|
Successful International Business Ventures & How to Evaluate Them - (Part One)
In this, the first of a sequence of three articles on achieving successful international business ventures, my focus is on the evaluation process. And carrying out a careful evaluation is crucial to international success. Failing to do so can easily jeopardise the new venture – and sometimes the original core business too.
You don’t have to look far to find examples of ventures that have failed because people fell into the trap of assuming rather than evaluating. Setting up, or expanding into, another country IS different. Those who fail to understand and recognise the differences – and then structure and run the business in the light of them – are playing Russian roulette with its future welfare and could easily end up proving Oscar Wilde’s point that; “Experience is simply a name we give to our mistakes”.
WHAT ARE THE KEY ISSUES:
Well of course the first is 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 is therefore an essential first step.
POSSIBLE BARRIERS:
But the research shouldn’t just focus on the market opportunity alone of course. A variety of other, closely related, issues also need to be examined. For example, it’s important to look at the culture and ethos of the country in order 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 Uncle Sam wine as an alternative to Beaujolais for example? On this point Trevor O’Hara, Managing Partner of international strategy consultants Renarc, cautions; “Don’t be arrogant. You may be the leading player back home, but in a new market you’re an unknown with a reputation to build”.
YOUR NEW OPERATIONAL BASE:
You will have to house the business somewhere of course 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 11th September 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.
FORCE MAJEURE:
Here, the emerging and relatively undeveloped countries are gaining ground. These basic market forces are difficult, and arguably commercially impossible, to ignore or resist. British readers will recall the recent example of the eponymous “Dyson” vacuum cleaner manufacturing and assembly base being moved by its owner – the patriotic, and quintessentially English, James Dyson – out of the UK to a lower cost overseas labour market location.
LOOKING FOR A SUN BELT:
So naturally the onward march of business globalisation is proving to be very good news indeed for the, so called, “Sun Belt” economies of the world – typified in Europe by Spain, Portugal and Italy. And we now see the mirroring, within Europe and the emerging Far East economies, of the movement of many labour intensive industries formerly based in North America to the more southerly Sun Belt locations of the Americas – especially to Mexico.
SOME LOCATIONS MAY FIGHT TO GIVE YOU MONEY:
And the dog fights to attract inward investment are getting fiercer all the time. Any outside observer might naturally expect these battle lines to be drawn at national boundaries but, in reality, the fighting is actually taking place between the numerous regions within countries – each with its own inward investment bonbon basket on offer.
However, don’t ignore the grants and incentives that may be available – sometimes in unexpected places. In the UK for example even the apparently thrusting and dynamic Brighton & Hove (recently designated as a City) currently offers employers grants to move there. Most countries and regions offer a mixture of published and discretionary grants and incentives that are reviewed and revised on a regular basis. Published incentives are usually offered in areas in need of regeneration – very often because an old industrial base has died, leaving large numbers of employees without a job. Discretionary incentives are normally linked to the creation of new jobs in the area and are usually subject to individual negotiation. The more new jobs you are likely to create the better will be your reception and the assistance 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.
ACCESSIBILITY:
Ignore the issue of accessibility at your peril. Your new base of operations should be easily accessible from your 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 (this is called the “push” effect) to un-congested and greener sites (called the “pull” effect). So if you have existing customers in neighbouring countries will you be able to service them efficiently along the routes available?
It is noticeable that within the ever-burgeoning EC/EU marketplace many companies are now opting for the greater efficiency and accessibility offered by a mainland European base. Within Europe there is also an increasing focus on what has become known as Mobility Management (“MM”). The aim of MM is to improve accessibility by reducing the volume of traffic on the road through a carefully co-ordinated mix of measures such as improved public transport, car sharing and business travel planning.
Throughout Europe most new commercial developments of any size or consequence are now subject to a planning requirement to introduce MM measures and to monitor and measure their results and efficiencies. Holland in particular has achieved significant MM successes following the Dutch government’s recognition that the flow of the nation’s lifeblood (goods in transit) was increasingly getting blocked in its severely restricted arteries (their road system) and that something had to be done.
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 in order 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, to fail. According to the Washington DC based Employee Relocation Council, over one third of expatriate assignments do fail. Even worse, most failures occur within the first six months.
Imagine the impact of this on a new business venture in a foreign field somewhere. Not only will the individual him/herself have failed, the business itself will 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 time up-front to evaluate local housing, education, customs and procedures will be repaid a hundredfold.
EXPERT HELP:
Expert help is available to assist in this task and members of the British based Association of Relocation Agents, and their sister organisation the European Relocation Association, offer local knowledge and many years of experience of ensuring that incoming executives and their families find suitable housing and settle into their new environment quickly.
In conclusion, I cannot better the view of Irving Fisher () who is reported to have said; “Risk varies inversely with knowledge”.
© Stuart Mitchell – All rights reserved
 Top of Page
|
