as waste. Quality suffers as products travel down the chain with limited cold storage and frequent processing delays. China currently accounts for 13 percent of global fruit production and 40 percent of the world’s vegetable output. However, it is estimated that around 30 percent of the total production of fruit and vegetables are wasted due to an inefficient cold chain. In India it is estimated that about 60 percent of the value of agricultural output is lost between the farm and market. An A.T. Kearney report on China estimates that only 15 percent of products that require chilled handling are currently handled that way. This compared to 85 percent in Europe.

What is required?

For any company, it is critical to evaluate and understand the cold chain system. Temperature control is important as it is a key requirement to keep products within a specific temperature range throughout the supply chain. This can be particularly challenging in emerging markets. One solution is investing in packaging that can protect products against temperature variations and improve product quality at the final destination. Companies also need to have a clear understand of the product flow and routing dynamics, including the transportation modes and refrigeration capability. Delays in delivery and processing can have severe effects on the quality. Companies should have a back-up plan as transportation normally takes longer than expected in emerging markets.

The key to any cold chain is driving end to end processes and efficiency. It requires direct delivery with temperature cold trucks, warehousing and advance technology tracking and traceability for food safety. Companies need to account for geographical aspects as they truck products for one end of a country to the other. Distribution centers (DCs) can play a key role in a company’s cold chain strategy. DCs have the ability to service several layers of the distribution system. This can further improve distribution and supply efficiencies.

Collaboration is important

Cold chains are expensive to operate and in many cases a coordinated effort is missing. Local companies that try to establish their own facilities often lack capital and expertise. For such companies, a key first step to developing a cold chain is to seek out or create a consortium. The consortium will be responsible for creating industry standards with government authorities. As standards are set, more companies will join the consortium. It is critical to include all key stakeholders in the process. Effective cold chain consortiums will include logistics providers, cold chain equipment suppliers, multinational and local companies within their membership. Stakeholders can collaborate during various projects and at the same time share risks. The entry of foreign retailers such as Mal-Mart, Carrefour and Tesco can add cold chain expertise and help to reduce margins and improve efficiency in the overall system.

Rethink technology

Technology investment is a key element of establishing a cold chain. Companies need to have a long term perspective in relation to technology investments. In many cases the technology and equipment are available, but companies find the investment too substantial and lack the economies of scale to make it a viable option. Finding companies to make the investment can be one of the key challenges during market entry. In emerging markets, companies seek simple and cost effective solutions to problems. For example, some companies now are using pressure-sensitive labels. Once the label is exposed to specific conditions, the label changes colour and alerts the supply chain of a disruption in the cold chain.

Focus on education

Education is also key to creating a cold chain. Trainings and workshops can be used to educate and inform partners about challenges and how to overcome them. For example, A.T. Kearney has run a series of conferences in China the UK and the US to improve China’s cold chain distribution systems. The conferences bring parties together that are interested to enter or expand their cold chain distribution in China. Such conferences and workshop are great venues to inform companies and authorities about the health and safety risks, an increasingly important topic.

The cold chain is critical to global trade in almost all commodities. With a growing demand among emerging market consumers for chilled products, the cold chain is becoming an increasingly important part of the supply chain strategy. One of the key requirements will be to reduce waste and improve quality. Recent food shares in China and the rest of Asia have highlighted the importance of food safety and health during the process. With all this attention on the cold chain in emerging markets, the cold chain will likely heat up even further.

Emerging Market of Real Estate Investing – Part 1

The easiest way to make money in real estate is with emerging market real estate investing. With this type of investing you buy in a market that is about to start appreciating and you hold the property until it comes time to sell. It’s very simple, you make your money off the appreciation of the home (and hopefully some cash flow as well).

Let me go into a little more detail. To begin with you need to identify the proper market for emerging market real estate investing. You do this with real estate timing. You analyze real estate markets to see which ones are going up and which ones are going down. That’s no easy trick. The best way to do that is with a service that provides you the tools you need to do it. You want to analyze different markets and choose the ones that have the criteria you are looking for. Good criteria are things like solid population growth, strong employment or a desirable location. Maybe a new industry is coming to the area that is going to fuel a population boom. Maybe it’s a “newly found” resort destination.

Once you identify the general area, with the proper real estate timing, you need to find where in the location you want to buy your real estate investments. Every city, town, large metropolis, etc. has more desirable locations and less desirable locations. Obviously the more desirable locations will cost more to buy than the less desirable locations. If you buy in the best area you are going to pay the highest price and will have a whole lot harder time making it cash flow. If you buy in the less desirable areas it’s easier to cash flow but the homes won’t appreciate as well when the market takes off.

I’ve found it’s better to invest in the up and coming neighborhoods, they aren’t as expensive yet but are starting to become more desirable. Up and coming neighborhoods have good amenities but may not be as well established as the most desirable areas. What types of amenities are we talking about? It depends on who is going to live in the area. If it’s young professionals you’ll want close proximity to restaurants, nightclubs and other entertainment. These people like to get out and do stuff. If it’s a family-oriented area you want good schools, playgrounds, parks and low crime.

Let’s review the steps so far:

1. We want to choose our emerging market for our real estate investing – we do this with real estate timing
2. Through real estate market analysis we choose the real estate market we want to invest in
3. We decide where in the market we want to invest – it’s best to focus on up and coming neighborhoods

The next step is to select a property to buy. Most people think that emerging market real estate investing means you have to pay full price for a property in a rapidly appreciating market and carry massive negative cash flow. NOT TRUE! True emerging market investing means you buy BEFORE the market takes off. You are buying when most people are selling and the market is down but about to turn. This means that there are LOTS of deals out there. You don’t want to pay full price – you want a deal. Make multiple offers on multiple properties and negotiate strongly. It’s a buyer’s market. Not only that but you also want to look for value options. Value options are things like the only home in the neighborhood without a garage, but you can build one. The kitchen and baths haven’t been updated in 30 years – so it’s time to remodel. The house is ugly and has no curb appeal – nothing that a landscaper can’t fix. In a down market most people won’t put money in home improvements because the return isn’t there. But if you buy at the end of a down market and put money in improvements you are going to see a return when the market shifts. Remember in emerging market real estate investing you want to focus on buying deals.