Overview:
The European artificial intelligence and machine Xi software market can be divided into horizontal and vertical markets. You can reach these segments through a few different market channels. The most realistic market channel for you is through European service providers or through subcontracting through online platforms. The most fierce competitors come from Asia and Central and Eastern Europe.
How is the end market segmented?
The AI and ML software development market can be segmented on the basis of horizontal market (application) and vertical market (end-user industry). Currently, there are quite a few market segments in the AI/ML space. There is a lot of room for new ideas and innovations. But industry experts don't think this will continue for many years. Therefore, it is necessary to seize the opportunities of the moment. But at the same time, AI and ML are expected to spread to more market segments. However, the banking financial services and insurance (BFSI) segment is currently and expected to dominate the market by 2028.
However, the application segment holds the second-largest market share and is set to grow rapidly during the forecast period (2028).
Buyers in specific market segments may also be interested in multiple AI or ML applications. For example, in healthcare, image analysis, treatment recommendations, and drug research based on AI or ML applications. In manufacturing, predictive maintenance, supply chain optimization, price prediction, energy management, and many other activities based on AI or ML applications.
How do AI and ML software development services reach the end market?
The diagram below outlines the trade channels available to access the European market. This structure is common in several European countries. Subcontracting with European service providers (ESPs) is your most realistic channel to market. This means that European service providers subcontract to you the AI and machine Xi tasks that the end-user company contracts with them.
European Service Providers:
You can find a European Service Provider (ESP) that is best to work with directly through a matchmaker/sales representative. Many European companies prefer to deal with local contacts, so a middleman is a good option. A European service provider similar to your company will be the most suitable contractor for you. Ideally, this company should design, develop, market, sell, and maintain products that are similar to your AI or ML software.
The relationship between the ESP and the subcontractor requires:
mutual trust;
interdependence;
structured relationships (functions, tasks, communication, and procedures);
limited market visibility and market access opportunities for subcontracted suppliers;
the absence of intellectual property (IP) rights, or the loss of intellectual property rights of sub-suppliers;
Work as needed/necessary.
Mediator:
Consultants / Matchmakers are individuals or companies that have many relevant contacts in a particular market segment or industry. As intermediaries, they are the ones who are directly dealing with the client, not the agents who make harassing phone calls or send harassing emails. So please introduce your company properly to your consultant/matchmaker. They talk to many potential clients, and the more they know about your company and the deeper they understand your capabilities, the better they can introduce you to others.
If you're working with a consultant/matchmaker:
The consultant/matchmaker makes an appointment with the prospect for you;
The demo and sales process is still up to you;
You will need to pay a security deposit and intermediary fees (which can be expensive and need to be careful about the agreement);
Consultants/matchmakers often have multiple clients (perhaps your competitors);
You need to set clear expectations and goals so that you can measure their performance.
The structure of the margin plus success fee can be expensive. The intermediary fee depends on what the intermediary provides, but regardless of their performance, you will have to pay a security deposit (usually a fixed monthly payment). The margin should be high enough to cover some of the costs, but low enough to incentivize them to complete the task. It is very important to have a lawyer draft the contract.
You'll also need to include an exit policy in your contract. Clearly define the final completion date of the contract. The total contract length is usually no more than four months. After the expiration date, the contract will be reassessed and may be terminated or extended depending on the circumstances (e.g., incomplete delivery). The initial expectations and goals you set for your consultant or matchmaker must be clearly defined. For example, specify the number of relevant contacts, meetings, and leads you expect. You can also consider negotiating a trial period.
Sales/Marketing Representative
Another type of intermediary is a sales/marketing representative. These reps will be more actively involved in your project during the sales process than consultants/matchmakers.
Work with a Sales/Marketing Representative:
Sales/marketing representatives contact potential customers for you;
Sales/marketing representatives also make sales and sometimes manage projects;
You pay a retention and success fee (which can be expensive), or a fixed monthly fee;
Sales/marketing reps can have multiple clients, or work just for you (or maybe your competitors).
A good sales/marketing rep has an extensive, relevant network, so they won't make spam phone calls to make referrals for you. Their intermediary fee is usually a percentage of the funding for the projects they join.
Other options:
Direct sales service
For most vendors from developing countries, selling AI or ML software directly is challenging and requires careful consideration.
Invest in a local company
You can also support your AI/ML software development services by attracting crowdfunding or investing in your local start-up branch, often in partnership with a local manufacturer of the physical product in question.
Online platform
E-commerce is an inexpensive marketing tool, and they have a low start-up cost. But this requires you to have a good understanding of the end market.
Establishment of local sales offices
Some IT outsourcing providers choose to open local sales offices. However, this is not suitable as your first step. You'll need to look at your customers who are already in the market and do your research to see if your customer base will continue to expand in that market. In addition, you'll need a good salesperson with local experience and plenty of money.
Which countries do you have competitors?
India, Malaysia, Indonesia, Brazil, and Vietnam are your strongest competitors, but the countries of Central and Eastern Europe (CEE) are also not to be underestimated.
（https://www.kearney.com/service/digital/gsli/2019-full-report）
India - a low-cost destination with a reputation for "low price, high volume" projects
India continues to lead the Global Location of Service Index (GLSI). This leading position is largely due to the country's unique combination of low-cost services and English language skills.
To stay ahead of the curve, India needs to be prepared to transition from low-skilled jobs that could be replaced by robots to more creative and high-skilled jobs. However, the same applies to other low-cost countries.
India's reputation as an AI/ML outsourcing destination is not great and it is not ideal for looking for very high-quality jobs. AI and ML technologies require innovative thinking and highly skilled workers, and India needs to make a big push in the field of AI and ML.
In addition, India's language advantage is shrinking, and many other countries are catching up.
European buyers often associate the extremely low developer rates in Asian countries with poor project quality.
Example:
Pixelcrayons is an India-based company. They are an award-winning digital consulting and engineering firm that provides comprehensive software solutions to enterprises, independent software vendors, digital agencies, and startups. Their expertise in ML and AI development empowers customers to think, predict, and act intelligently. They focus on using high-level architectures such as Apache Singa, Amazon ML, Azure ML Studio, Caffe, H2O, and MLlib (Spark) to ensure the delivery of the best solutions. By leveraging their ML development expertise, customers can unlock new possibilities, improve operational efficiency, and achieve concrete business outcomes.
（https://www.pixelcrayons.com/）
Central and Eastern European countries - the fast-growing IT industry
Poland and Romania are also strong contenders for AI and ML outsourcing destinations. This is because their governments are pouring more domestic and foreign money into AI and ML.
（https://www.6wresearch.com/industry-report/europe-artificial-intelligence-as-a-service-market-2021-2027）
Poland's IT outsourcing ecosystem combines around 700 business service centers located in Warsaw, Krakow, Lodz and Wroclaw. Poland has the third highest number of skilled programmers in the world. Polish software engineers have experience working with emerging technologies such as AI and ML. They are also good at mainstream programming languages.
The market value of the Romanian software industry is growing rapidly. In 2021, the ITC sector contributed 6.7% to Romania's GDP and is expected to reach 10% in the next few years. The market size of the software development sector alone is currently estimated at $3.2 billion.
Romania has attracted the attention of global tech companies due to the clear and transparent procedures for registering property, paying taxes, and enforcing contracts. Several multinational companies have already opened offices across the country. For example, Hewlett-Packard has established a software development center in Cluj-Napoca, IBM operates in Brasov, Microsoft in Timisoara, Amazon in Iasi, and Oracle in Bucharest.
Other strong contenders in the region include Serbia, Bulgaria, Hungary and Macedonia.
Example:
Nexocode is an AI company based in Poland. They excel in innovative AI development and have strong technical capabilities and a strategic vision. Their expertise in machine Xi enables them to create smart solutions that enhance everyday life. They offer comprehensive AI development services throughout the AI lifecycle. With clear communication and customized AI solutions, they support clients in strategy, product vision, AI software development, DevOps, and UX/UI design.
（https://nexocode.com/）
Malaysia - Highly qualified workforce
Malaysia ranks third in the GLSI, mainly due to its large and relatively well-educated English-speaking workforce.
Malaysia has a reputable software development industry.
Indonesia - a huge talent pool
Indonesia has one of the largest and youngest workforces in the world. Its labor market is very active, growing by 2.5 million workers per year, of which about 250,000 are university graduates. Labor costs are also very low. As a result, Indonesia offers a wide range of options for companies looking to outsource some of their services.
Brazil - Strong IT department
Brazil ranks fifth in the GSLI. São Paulo is fast becoming a digital hub in Latin America, attracting more start-up investment than Chile, Colombia, Argentina and Mexico combined.
According to the Brazilian Software Association, the information technology (IT) market in Brazil was valued at €42 billion in 2021. The market is expected to grow by 8.2% in 2022. Brazil is the 10th largest IT market in the world. It accounts for 40% of the Latin American market, and finding skilled software development professionals in Brazil is not a difficult task.
Vietnam – a small but powerful outsourcing destination
Vietnam currently ranks sixth in the Global Service Location Index (GSLI). It is one of the fastest-growing economies in the Asia-Pacific region. The country's transition from low-tech manufacturing to a service-oriented economy has allowed it to grow from one of the world's poorest countries to a major economic powerhouse.
Vietnam is also emerging as a popular destination for outsourcing. In the first half of 2022, the information technology and communications (ITC) sector had an estimated revenue of €72 billion, up 17% compared to the same period last year. Vietnam ranks eighth in the world in terms of high-tech exports.
Although 20 years ago there were few high-tech companies in Vietnam, today there are 673,000 information technology companies in the country, and cities such as Hanoi, Ho Chi Minh City and Da Nang are known for their vibrant entrepreneurial atmospheres. These cities have developed strong tech ecosystems, excellent infrastructure and respected universities, producing 55,000 graduates each year for information technology majors.
Vietnam's sustainable growth, huge talent pool, incentive programs, and significant investment in education have made it one of the top 50 digital countries in the world. The country is ranked 25th in the Tholons Global Innovation Countries Index, and Hanoi and Ho Chi Minh City are both ranked 50th and 58th respectively in the global 100 "super cities" ranking.
Examples of AI/or ML software providers
Agile Tech
Agile Tech is a software development outsourcing provider based in Vietnam. They specialize in big data services related to websites/mobile applications, blockchain services, and artificial intelligence. They have been a successful technology partner for many startups since 2015. Startups have paid millions of euros to Agile Tech for technical support.
（https://agiletech.vn/）
Neotaric
Neotaric is headquartered in Poland. They specialize in software development Xi artificial intelligence and machine science. They offer a range of services: building new digital products, developing existing ones, or introducing generative AI into their customers' businesses. They specialize in the latest applications of artificial intelligence and machine learning Xi technologies, including generative AI.
（https://neoteric.eu/）
NEUON
NEUON IS AN ARTIFICIAL INTELLIGENCE COMPANY BASED IN MALAYSIA. They specialize in computer vision, machine Xi, and the Internet of Things. They sell their own in-house custom deep neural network models. They focus on solutions to pattern recognition problems based on computer vision. They have a tailor-made facial recognition model that is dedicated to solving the facial recognition challenges we face in multiracial societies with a variety of facial feature differences.
（https://neuon.ai/）
The cost of AI and ML software development services
Price cost is one of the main reasons why European companies outsource their artificial intelligence (AI) and machine Xi (ML) software development to companies in other countries. Salary accounts for a large portion of the cost of AI and ML software development. The average salary of a software developer in Western Europe is around €56,000 per year. In offshoring destinations, salaries are often significantly lower. This means that outsourcing to countries with lower salaries can result in considerable cost savings.
（https://www.griddynamics.com/services/global-team/blog/offshore-team/software-developer-rates-western-central-europe-2022）
You can check out Grid Dynamics' free white paper on offshore developer rates to learn more about pricing and pricing models.
（https://www.griddynamics.com/services/global-team/whitepapers）