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Computadores e Sistemas Ind. e Com. LTDA popularly known as Compsis was founded in 1989 by engineers from the Brazilian aircraft firm Embraer based in S?o Jos? dos Campos. They failed in aircraft embedded system for Brazilian Airforce, but switched to automotive Electronic Toll Collector (ETC). In 1991 Compsis served its debut customer, General Motors Brazil, and broke through in systems integration expertise in general automotive products. In 1996, Compsis expanded to intelligent transportation systems (ITS), offering products such as Advanced Traffic Management (ATMS), Vehicle Monitoring System (SMV), Magnetic Guidance System (SGM) and Electronic Toll Audit (SICAT) (Lehrich, Paredes & Ravikumar, 2009).
Compsis is an integrator of complex hardware and software systems to develop more diverse customized products and services to satisfy its customers. By 2004, SICAT software implementation and maintenance was Compsis's major revenue generator, earning about 39% of the market share in Brazilian (Lehrich, Paredes & Ravikumar, 2009). The SICAT software was improved from level 1 - 4 to meet several market needs. At level - 4, Compsis could sell SICAT as a product that would approach the convenience of plug-and-play creating partnerships for Compsis in Australia, India, and a revenue base of US.
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2 million in 2003 (Lehrich, Paredes & Ravikumar, 2009).
Despite this Compsis refused to rely solely on its Brazilian SICAT business and strove to expand into new markets throughout the world. Compsis revenue fell to US$3.3 million in 2004, due to the Brazilian government's prolonged delay in awarding new toll road construction rights to concessionaries and Compsis inability to win new ETC projects outside Brazil (Lehrich, Paredes & Ravikumar, 2009). Compsis management sees looming financial disaster of which only diversifying its market is the solution. The company is at a crossroad, seeking new markets in the United States because of the developed market for ETC systems. This paper seeks to help Compsis cross the roads of the impending cashflow drought by analyzing the U.S market, evaluating its global competitiveness through the Diamonds model for that market, identifying the optimal international business strategy and the best market penetration option for the US market entry.
Unlike the Australia and Indian markets, the ETC industry in the United States is mature, growing steadily, and dominated by several well-established providers. The ETC customer base in the US was comprised mostly of transit agencies and transit authorities such as Departments of Transportation (DOT) both at state and federal levels. More so, competition amongst potential vendors entrants to the ETC market was based majorly on credibility, competence, and proven expertise (Lehrich, Paredes & Ravikumar, 2009). ETC projects in the US are handled by public organizations, only few private firms were involved. As of 2004, a total of 64 toll agencies were distributed among 26 states with almost 12,000 of road projects of which the largest toll road builders were Florida, New York, Texas, and Illinois. TransCore, MarkIV, Raytheon, SIRIT, ACS State and Local Solutions, VES Systems, CASETA Technologies, ETC Inc. and Iteris dominated the market. Remarkably, the first two has 92% of the market share (Lehrich, Paredes & Ravikumar, 2009).
Besides this, ETC Sales process is not clear to public agencies and procurement is difficult due to insufficient knowledge of the product and service offerings, however, they rely on several trade organizations. Specifically, the International Bridge, Tunnel and Toll Association (IBTTA) served as the main trade organization and included among its members virtually every toll authority and the most significant vendors (Lehrich, Paredes & Ravikumar, 2009). Every member was qualified to the list of current open Requests for Proposals (RFPs) since the majority of projects were procured through public RFPs. The RFP was a competitive, well-regulated bidding process with clear guidelines and procedures, timely, designed to ensure fair competition among vendors using a scoring system (Lehrich, Paredes & Ravikumar, 2009). Studying the market and its complexity, turns out that Compsis is in for serious crack. However, for a firm that has successfully operated locally, it must have developed the capacity to face these complexities in gaining entry into the US markets. Employing the Michael Porters' economic diamond model, we can uncover the Compsis's potentials to compete favorably in the US markets.
Porters economic diamond model for (domestic or small) businesses help them to understand their competitive position in global markets. This model is also known as the Porter Diamond theory of National Advantage since all factors that are important in global business competition resemble the points of a diamond. The model assumes that the competitiveness of businesses is related to the performance of their other businesses especially in their home country. This is because the characteristics of the home country play a central role in explaining the international competitiveness of the firm.
Indeed, the home base of the company is an important determinant of a firm's strengths and weaknesses relative to foreign rivals, and also shapes its likely future strategies of which Compsis is no different. Moreover, other factors are tied together in the value-added chain in a long-distance relation or a local or regional context. The Porter Diamond model bases its assessment on six elements: factor conditions, demand conditions, related /supporting industries, firm strategy, structure and rivalry, government and chance. According the diamond model Compsis competitiveness is thus;
Factor conditions - refers to different types of resources (human resources, physical resources, knowledge resources, capital resources and infrastructure) that may or may not be present in Brazil, Compsis home country and includes;
Firm strategy, structure and rivalry - includes how companies are organized and managed, their objectives and the nature of rivalry in the local market. The way in which companies are established, set goals and are managed is critical to success on international markets. Compsis strategies include;
Demand Conditions - Involves factors such as early demand, market size, market growth and sophistication. These characteristics can help companies create competitive advantage, or determine If a producer can realize sufficient economies of scale, this will offer advantages to other companies to service the market from a single location. Demand conditions includes;
Related and Supporting Industries - Related and supporting industries can produce inputs that are critical for innovation and internationalization. These industries provide cost-effective inputs, and for Compsis includes;
Government - The government can have strong influence on the international competitiveness of a firm. In addition, it can influence each of the five other forces in the Porter Diamond model. The government element for Compsis includes;
From the model we see that Compsis has significant resources and competence to succeed in the international market. Besides the porter's diamond model, the business strategy Compsis will employ in moving into the international seen is important in determining its success.
Consequently, moving into the US market will enlist Compsis as a multinational company with three possible strategies to choose from, during market entry. These includes entry using Multi-domestic (sacrifices efficiency in favor of emphasizing responsiveness to local requirements within each of its markets) strategy just like MTV channels, a Global (sacrifices responsiveness to local requirements within each of its markets in favor of emphasizing efficiency) strategy such as Microsoft, or the Transnational (tries to balance the desire for efficiency with the need to adjust to local preferences within various countries) strategy just like the McDonald's and KFC's.
Considering the sensitivity of Compsis products and services in the ITS/ETC industry I will recommend the optimal international business strategy to be the translational strategy for Compsis. Operating as a transnational company will help the firm benefit from different regulations (Lander, n.d.). For instance, if Compsis manufacturers a new product that would be impractical to make in the United States, they may choose to manufacture it in Brazil where compliance costs are lower and then export it back to the U.S. On the other hand, if you have a product that isn't eligible for approval from U.S. regulators, you may be able to legally sell it in other countries. They can also take advantage of lowering cost of labor.
For instance, they can choose to manufacture through subsidiaries which can lower the fraction of what American workers get paid, working in these countries lets you maintain cost-competitive pricing while staying profitable. Besides this, favourable taxation and deeper cultural understanding are also benefits (Lander, n.d.). Perhaps, Compsis is established as a transnational company, it's market entry option cannot be overemphasized if it must withstand the heat of fierce competition in other market.
Undoubtably, after a poor year, Compsis have decided to expand their operations to other markets due to uncertainty and limitations in the Brazilian market. The firms focus is to expand into Latin America, the USA or to remain in Brazil. Compsis have a high market share in Brazil (39%) but following revenue drop by $0.9 million in 2004, the CEO Ailton believes that expanding internationally will ensure financial success. In Latin America, the market is small but rapidly growing, which could generate Compsis revenue in future if they could outsource their business there.
However, the market seems to have varied projected overall revenues in the future. Customers are very price sensitive and are unlikely to pay for Compsis high-end technology software. The US market, appears to be rewarding and I believe this to be the most suitable option for Compsis. Overall revenues grow year on year and the market is steadily growing and therefore should Compsis successfully establish themselves, they will most likely experience great financial success in the long term. The majority of projects in the US require Request for Approvals (RFPs) to ensure fair competition amongst the firms wanting the project. Unlike the Latin America market, US customers are also not as price sensitive as they only weight 15% of their decision-making process on cost. Compsis also have a competitive advantage being one of few companies offering auditing and financial services as part of their product thus this USP would enable them to win a potential contract over US rivals and ensure long term financial success.
On the other hand, the USA market has massive domestic competition; companies such as Transcore have an established name in all segments of the ETC market, so this is potentially one constraint that will affect Compsis venture. To implement this plan, Compsis must find a local partner firm with good prospect to partner with. I will propose the entry to be a strategic alliance (firms work together cooperatively, but no new organization is formed). They can align with Mark IV which is in a different segment of the market - manufacturing the equipment used in toll collections systems and ITS, but stayed away from systems integrations. Mark IV, for example, as the largest toll transponder manufacturer in the U.S., had developed strong relationships with government buyers and all levels of toll suppliers in the industry.
Compsis can leverage on this alliance to provide the integration part of Marks IV market being that they have a dominant market presence with government buyers and sharing 92% of the market segment with Transcore. This is a veritable entry strategy that will be most effective for the company. They can still decide to acquire Mark IV everything being equal. Acquiring the company will also announce their complete presence in all sectors of the ETC market. In Strategic alliance, Compsis and Mark IV share decision-making authority, control of the operation, and any profits that the relationship creates. It will further close the cultural gap, provides important knowledge about local conditions, facilitate acceptance of Compsis involvement with government officials, etc.
COMPSIS - Computadores e Sistemas Ind. e Com. LTDA.. (2019, Nov 18). Retrieved from https://studymoose.com/compsis-computadores-e-sistemas-ind-e-com-ltda-essay
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