In this article on achieving successful international business ventures, the initial focus is on the evaluation process – an important first step on the path to international success. Failing to carefully weigh up issues affecting the commercial viability of a new venture can cause real problems later – and even adversely affect the existing core business base too.
You don’t have to look far to find examples of ventures which have failed because people fell into the trap of assuming rather than evaluating. The fact is that setting up, or expanding into, another country IS different. Anyone who fails to understand and recognise these differences – and then design, structure and run the new business venture in the light of these differences – is playing Russian roulette with its future welfare and may end up proving Oscar Wilde’s observation that; “Experience is simply a name we give to our mistakes”.
The Key Issues
The first is the size and development potential of the market opportunity itself. At the macro level, which country offers the most attractive opportunity? How big is its market for the product or service you offer; who will your competitors be and, by comparison, how attractive will your offering be? Commissioning some careful market research or feasibility study is therefore an essential first step.
But the research shouldn’t just focus on the market opportunity alone. A variety of other, closely related, issues also need to be examined. For example, an understanding of the importance of the culture and ethos of the country will allow you to tease out possible buying barriers – which could perhaps be psychological, cultural or caused by inappropriate branding. Will French buyers shrug their Gallic shoulders in disdain when offered US produced wine as an alternative to Beaujolais for example? On this point the international strategy consultant Trevor O’Hara cautions; “Beware of arrogance. You may be the leading player back home, but in a new market you’re an unknown with a reputation you need to build”.
Your New Operational Base
You will have to house the business somewhere of course and so will need to look at occupation costs – be they office, warehouse or industrial premises. These will vary, with the major cities usually being the most expensive. London, Tokyo and New York usually head the list – although the actual rents payable have certainly fallen as a result of the 9-11 disaster. And the costs to rent or buy suitable commercial premises are of course closely linked to the increasingly important issues of labour availability and costs.
Here, the emerging and relatively undeveloped countries are gaining ground. Their basic market forces are difficult, and arguably commercially impossible, to ignore or resist. British readers will probably recall the example of the eponymous “Dyson” vacuum cleaner manufacturing and assembly base being moved out of the UK to a lower cost overseas labour market location by its quintessentially English, and patriotic, James Dyson.
Sun Belts and Cheaper Labour
Naturally the onward march of business globalisation is proving to be very good news for the, so called, “Sun Belt” economies of the world – typified in Europe by Spain, Portugal and Italy. And we are now seeing this mirrored within the expanding EC Community and the emerging Far East economies by the movement of a number of jobs to lower wage cost locations.
Some Locations May Fight to Give You Money
The competition to obtain inward investment gets fiercer all the time. An outside observer might expect these battle lines to be drawn at national boundaries but very often the real fighting is taking place between the regions of a country – each with its own inward investment basket of bonbons on offer. Don’t ignore the grants and incentives that may be available – sometimes in quite unexpected places too. Even the apparently thrusting, dynamic and trendy Brighton & Hove (recently designated as a City) now offers employers grants to move there.
Many countries and regions will offer a mixture of published and discretionary grants and incentives which are reviewed and revised on a regular basis. Published incentives are usually available in areas in need of regeneration – very often where an old industry has died away, leaving large numbers of employees without a job. Discretionary incentives are normally linked to job creation in the area and are usually subject to individual negotiation.
The more new jobs you are likely to create the more enthusiastic will be your reception and the more assistance you are likely to be offered.
But Money Isn’t Everything
But don’t let the availability of grants or incentives in a locality become the only reason for choosing a location (in fact only around 10% of relocation decisions are made because grants or incentives are on offer at the new location). The majority of successful businesses entering new countries actually opt for proven and successful locations – typically in capital cities or in key regional centres.
Unsurprisingly, organisations needing a large local labour force will be more likely to seek grants and incentives than employers in the professional or service sectors.
Ignore the issue of accessibility at your peril. Your new base of operations should be easily accessible from the existing “home” business location and ideally offer a variety of travel options and termini. It should also allow easy local and regional access and be blessed with good road, rail and transportation links.
Beware of heavily congested areas. Organisations are increasingly moving from congested urban areas with grid-locked traffic (creating the so called “push” effect) to un-congested and greener sites (the so called “pull” effect). So if your business already has existing customers in neighbouring countries are you going to be able to service them efficiently along the routes available?
It is noticeable within the ever-burgeoning EU that many organisations are opting for the greater efficiency and accessibility offered by a mainland European base. Within the EU there is also an increasing focus on what has become known as Mobility Management (“MM”) aimed at improving accessibility by reducing the volume of traffic on the road through a carefully co-ordinated mix of measures such as better integrated and improved public transport, car sharing, teleworking and business travel planning.
Within the EU most new commercial developments of any size or consequence are now subject to planning requirements to introduce MM measures and to monitor and measure their results and efficiencies. Holland in particular has achieved significant success as a result of the Dutch government’s recognition that the flow of the nation’s lifeblood (the goods in the lorries) was increasingly getting blocked by the volume of traffic in its severely restricted arteries (the roads) and that something had to be done about it.
Taxation and Costs
Don’t forget too to look at the regulatory regimes within each country. Will you be able to repatriate profits easily; what are the comparative costs of labour and the tax and social security costs? Finance Ministers regularly review, and often change, their ground rules to encourage inward investment or retain businesses that might otherwise be tempted to move elsewhere – so it pays to keep abreast of their thinking and of the changes they implement.
Who Will Make it Happen?
And finally what about your most precious assets – the people you will ask to make it all work? Its’ essential to carefully review all the hard issues like rents, local taxes, occupation and labour costs – but will your key staff who have to make the venture succeed be happy and motivated? If not you’re going to face problems. It’s not at all unusual for expatriate assignments overseas, to set up and run new ventures but then to fail.
According to the Washington DC based Employee Relocation Council, over a third of expatriate assignments fail. Even worse, most failures occur within the first six months. Imagine the impact of this failure on a new business venture in an overseas location. Not only will the individual have failed but the business itself may be in jeopardy. Staff hired locally will be leaderless and “head office” will be desperately trying to paper over a widening credibility and confidence crack, whilst frantically looking for a suitable replacement.
Investing sufficient time up-front to evaluate local housing, education, customs and procedures will be repaid a hundredfold.