"We are very vigorously extending our partner network"

Hans-Kurt Lubberstedt is Executive VP (Asia Pacific) of UGS, a
leading global provider of product lifecycle management (PLM) software and
services. The company has 3.1 million licensed seats and 42,000 accounts
worldwide. Lubberstedt and his organization are responsible for all aspects of
UGS' business in the Asia Pacific region, including sales, service,
implementation, training and support.

During a recently organized event in Tokyo, Lubberstedt talked
exclusively with Asim Raina of The DQ Week about the importance of channels and
future directions of the Indian market.

In the overall business volume, where does India stand for
UGS?

It's about number five in Asia Pac. First is Japan, second China in
volume, third Korea, fourth Australia and then India.

The business volume from India has not been a large one for UGS
as yet. But what we have seen, observed actually, in the last three years, and
the two prior quarters this year is, by far, the most aggressive growth. We have
had a growth in 2002 over 2001 of 32 percent and in 2003 over 2002, it was 52
percent.

The position of India has become much more prominent in the last
few years because of this growth. Earlier, India was far behind others, like
Singapore and some of the other markets were stronger than India. That's no
longer the case, it has become one of the primary countries and I'm very
convinced that India will surpass Australia very soon, in terms of business
volume.

But in India, your stronghold has been the automotive sector.
I don't think you are so strong in other sectors?

It is very true that automotive is our stronghold, like everywhere in the
world, by the way, we are very strong players in this industry in Japan as well
and therefore we are in India also.

But it's not, of course, only the automotives, there's
machinery, there are also some hi-tech electronics areas. We have a strong mix
of players there, also the supplier industries in various segments. I could say,
every segment, which is engaged in mechanical products, is our power to power
customer base.

The newly emerging segment which, now I would say, with very
strong future potential is the engineering service sector. This sector has some
large companies, some small size companies have emerged to become large, in that
area, and they need good tools, they need good processes and we are very
interested to develop them.

But you said you have been present in India for 18 years, which
is higher than Australia's 16 years, China 15 years, Taiwan 16 years etc. But
you are still lagging behind Australia and China whereas you started operations
in India prior to these countries. Don't you think that India has somewhere
missed the bus, it has been late to wake up to its true potential?

I wouldn't say that. Again, as I said that Indian economy as
such, has a somewhat different development pattern. The Indian economy, as you
know, was for many years very strongly agriculturist, which is a very strong
sector in India, and as such, our potential customer base in India, was somehow
limited. And we are aware that as a player we had a good part of the market, but
of course, the market as such was limited. Now that has changed much, because of
the Indian industrial sector, the economy is really growing very strongly and
through that, now the business opportunities are growing very strongly as well.

As I said, India will overtake other countries, and it is doing
today. And we, may be I would have to look into the details, but I think that
actually it is going to be bigger than Australia this year ie 2004. So it's
just the matter of, way we have to re-focus, we have to also understand, for
instance, a significant portion of the Australian revenue, which we have
experienced in the past, was coming from affiliates of multinational companies.
We have a number of these customers, who have given us, the relatively easy
entrance in some market areas. In India, typically, we don't have that kind of
thing. We have genuine Indian companies as our customers.

In India I think you haven't really concentrated on the small
and medium business, which is one segment growing very fast.

Yes, that's kind of true. Because earlier on we wanted to make
sure that we penetrate the major players primarily, to then get the supply chain
and that has largely played out for us. With it, we've now established quite a
large number of new partnerships with the dealers, who do cater to the small
medium enterprises of the area. So therefore, we are in the best position today
than we would have been a few years ago to cater to that kind of industry
segment. That's also, of course, a strong part of the growth, you see a strong
percentage comes from that sector.

But I'm also very happy about the fact that our Indian
organization has primarily focused on the larger players first because if we
hadn't those firsts as our customers, the penetration of the small and medium
enterprise would be much harder. As you know, these companies too look to the
big level players. They want to know what these guys are doing. They want to
kind of follow a similar trend. They don't want to hold off and experiment
something quite different than what these guys do.

Yeah, but don't you think in this small medium sector, you've
got to have a very wide channel network in place, but you still are working with
a very limited set of partners?

We are very vigorously extending our partner network. We have a channel
management in place now, which has strategic plans for the next three years. We
have a channel competence built up also in Asia. Recently, we introduced the
functions of a channel management for Asia-Pacific in Hong-Kong. So, that is
just to make sure that our efforts in building our channels are coordinated and
the best practices for operating channels can be shared. For instance, we have a
very strong channel management capability in Japan and because we have dealt
here through channels ever since we started. And we want to make sure that other
countries leverage that experience in building up their channel, again a very
good practice, now (in place) in Korea. So we are, through this, we are making
sure that we can coordinate the channels, building efforts across Asia. And each
country has their channel organizations connected to this AP channel management.
And, therefore, for the first time, there is a coordinated channel strategy
within each country for the next three year plan, which we always do at
mid-phase, a mid -level planning' cycles throughout these three years and
within that we have a defined set of new functions and new approach, which we
implement, and to build up the channel server, it is very important to us. We
recognize what you say. You are correct. I believe that to reach efficiently,
the medium and small businesses, is the real very key to the future.

Would you continue to work with the channels directly or
would you opt for getting some kind of a large distributor in place?

Yes, we have already stated that. What we do now is that we have
'tiers', distributor tiers. There are the master distributors, the ones who
are our primary partners and then we allow those to have 'sub-distributors'
who resell us. And each of these levels has actual target areas of revenue and
of cooperation with us. And this is working very well for us.

You still are working directly with the customers in the
country, which means there is a dual thing in place, where you have channels
partners selling and your team also selling. Does that create any conflict in
the market place?

In any tier, in sales market, you have some conflict. Yes very true.

By and large, all major IT companies in India don't have this
conflict-they completely stopped selling to the end customer. Every thing is
made available through the channel partner. This minimizes conflicts.

If a vendor says that it has no conflict then I would like to
understand his module. I have never seen a tier, which had no conflict. Because
there is always an overlap and you cannot avoid that overlap in this business;
but what you can do, and we do a lot of work to do that well, is to match the
overlap to become minimal? And that is what we try to do.

We believe that to build directly with the major customers, is
very essential for us. We don't want to cut-off. We think, that those major
players too absolutely request us to be present directly outside. They want to
have the security, the certainty that they can work with the offer or the
product. They want to have commitments from us.

So I do not want to be in a standoff. I want to make sure we
stay in that position. We need to make sure that territories where our
distributors can build, be it geographic, or the industries or the size, are
clearly defined.

There is a lot of demand from the corporate world that they
want trained people in this area but are not getting them. Do you have any focus
on education-having independent training institutes, giving degrees or
certifications on your products?

Yes we do that. We have centralized training institutions with whom we work.
Some of these are connected with the distributors directly. And we have started
the program across Asia, in India as well for certification. We do certify the
partners, and we also certify the training partner, and the service partners.
Partners, who are capable of providing specialty services to our customers. Be
it customization, or the congregation of the system, be it connecting our
solutions to our IT domains, for instance. We have very good programs in place
now to certify those. So that, we can make sure they get very clear set of
capabilities secured before they offer services to customers.

You already have a hotline support center in India that's
operating out of Gurgaon. Do you see that developing into a hotline support
center for the worldwide customers? Sort of outsourcing kind of thing happening
in the country?

We have actually started that and so far we have not reached the conclusion
that it is the right thing to do. It has to do again with being able to be close
to the customer; being able to answer that customer's need in a local
language, through local people, which has a lot of advantages. What we do too,
we have a very strong global support center, which is giving backup to the local
center. We have an AP level support and we have a global support level. So that
the Gurgaon center for instance, when they come to questions they can't
handle, for being too deep into details or too much expertise (required) may be,
they know how to escalate the question to up to the global center and then they
get the answer from there. So they have a very good backup.

At what point does it make sense to have a global support
center in the country? Would you be going into that?

May be we can come to that one day. We started it two years ago and we came
to the point that if the customers are not ready for it, we do not want to force
the customer into such a global center yet. You are right; there is a lot more
opportunity here. It may well be that two-three years down the road the question
may look different. We may go that road, from the local call center we may
become less and less strong or extended and then we pass through the global-one
more and more, that could be. We will see how that escalates. But for now, we
want to make sure that we have a very good local support center.

(The author traveled to Tokyo at the invitation of UGS)