Andres Agasild: There is nothing overwhelmingly complicated about entering foreign markets

Andres Agasild, Head of MarkIT, a company that has expanded into twenty European countries, says there is nothing overwhelmingly complicated about expanding to foreign markets. You need to concentrate on your idea and go. Talks about cultural differences or the Estonian reputation are a myth.
The following discussion will mostly be about export and entering foreign markets. It would be good to begin with a brief description of what MarkIT is and what it does.

We call our product IT e-procurement environment. It is a web service that saves clients time and money. The purpose is to make IT procurement as simple as possible. It is a web-based software used by IT managers.
The uniqueness that could also be called our first innovation lies in our business model: we give our clients the opportunity to buy goods electronically, direct from the biggest wholesalers in the region. When using an electronic environment, clients see the inventory and price of all Estonian wholesalers in real time.

Are you leaving retail traders out?
Basically yes. We do charge a service fee ourselves, though. But we make it more transparent; the client “sees into” the storehouse of wholesalers. In a sense, our business model bypasses the layer of resellers, while on the other hand, it is a new trading model.

Can I buy things from your website?
We are only targeting companies. Purely B2B. The needs of business and private clients are very different. In addition to all kinds of products, we have an analysis of purchase histories, confirmation of orders, bank-like services, various supply, and account addresses. Private persons have completely different interests.
For us, it is also a matter of focus. And export requires a very sharp focus in our mind. We do not want to get “distracted”. Private persons mean completely different servicing and supply. For example, if we made a business for private persons, I think we would have provided a smaller and simpler product range.

When we used the word “export”, the export targeted at the market of private persons would also be different, such as mass ads and mass marketing?
Exactly. We have had a B2B focus right from the beginning.

In how many countries are you operating? I counted 12 countries on your website.
It should be 21 countries… But in order to understand our operation in foreign markets, we need to explain a bit first.
What I described above as our initial business model was the initial innovation we started off with in Estonia. The IT supply channel in Estonia had 80% of imported goods coming through two major distributors. That enabled us to provide the Estonian client with the “direct to the wholesaler” opportunity fairly easily. The initial business model functioned very well in Estonia and we wanted to repeat it on other markets. At that time, we did not know yet that the supply chain characteristic to Estonia is actually very similar in other countries. For example, in the UK, there are also four distributors controlling 70-80% of the market.
This way, the model easily developed. When we entered the Latvian and Lithuanian markets, all we had to do was localise the software, establish a sales office, and find partners.
Why the expansion in Europe got so vigorous was the fact that we got a new and innovative idea in the course of the work. It appeared that we could provide a different service to international companies. An illustrative example: someone is sitting in London and can make orders for his Czech subsidiary; he sees what is in the local wholesale warehouses, an order goes to a Czech wholesale company, it is delivered the same day, and the local invoice is sent together with local taxes on the same day. The international companies operating in Europe can take MarkIT and send orders to all of their subsidiaries in half an hour. It is completely unique. No one offers such a service in Europe.

And also that is innovation?
Precisely. It could be called strategic consistency. It is innovation, but it is innovation derived from a previous idea. We did not have such an idea originally. When we went to Latvia and Lithuania, we began working with some trans-Baltic companies. We watched how they operated and how they ordered and we thought: “Oho, let us imagine we operated in twenty countries at the same time.”

As it is complicated, maybe we could go through the history of MarkIT once again.
Firstly, the business model was direct from the wholesaler: self service and automatic with software to help the client save time. The next step was the export of the same business model to other countries. And the last step is a chain effect that we call a global-local model that enables clients to order internationally, while benefiting from local advantages.
By the way, we got another idea in the course of our work – cross border supplies. We noticed that prices in various countries in Europe were very different. Today, we also deliver from one country to another. In the Czech market, for example, we deliver goods from Germany and Austria in addition to local wholesalers.

MarkIT is a good example of how innovation is not a new thing, new study, or new discovery, but just a new business model – that does the same thing in a different way.
Yes, it is rather a business innovation. Naturally, technology plays a role here. If the XML-technology had not appeared in the Nordic countries so soon, we would not have developed the business model or have implemented it.
Our own background was as a reseller of IT goods. At some point, we looked from the perspective of the seller as well as the buyer and realised that there had to be a better way to conduct business than by asking for offers by e-mail and then comparing them afterwards. A classic IT purchase in Estonia was that there were three wholesalers making 1.7 billion out of the 2 billion brought to Estonia. Then there were 400 resellers among whom contests were organised to mainly discuss the amount of the margin of the reseller.

I ask again – in how many countries are you now?
Firstly, we had to explain our business model. We have ten countries where we are present with our office with a country manager and sales personnel. That could be called making MarkIT business in other countries.
In addition, there are ten more countries that provide a trans-European roof to international companies. There is a subsidiary in these countries, everything functions, and the service is the same. The only difference lies in the fact that we have not invested into the local sales office, and we service the clients from Tallinn. For instance, there is a person sitting behind me who speaks French and Dutch for those two markets.
It is a matter of physical investment. We are not able to establish sales offices in all countries at the same time.

How did you choose these countries? There is a tradition in Estonia to go first to Latvia and Lithuania…
It was like that at first. We made a traditional step like Estonian companies do. Where else would you go – you go to Latvia and you go to Lithuania. After the first expansion, we started thinking very seriously – if we have a competitive product, why do we go to Riga; was it because we could get there by car? Actually, you should go to the market that suits the best. So it happened that the first choices were fairly random, but from there on we began to think carefully about where to go and in what order.
We started to apply a methodology of scenarios, to model what the success criteria that supported the business model of MarkIT were: the general popularity of e-procurement; average salary; distribution situation; corruption level, the less corruption, the faster our business would expand. And so on and so forth. Many criteria on the basis of which to choose new countries.

Your expansion has been quite systematic then?
We have planned our business quite carefully. If you have a good business model and solve a painful problem for a client, it can be exported. Human relations, however, are very difficult to export. I could know all the IT managers in Estonia but that does not help me in Poland. What helps me in Poland is the ability to find and distinguish good employees from bad ones, make the system work, and show client the usefulness of it. Relations and contacts are good, but what primarily matters is whether you have a valuable product that solves the client’s needs. For example, we are quite successful in Spain just because we are able to solve clients’ problems. The stereotypes that the Spanish do not do e-procurement is all secondary.

How do you find representatives abroad? What is it that you do specifically? Let us take an example. I read from your website that in Spain your country manager is Mr. Carlos Bretons…
There is nothing very complicated. There is a CV-Online in Spain, too. In some countries, we have also used personnel search companies. When we meet the candidates, we explain our business model. The decisive criterion is whether we are sufficiently interesting enough and challenging enough. Do they like our business model? Finding people is not complicated: we advertise, read CVs, meet.

What is the background of those country managers?
Personnel selection is a thing that we did very badly at first. We changed it and have become systematic in the course of work. There must be a certain crierion: the candidate must be able to bring specific examples from his or her previous experience that shows he or she is able to do the things we need. For example, he or she must have sales experience of B2B added value. This is followed by the ability to work independently, as at first he or she works at home and then works and travels alone. Time management. There are certain criteria we search for answers to. For example, the very same Carlos; he has an IT background and he used to be the sales manager in a personnel search portal. Or Austria’s country manager; he too has B2B sales experience in the field of telecommunications.

You mentioned that at first you were very bad in the personnel search. What went wrong?
We searched personnel as they do. A person comes, you take his CV, you talk, you talk about previous work experience. Especially abroad where you see bright fluent people with a beautiful CV and you hire him, but he actually lacks the critical skills for this particular work. We switched from the traditional “What kind of books have you read?” and “What are your objectives for the next five years?” to very specific success factors. We make interviews and these interviews are example-based. We all can give correct answers to questions, but we need specific examples of their experience.

You have failed with some foreign representatives, too?
For example, we failed in Slovakia, even twice. We had problems with the first sales people in Czech Republic (the country manager was well selected), and the other mistake was the Slovakian country manager. These were two fast lessons, but a lesson still costs a million kroons. You do not realise at first either whether it is the person, the market, or something else. It takes some time.

Contributions are high. A wrong person a million kroons?
Realistically, yes.

Is it that MarkIT is an Estonian company? That you have to explain and prove it is not a Wild East.
There is prejudice that we are aware of in a sense. What is very exciting is the fact that very little prejudice comes true. I do not recall having problems because we are an Estonian company. And if, at some point, we really were an Estonian company, the next moment we were a company operating in Estonia, Latvia, Finland, Poland, and Lithuania. We could say we operated in seven countries with a head office in Tallinn and had a turnover of ten million euro; the figure is not an empty space any more. The fact that you are taken seriously is important – what company are you, what do you have to say, that is what matters. The fact that our headquarters is situated in Estonia is not an issue. I have never sensed that Tallinn or Estonia has a problem with reputation. The fact that an Internet company comes to Spain is not surprising.
The only thing was when the economic crisis occurred; that was a problem. When we went to ask for credit, they said: we were in loss, as our investments were big, and we came from Estonia. That was oh-oh. The Baltic is very bad…

What kind of prejudice did you yourselves have that was not true?
One thing is cultural differences. I myself have graduated from a business school in the US and we were taught thick books about cultural differences and how different they were. And when you interview people for the first time somewhere in the Czech Republic or Austria, they say everything is so different here and people are different.
Our experience is the opposite: everything is surprisingly similar. The question is what you emphasise. Yes, the Spanish are different but if you look a bit further, they are very similar: they talk about the same things, they have the same needs, and they share the same views. The fundamental issues are extremely universal. What is surprising in making business is how similar people are all over Europe.

How do you motivate foreigners? They are still salaried employees?
Our country managers also have an option programme, but that is not something too extreme. The main motivation is the awesome idea. If you are a country manager, you are practically an entrepreneur who is provided with a business model, materials, Internet solution, and he himself can build up the business of a specific country. That is a fascinating challenge.

How much depends on aspects that these are different countries, different regulations, different tax systems and legislation?
That is truly very hard. We have a very strong financial team in Tallinn. At the moment, we make accounting in twenty European countries. The legislation is very uneven and at times you come across very absurd things. There are few regulations in our industry, but the accounting and accounting rules are complicated.

Support services are centralised; do you do that in Tallinn?
Our management, product development, and back office are in Tallinn. Our sales offices are on spot.

Why are you not in Norway or Germany, for example?
We will be. The establishment of each country costs one hundred thousand euro a year, and it takes three years to make a profit. You cannot manage twenty countries at a time. We did the first ten, and we will continue this year. The final goal is to have an office in all the 21 countries: five to eight people with a turnover in each country of about a million euro per person.

Your turnover now?
This year, about 26 million euro.

How big is the share of Estonia in turnover?
Roughly, Estonia is 35%, followed by Latvia with about 15 per cent. All in all, the Baltic is more than 50%.

And the objective for the turnover?
The objective is 75 million euro by 2015.

Europe is under focus. Are you are not thinking of the USA or Russia?
We are, but we do not talk about it. Now, we have a vision with a time horizon of about five-six years and we are concentrating on that. Time has also shown us that new ideas and objectives come in the course of the work.

How much do the investors contribute to the activities of MarkIT? There has been a lot of talk about the investment of the investment company ASI owned by the Skype guys in your company.
The investment of ASI was important – 30 million kroons; that is a huge thing. And at least at the beginning a certain connection to Skype was also positive in the sense of reputation. We could say that the leading engineers of Skype have invested in us.

When you share words of wisdom with companies striving for foreign markets, what would these be?
On the basis of our experience, it depends on the uniqueness and value. And at least our example has shown that focusing has definitely worked. It is easy to grasp the Estonian market and expand in Estonia. It is a temptation, because it is a familiar domestic market.
We have maintained focus very strongly. It means we deal with one narrow sphere in a long perspective. We become experts in this field and it becomes our competitive advantage. In 2004, the turnover of MarkIT business was 15 million kroons, a few employees and two distributors. That is duplicated relatively easily. Today, we are in 21 countries. Choose your field, very narrow, and focus on it – that is a precondition for an international breakthrough. Estonia is small and you can operate here any way you want, but if we compete with a company in Germany with a turnover of 1.5 billion euro, you need a clear focus.

Fears about differences in people’s way of thinking and cultures is rather a myth?
Seems so. These are boundaries in our heads. I do not think that there are any external factors that would make export impossible for Estonian companies.
When going to Riga, we had a very special feeling at first as well. Now, however, we are at a business meeting in our office in Barcelona and everything is natural. There is nothing overwhelmingly complicated about entering foreign markets. If you have your idea, concentrate on it, and go forward step by step.

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