Crossing the chasm that is the Atlantic
THE ACADEMY OF BUSINESS STRATEGY
BUSINESS INTERNATIONALIZATION BLOG
Crossing the chasm that is the Atlantic: using the ‘special relationship’ as a springboard into major new economic blocs: part II
AUTHOR
Luis da Silva (CBS) MA BSc BA
In the previous part of this article, we probed how the close relationship between English-speaking countries on either side of the Atlantic, created opportunities but contained some challenges. In this second part we will look more specifically at a few key aspects need to be considered seriously prior to any leap, to avoid making some obvious mistakes
As mentioned elsewhere, the choice of senior management is fundamental. Many international companies look to appoint an ‘insider’ to a senior position in either the USA or the UK, to faithfully represent the ethos of the company and relay and implement its processes and procedures in the new land. Often the motivation is not so business-led but rather a matter of ensuring an ‘insider’ with all the connotations of the term, is appointed to ensure that a key group is not distanced from a new and potentially lucrative step.
Whatever the motivation, real or implicit, it cannot be overstated how important the appointment of a fluent English speaker to the key business management role is. Normally this would not be an issue for any organisation with the aspirations of leaping the Atlantic, but on the odd occasion that this occurs, it is futile to attempt to do any business (except perhaps for pockets, such as the Spanish-speaking southern US) other than in English;
Whether it be to complement the ‘insider’ or to find a leader who knows their own market, a local senior executive is perhaps one of the most important investments that a business can make. In the first instance it buys instant credibility (assuming the right individual is employed, of course) with the local market. Unless the business can explain why a foreign individual can add value to such an exceptional level that no local talent can match it, the business and its foreign management will spend an inordinately significant portion of its time defending its decision not to employ senior local management. This is particularly the case in the US, where to motivate reason that among a population of one quarter of a billion people, no suitable individuals can be found to fulfil the role, is difficult. I cite an example of one of my past businesses, the German management consulting firm Plaut. A global partner of SAP, it had an exceptional record of implementation of technology- driven solutions to mid-market companies. In particular, at a stage when SAP, the global software powerhouse, was a solution accessible only to large companies, Plaut had proven solutions and expertise for the middle market. Sending out a CEO who not only understood the company, its roots, and additionally, despite being German, had also been involved in the successful start-up of a UK operation, was one of those exceptional occasions when a foreigner leading a US (or a UK) company made perfect sense. Importantly, to ‘compensate’, a significant number of senior management was recruited from the pool of experienced talent available locally;
No business could ever run the risk of placing too much emphasis on business generation. Some call it simply sales, some would term it managing a complex sale, others would even say sales and marketing – whatever name it is given, the business of seeking, developing and closing new business, leveraging both existing corporate relationships and opening new doors to new clients, is business critical. For the purposes of this article, I have separated out sales from marketing. Investing in sales cannot under any circumstances be overemphasised, and this statement is transversal to both products and services. In particular, the importance of generating sales in the new country is one of the activities which can be conducted, even if on a speculative basis prior to the start-up of activity. By contracting a sales team on a temporary basis with the possibility of then integrating the full-time staff, the risk can also be limited. It is also an excellent opportunity to gauge which of the resources show entrepreneurial spirit;
An investment into marketing. Here there is a significant difference between a move westwards or eastwards. Any business looking to penetrate the US must be ready to spend fairly significant sums of money on marketing activity, ensuring among other things, that either a concentrated regional or consistent national strategy is followed. Guided by the conclusions of the market research that compulsorily has been conducted, the marketing investment must always be targeted and consistent;
Market research. Ideally at the head of the list and often taken so much for granted, understanding why the company is looking to move into the new market, quantifying and qualifying the opportunity, and in particular as regards the US, defining the ideal location for the headquarters of the local firm and the first market to address, cannot be underestimated. It will involve a financial investment and the time of a senior executive of the company, probably one of the, if not the, candidate likely to take up the senior local role;
And perhaps the one thing that I have learnt over time (sometimes at my cost and sometimes the company’s): manage costs in the early phases of any business, whether it be a start-up or an expansion, very closely. Any expanding business should avoid the usual traps that can erode profits and consume the limited funds available: excessively lavish or even unnecessary premises, whether too large or requiring the spending of an unnecessary amount on refurbishment; employing too many admin staff, costing not only money but also senior management time; employing too few admin staff, especially bearing in mind that there will be significant travel and meetings, and the need for proper organisation and control of the back office will be essential; losing control of the detailed costs, by focussing only on the ‘strategic’; not concentrating on the mission critical by focussing excessively on the detail and losing contact with clients and other important business partners – after all, it is senior management’s responsibility to be the face of the organisation to the outside world, and this cannot be achieved by being introspective alone.
In every business that aims to expand, the question of balance is of critical importance. Achieving an equilibrium, between the use of internal resources which are well prepared for the transition into a new market and possessing the characteristics that will enable them to confront the challenge and success, and the use of local talent to quickly entrench the presence of the company and the loyalty of its staff, is a hugely important consideration for any business looking to cross the pond. In markets where personality, flair and empathy with staff and clients alike are so often differentiators, it is critical that the most basic of rules are not ignored when a company is looking to make the leap across the pond, or for that matter anywhere else.
ABOUT THE AUTHOR
Luis da Silva (CBS) MA BSc BA is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is business internationalization. He has achieved an MA, and BA from UNISA and a BSc from the University of the Witwatersrand. He has been employed as a CEO and board member of a listed company with a turnover of €250 million and value of €1 billion and has experience within the Manufacturing, Electronics, Banking, Agribusiness, Travel/Airlines and real estate industries. His clients or employers have included Fractional Villas Inc, Invest CV Limited, BGR Ltd, API Undercliffe Ltd, DMS Lda, Emeritis, Quillion Ltd, Datanomic Ltd, E-business Partners, PLAUT and Andersen Consulting. He has geographical working experience in the USA, UK and Brazil. His language skills include English, Spanish and Portuguese. His service skills incorporate business management, business expansion or turnaround and people management.
To contact Luis da Silva, please contact the Academy of Business Strategy by forwarding an email, or visit Luis’s CBS Blog.
Crossing the chasm that is the Atlantic
THE ACADEMY OF BUSINESS STRATEGY
BUSINESS INTERNATIONALIZATION BLOG
Crossing the chasm that is the Atlantic: using the ‘special relationship’ as a springboard into major new economic blocs
AUTHOR
Luis da Silva (CBS) MA BSc BA
How often we hear politicians, on both sides of that pond that is the vast Atlantic Ocean, talk of the ‘special relationship’ that links the English-speaking countries on either side.
Put in perspective, clearly the politicians have given the term an emphasis which is not exclusive to a relationship between the United States of America and the United Kingdom. One has only to see how strong the links with, for example, Ireland are, to note that the domain of a close alliance with partners of the US does not reside only with the residents of the United Kingdom. However, in looking at the strong bonds that exist with the UK, Ireland, and even other nations on the periphery of Europe such as Israel, two aspects come to the fore in business terms: English as a primary language of business (even in Israel many top business people are educated in the US); and the ethos of managing and running businesses, which tends to favour an entrepreneurial spirit. It is this combination of language and style that proves to be key in assisting businesses in crossing the pond. Crossing the watery divide is often to businesses undergoing globalisation, what crossing the chasm is to technology businesses looking to move into a mainstream market.
There is no doubt that businesses in North America run differently to businesses in Europe. It is not only the English-speaking companies but also the French-speaking (Canada vs. France) and Spanish –speaking (Mexico vs. Spain) which operate with nuances on the different continents. While the scope of this two-part article will be limited to the challenges of moving in either direction between English-speaking countries, it is worth citing an example between two other countries using the same language. In simplistic terms, Spain is, largely by virtue of its inclusion within the European Union, looking to maximise trade with its largest trading bloc, the EU. Likewise, Mexico looks north of its border to maximise its largest trading relationship, with the USA. Language in this sense is secondary to proximity and economic context. However, it is worth noting that, once this initial priority has been addressed, the natural hunting ground of both Mexico and Spain lies in the fertile plains of Latin America. It is here that the importance of common language and a shared culture play their salient role.
Returning to the leap between the USA and the UK, or the reverse, English as a common language is in itself, not a sufficient differentiator, but without it, a company is likely to be doomed to limited success or even total failure. Without wishing to belabour the point, the ability of the company that seeks to make the leap, to conduct business fluently in English, implies that it is more likely to understand a business process that extends from preparing a marketing document or proposal, via the provision of a service or manufacture of a product, to preparing instructions for product use and providing after-sales service, and including the effective management of a local team. Without any question, assigning or recruiting a person who has the ability to speak and conduct business effectively in English is something which cannot, under any circumstances, be compromised. While this may not be such a crucial point for countries where languages of lesser global reach are spoken, having a country manager or director with anything less than perfect English, is too large a business risk, for a move into the US or the UK.
Clearly language is only the starting point for commonality. What these two countries which share the same language also have in common, is that their business models are much more market-focussed and open than many of their respective neighbours. Continental European markets are still, as are to some extent other North American markets outside the US, prone to a degree of protectionism. While it would be naive to assume that subsidies and some degree of favouring of local markets and products does not exist in the US or Britain, both Anglo-Saxon countries tend to operate based on fairly flexible labour policies and laws, a meritocratic system in the main, and the principles of survival of resilient business models. The early stages of a business and the creation of employment tends to be driven by entrepreneurial spirit and largely unsupported by government aid of any type. For this reason, poor businesses tend to die quickly, unable to conquer the necessary market share necessary to make their survival possible in competitive markets. Conversely , the markets are so large (relative to many of their neighbours) that a successfully-run business is likely to be able to survive and eventually thrive, due to a significant internal market.
Because to penetrate either market (UK or USA) is an expensive exercise (marketing and high senior management costs in the US, and the (historically) high value of the Pound as well as the operating costs in London, where many businesses choose to locate themselves, among other aspects), most businesses only get one chance to attempt this leap. To fail is not only an expensive exercise but tends to set the scene for what will be possible, in terms of that region, for the business. To avoid this danger, there are some critical considerations for any business aiming to take prior to making this move. In the next part of this article we will look at some of those…
ABOUT THE AUTHOR
Luis da Silva (CBS) MA BSc BA is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is business internationalization. He has achieved an MA, and BA from UNISA and a BSc from the University of the Witwatersrand. He has been employed as a CEO and board member of a listed company with a turnover of €250 million and value of €1 billion and has experience within the Manufacturing, Electronics, Banking, Agribusiness, Travel/Airlines and real estate industries. His clients or employers have included Fractional Villas Inc, Invest CV Limited, BGR Ltd, API Undercliffe Ltd, DMS Lda, Emeritis, Quillion Ltd, Datanomic Ltd, E-business Partners, PLAUT and Andersen Consulting. He has geographical working experience in the USA, UK and Brazil. His language skills include English, Spanish and Portuguese. His service skills incorporate business management, business expansion or turnaround and people management.
To contact Luis da Silva, please contact the Academy of Business Strategy by forwarding an email, or visit Luis’s CBS Blog.
Internationalisation in reverse: restructuring global operations during a downturn
THE ACADEMY OF BUSINESS STRATEGY
BUSINESS INTERNATIONALIZATION BLOG
Internationalisation in reverse: restructuring global operations during a downturn
AUTHOR
Luis da Silva (CBS) MA BSc BA
Internationalisation and expanding a business overseas is frequently associated with a period of growth. Businesses often only consider expanding when the business environment is positive and general growth in the broader economy is evident. However, the current economic climate including a long-running recession which is likely to continue in many sectors for some years to come, has led and is leading many businesses to rethink the geographic scope of their business. Businesses are also measuring more rigorously the ratio of revenue to cost that is evident in their operations away from home. While there are undoubtedly instances where difficult times create business opportunities, for existing or established businesses, cost and the need to focus are putting ever-increasing strain on distributed business models, in particular where senior management teams (and their associated costs) are being trimmed. Add to that, some element of political pressure and a wave of protectionism which due to the financial climate, is affecting companies’ outlooks on their markets, and it is evident that for a number of reasons not limited to business questions alone, companies are naturally looking more carefully at their international presence. It is therefore likely that many more businesses will find themselves having to take steps to reduce their exposure, than those seeking to increase it. For this reason, internationalisation in current times is as much, if not more, about managing international presence as it is about expanding internationally.
There are, broadly speaking, three categories of adaptation of a geographically distributed business (other than maintaining the status quo) which tend to be relevant in times such as those through which the world is passing:
Consolidation by reducing the size of an international operation, either through the amalgamation of operations, the creation of regional hubs or the centralisation of some functions;
Greater use of outsourcing, franchising or sell-off of regional businesses, to reduce fixed and direct cost; or
Closure and adjustment of the business model and the balance of business volume.
The consolidation of an international base is often the most obvious (and to some extent easiest) option available to a business with multiple locations. This consolidation model is less dramatic if one is dealing with a service-based business, as the likelihood of needing to deal with capital investments or with plants or physical premises, which are held other than on a lease basis, is low.
Physical consolidation is often a natural evolution of the regional business, by virtue of the fact that, over time, certain regional businesses will perform better than others. It is almost always the case that, unless the business has opted for a single regional base from which it will service the markets in proximity, the company will have created multiple physical locations serving different countries in a region or different regions within a country. Consolidation in this sense is often possible because, in the first instance, cultural and/or linguistic differences will be small(er than in regions scattered across a broader area). Secondly, it is likely that regional collaboration will exist between team members, with some or many overlapping clients who themselves have a regional presence. For this reason, clients will be accustomed to being served, not always locally, but through a combination of local and regional resources or suppliers.
Local businesses (especially in emerging markets) may also have grown under the guidance of experienced senior executives from another part of the business, some or all of whom may now be in a position to return, for personal or professional reasons, or by virtue of having successfully grown local management and promoted staff to continue the work. The ‘removal’ of foreign management, and any seconded foreign staff, is an immediate way of reducing the cost base of the local business. In instances where the presence of foreign staff with allowances and costs not common to the local labour force is extensive, a phase-out and handover planning exercise needs to be completed, to ensure the transfer and/or removal of these costs from the business.
Another area of obvious cost reduction is the removal of long-term contractors in any business. There is no doubt that in current times, with assignments more scarce and the need for all costs to be carefully motivated, there is margin for negotiation. Clearly, the business has every right to question the motivation (other than financial) of a long-term contractor (typically longer than two years). If they are prepared to align their destinies with that of the business in return for continuity and some degree of security, then they should be converted to local staff at standard rates used in the business. If this is not the case, they should be phased out as quickly as possible.
The centralisation of certain tasks and functions is a further method of reducing the decentralised cost base. While in a sense it might reduce the autonomy of the regions, and reverse the process of regionalisation that often occurs when businesses grow internationally, it is also a way of quickly reducing cost through enforced standardisation and centralised control which reduces the need for long-distance and more expensive contact between two points in the business. As long as the functions selected (for example, some aspects of accounting, some aspects of legal/HR, the sub-assembly of kits, much of corporate IT excluding the user interaction/interface, and others) are appropriate, the options are broad.
Outsourcing occurs when businesses take a step beyond centralisation, allowing a specialised third-party business to run some of their non-core operations. Again, IT, accounting, component manufacture, raw material provision, distribution, and many others, are all examples of business processes which might not need to be subject to the business’s direct internal scrutiny but easily served by a service level agreement. This must surely be a logical step to take in circumstances where the critical mass or volume of business is not there, for example after a downsizing or restructuring of local activities.
Taken a step further, a business may just conclude that, rather than bundle its subsidiary or regional businesses into a single regional hub, the specificity and uniqueness of one or more regional businesses may be such that it would be worth franchising or selling. Both of these routes involve considerations which are explored elsewhere, but generally the sale of a business is almost always more likely if any value beyond a brand (physical presence, team, local client base) has been created.
Under extreme conditions, it may just be more sensible to close an international operation. Clearly to do so can have far-reaching effects not only financially but in terms of the people involved. Notwithstanding the due care which must be taken when dealing with people whose lives are affected, and due consideration for local and national legislation, the business is ultimately accountable to its stakeholders for its viability. Generally, if the business cannot see itself trading in the black within a reasonable time frame (bearing in mind the general economic context, the local market and the trend in client business) or returning to a position of relative strength in its local market, then it is reasonable to stem the flow of losses by shutting it down. In that context, maximising value from any fixed assets and from any trained personnel that might be used in other operations is fundamental.
Ultimately, the ability of the business to maintain an international presence to the same degree as before may be affected by many factors. It is important that before the closure of any business, all other alternatives are comprehensively examined. Only in doing so, will it be possible to analyse the real options and decide on the most effective strategy for dealing with international presence during difficult times.
ABOUT THE AUTHOR
Luis da Silva (CBS) MA BSc BA is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is business internationalization. He has achieved an MA, and BA from UNISA and a BSc from the University of the Witwatersrand. He has been employed as a CEO and board member of a listed company with a turnover of €250 million and value of €1 billion and has experience within the Manufacturing, Electronics, Banking, Agribusiness, Travel/Airlines and real estate industries. His clients or employers have included Fractional Villas Inc, Invest CV Limited, BGR Ltd, API Undercliffe Ltd, DMS Lda, Emeritis, Quillion Ltd, Datanomic Ltd, E-business Partners, PLAUT and Andersen Consulting. He has geographical working experience in the USA, UK and Brazil. His language skills include English, Spanish and Portuguese. His service skills incorporate business management, business expansion or turnaround and people management.
To contact Luis da Silva, please contact the Academy of Business Strategy by forwarding an email, or visit Luis’s CBS Blog.
Is internationalisation for my business?
THE ACADEMY OF BUSINESS STRATEGY
BUSINESS INTERNATIONALIZATION BLOG
Is internationalisation for my business?
AUTHOR
Luis da Silva (CBS) MA BSc BA
Many businesses aspire to go global. Few achieve this vision. Many businesses think they can build a global brand, presence or delivery capability. A very small percentage succeed. Names like Coca Cola, Microsoft or Accenture, reaching billions of consumers, millions of users, or thousands of corporate clients, are exceptional cases. So for many the ideal is dead before it starts. And so it should be. Not every business can be global. And not every business has the scope to be global. Or even international. But some do.
So how does a business go about navigating the minefield that is the set of options available when considering an international move? Broadly speaking, the business, as in any other expansion, be it regional, undertaking an acquisition, hiring new staff or introducing a new product or service line, needs to consider its key pillars: strategy, process, people, finance. In this brief outline, we will consider some of the aspects of each, in order to determine whether the basic requirements have been met, to allow the business to successfully internationalise its business.
Even though strategy is often considered to be a purely visionary element, in recent times most businesses and their Boards demand a plan that can be successfully executed. Contradictorily, therefore, the word strategy has come to mean something much more operational. In fact, it has often come to mean an operational plan. Which means that a CEO must possess elements of a COO. A vision of what to do is often meshed with the need for that vision to encompass a view of how to execute. One has only to realise how many services businesses name their international sales director their International COO or their SVP International, and how many manufacturing businesses name their head of manufacturing the COO, to see how the importance of effective execution has raised itself to the same, if not sometimes above, the importance of a vision for the international business.
Part and parcel of the state of preparedness of the business to execute, and to do so efficiently across multiple locations, country borders and different cultures, is the ability to have, or to put in place, a repeatable set of processes which with small adjustments can be adapted to the business’s international locations. Just as in other aspects of the business, the preparedness of the business to roll out a set of processes to new markets, thereby facilitating the speed and efficiency of international penetration, is fundamental. As in the first instant (for example, the first internationalisation), one might argue that there is reduced dependency on the existence of a process, exceptionally the first step beyond country borders can be used to establish or fine-tune a set of processes. However, it must be used as a method of setting a baseline of processes which are then implemented thereafter every time a further expansion occurs. If this does not occur, there is a very real risk of a maverick (and not necessarily unsuccessful), regional business manager developing a totally bespoke set of processes and solutions which, while even being quite unique and appropriate for the local market, partially or completely ignore the need for global, corporate consistency and synergy. In that instant, there is a very real risk that the regions of the same company will operate along completely different lines, making communication difficult, reporting and consolidation complex without costly effort and IT systems, and benchmarking and KPI monitoring all but impossible.
Hot on the heels of the ability to execute a strategy and a standard set of processes to facilitate implementation, is having the right team to execute and to implement. Despite it being a rather clichéd statement, one cannot underestimate the importance and impact of a suitable executive to tackle any internationalisation. From an entrepreneurial personality, to cultural sensitivity, to an understanding of the business’s ethos, to being a motivator, the individual and the team which surrounds them, must possess all these attributes in some measure. Contradictorily, the very characteristics which might be a hindrance to successful repeat expansion are exactly those which tend to make at least one step in internationalisation a success: a driven individual with a slight disregard for the rules that is able, in a sense, to brave unchartered territory by mapping out the plan and the actions in a way that they nonetheless see would best suit the corporate objectives. Astute in understanding what the organisation’s needs and strategic desires are, they are often unorthodox in the methods of achieving them. The reason they are chosen to perform the task, is often the reason they become difficult to manage. So processes, standard ones, are a starting point to managing this likely individuality and even idiosyncrasy that sometimes comes with talented people. At one of the businesses where I sat on the Board, the German business of almost 2,500 people had, in addition to its set of processes and procedures for international growth, a very simple ‘shadowing’ rule. In every region into which the business expanded, the senior executive that was selected was shadowed by a second-in-command that was German. It was an unmentioned, undiscussed and often contentious aspect for a senior executive who accepted a role of expanding the business into new areas. But it gave the predominantly Germanic board a reach into the heart of its regional organisations that would otherwise not be forthcoming via monthly reports and management accounts. Unorthodox, but effective in many ways including the ability to obtain feedback in the mother tongue of many of the Board members, German, which was different to that of the company’s corporate language, English. In addition, it provided a second tier of management which could one day be prepared, by observing the managing director or regional CEO, to assume the command of the region, or could be brought to head office having gained invaluable international experience. Either way, the organisation won.
Finally, underpinning any expansion must be the ability of the organisation to fund its growth. As any experienced businessman and organisation will recognise, growth requires cash (or at least an alternative source of funding). From funding rounds, to IPOs, to strategic partners and joint ventures, all have been used to make available that essential element without which any strategy, process or person will be doomed. Put simply, growth eats cash. For that simple reason, in all but the smallest percentage of cases (for example, when a core of corporate clients have a presence in the region and allocate business to the firm, or when the company is asked to expand on the back of a certain client-funded project), internationalisation normally implies taking significant risk. Mainly financial risk, because the one thing that is certain is that expansion will cost money, for often, despite the plans and the market studies, expansion is essentially an uncertain process which involves a company taking a significant financial risk into a market that it does not know well.
Thus the need for the business to have a strategy and a set of processes which can be implemented by skilled, experienced and talented people, will be fundamental in minimising the cash requirements of the business.
ABOUT THE AUTHOR
Luis da Silva (CBS) MA BSc BA is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is business internationalization. He has achieved an MA, and BA from UNISA and a BSc from the University of the Witwatersrand. He has been employed as a CEO and board member of a listed company with a turnover of €250 million and value of €1 billion and has experience within the Manufacturing, Electronics, Banking, Agribusiness, Travel/Airlines and real estate industries. His clients or employers have included Fractional Villas Inc, Invest CV Limited, BGR Ltd, API Undercliffe Ltd, DMS Lda, Emeritis, Quillion Ltd, Datanomic Ltd, E-business Partners, PLAUT and Andersen Consulting. He has geographical working experience in the USA, UK and Brazil. His language skills include English, Spanish and Portuguese. His service skills incorporate business management, business expansion or turnaround and people management. To contact Luis da Silva, please contact the Academy of Business Strategy by forwarding an email.
Beefing up the business
THE ACADEMY OF BUSINESS STRATEGY
BUSINESS INTERNATIONALIZATION BLOG
Beefing up the business: adding international presence in anticipation of a major business milestone
AUTHOR
Luis da Silva (CBS) MA BSc BA
There have been some instances in boxing history when fighters, having achieved a pinnacle of success in their weight division, yearn to conquer bigger (literally) things and move up one (or even more rarely, two) weight division(s). This normally requires putting on the right kind of weight. Likewise, athletes go through various stages of preparation prior to an important race. Long-distance athletes, for example, will enter a final phase of preparation which will see them eat substantial quantities of pasta in order to load up on carbohydrates, a slow-releasing source of energy which will ‘feed’ them through the course of a long, arduous race. In a similar fashion, a business will prepare itself for some critical events such as a sale or Initial Public Offering (IPO) by loading themselves with the right sort of business energy. This may include adding more experienced people to senior management, in the form of Non Executive Directors, for example; it may imply bolstering the sales force to make a final push before the big event, and to show growth in the headline revenue numbers; or, as it often does, it may mean being physically present in more markets, whether through organic expansion or through acquisition, to show coverage and presence.
When I was a Director of a large German consulting firm, the Board hunted around the business for someone who would be able to help beef up the business. Someone who could quickly and efficiently, and hopefully profitably, expand to a new region of the globe, adding corporate mass to the organisation. And in particular, as the business was a major partner of global software powerhouse, SAP, it needed to ensure that it could stand up to scrutiny when it applied to become one of SAP’s global implementation partners. But you couldn’t be global if you were only on two continents…
Like a King Cobra that swells it head up to make itself seem bigger before the attack, so too leading the business into a totally new region meant adding the geographic coverage required to make the company and its responsiveness more international. My responsibility for the expansion of the business to Latin America, provided the swelling of the neck on the European and North American body. So in a very short time, a little less than two years, we grew the regional business from zero to $25 million, which represented around 12 % of the global business turnover. Now, given that the business was 50 years old, to add that much top-line revenue in such a short time was not only a huge corporate accomplishment (requiring group and individual talent, finance, the ability to sell, and many more skills) but also conveyed a powerful message to both clients and prospective investors alike: we can successfully expand our business to deliver quality service to any international client. If you are international, we can be there as a business partner to support your business and to deliver value regardless of where you (or we) may be. That is a powerful message. And by successfully expanding to a totally new region, adding 250 staff and over a dozen regional office locations in the process, and making the business local, it allowed the company to present itself as truly international in its prospectus, regional in its make-up and local in its action, all at the same time. And it certainly was a contributing factor to the IPO on the German technology stock exchange, the Neuer Markt, being four time oversubscribed.
In the example above, the motivation for growing the business internationally was to prepare for an Initial Public Offering (IPO). There are other circumstances where geographic expansion makes significant sense: preparation for the creation of regional distribution or service centre hubs to streamline and improve product and customer service delivery and responsiveness; tapping into foreign markets with specialised skills, such as computer programmers who are able to generate more lines of code or architectural firms who need a cost-effective, volume based physical model production facility; or to quickly generate additional revenue by moving into fast-growing markets, thereby adding value to a business before a sale. And even simply to mark a physical presence in a region where the organisation may not yet be present.
Beyond the immediate benefit of creating the additional mass, doing so often has a positive consequential effect. The first is that the business is that much closer to achieving critical mass in the local market. The ability to penetrate a local market successfully will mean that without question, local clients will be much more likely to consider the company a serious player and contender in the services or products that it provides. By eliminating the complexities and challenges of distance, currency, communication and even the lack of a local contact point, the establishment of a local presence will leap-frog any company ahead of its competitors who do not benefit from the same local advantage.
The second is that market perception will almost certainly be positively influenced, and that in turn will mean top-line growth, or additional sales revenue. Just as a snowball acquires bulk as it moves down a hill, so too growing a business will allow the company to be in a position to tackle bigger projects. In doing so, confidence from the market of the business’s ability to deliver increasingly larger solutions, be they services or in quantity of product, will grow, which in turn will lead to better and bigger opportunities. So the bulking up of the business will become, in a sense, a self-fulfilling prophesy as the market’s observation of the organisation’s increased size will in part mean confidence being deposited in the organisation to compete for more business.
Thirdly, in certain sectors, businesses will be able to compete whereas before they might have been excluded. Examples are the public sector, where a local presence is almost always mandatory, banking and retail, where local presence in practical terms is compulsory, or large multinational projects, such as construction or information technology implementation and roll-out, where a presence in multiple locations is considered fundamental to ensure that the supplier has both access to multiple sources of expertise, from different appropriate locations, and also has the ability, post-delivery, to offer relevant regional support.
Finally, depending on whether the business decides to move quickly, via acquisition, versus organically, the option exists to very quickly increase the number of employees (and proportionally the business revenue) via the integration of an existing local business. While bringing some challenges in terms of the integration of a new culture and its people, it certainly brings with it, for the organisation able to adapt to rapid and large changes, the benefit of a going concern that will face none of the challenges of a local start-up. The trade off will thus be between any capital invested (perhaps mitigated by some earn-out) versus the ability to generate immediate positive revenue and cash flow from a new region of operations.
So whatever the route taken to beefing up the business, size does matter when it is time to land that big international punch!
ABOUT THE AUTHOR
Luis da Silva (CBS) MA BSc BA is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is business internationalization. He has achieved an MA, and BA from UNISA and a BSc from the University of the Witwatersrand. He has been employed as a CEO and board member of a listed company with a turnover of €250 million and value of €1 billion and has experience within the Manufacturing, Electronics, Banking, Agribusiness, Travel/Airlines and real estate industries. His clients or employers have included Fractional Villas Inc, Invest CV Limited, BGR Ltd, API Undercliffe Ltd, DMS Lda, Emeritis, Quillion Ltd, Datanomic Ltd, E-business Partners, PLAUT and Andersen Consulting. He has geographical working experience in the USA, UK and Brazil. His language skills include English, Spanish and Portuguese. His service skills incorporate business management, business expansion or turnaround and people management. To contact Luis da Silva, please contact the Academy of Business Strategy by forwarding an email.
Looking before leaping: mitigating risk
THE ACADEMY OF BUSINESS STRATEGY
BUSINESS INTERNATIONALIZATION BLOG
Looking before leaping: mitigating risk in the entry to a new market
AUTHOR
Luis da Silva (CBS) MA BSc BA
Let’s be frank: not only is taking a step towards internationalisation daunting for most businesses, but it is also a minefield that could be fraught with financial disaster. On reading this, it might appear as if I question the soundness and validity of any and all international expansion. Quite the contrary. As with any business decision, understanding the risks is fundamental. What to one organisation may be a large investment, to another may not. What to one may appear daunting, to another may be a challenge to be overcome. What to one might be an option, to another might be an absolutely fundamental requirement. Clearly, no organisation ever considers internationalisation as simply a challenge (unless they are a company that provides adventure tours) but differing views of risk will influence the attitude that each organisation has towards taking this step. Ultimately, as with any important business decision, or one involving the need to commit significant (human and financial) resources, it is a question of risk management.
And for some organisations, taking the step alone and immediately, even after doing market studies, is not an option with which they are comfortable. But the underlying business requirement or pressure or aspiration to expand continues to exist. What to do? We will consider briefly some of the options.
Unless an organisation is willing to completely outsource its decision as to how, when and where to internationalise (which, frankly, I have never seen nor do I recommend) it will be important for one or more members of the senior management team (and by this I mean really senior, ideally Board level) to be personally committed to leading the initiative. Together with expert support, someone who understands what is involved in growing businesses internationally and better still has experience of the local market, is essential. A detailed market analysis will compulsorily analyse candidate partners with whom an alliance might be forged. It will also contemplate the possibility of an acquisition, and may even conclude that the company is best served through a looser arrangement such as a representative office or a sales/commercial alliance.
The option of a partnership is an approach which is particularly useful in the service industry, such as accountancy or consulting services, but may require a commitment by the party that is moving into the new market, not to compete or to unfairly exploit the market entry opportunity provided by the local partner. At an early stage of the expansion and investment decision, it may make sense to seek a partner that simultaneously offers a similar set of services and yet allows scope for the joining of complementary expertise. So, for example, if the local company is able to offer technology consulting and systems development, and the foreign company, strategy consulting and business process improvement, this may well be a good fit as long as both organisations are in agreement about their willingness to expand the breadth of their respective service offerings. Among the other challenges that two businesses contemplating this form of alliance will face, will be to manage any cultural or organisational conflict that might arise as a result of differing corporate approaches. At a later stage, the expanding business may well have to consider making an equity investment or taking a share in the local partner (or vice versa), to cement the relationship. However, such a commitment not only involves a major strategic decision but also a financial commitment and an estimation of the value of the business. In a service business, the calculation of goodwill is not a simple matter. On the other hand, investing into an established company with which the business can work, can be an extremely efficient way of fast-tracking entry into a foreign market.
A more aggressive process of entry into a foreign market, particularly if it involves a manufacturing business with a proven distribution channel, a financial institution with retail outlets, or a retail business with distributed points of sale, is the acquisition of all or part of an existing business. Every acquiring party needs to weigh up the benefit of a controlling interest against the likelihood of reduced contribution and motivation from the exiting party. For this reason, well-known structures such as earn-outs are common. Again, speed into the market is often an overwhelming consideration. In situations where physical facilities and premises are involved, the possibility of eliminating the need for the planning and licensing is often a key to opting for the acquisition route, as is the fact that any uncertainty associated with these processes is eliminated. The acquiring party is thus often buying certainty more than time. With any of the examples cited above, cultural conflict is also much less of an issue. Even though a new corporate owner will bring changes to processes and procedures, marketing and branding, and even some changes to certain key positions, the acquiring party is buying into an existing (hopefully successfully working) model and its potential. Thus, the colloquialism ‘if it ain’t broke, don’t fix it’ often applies to avoiding any tinkering which may not deliver bottom-line improvement.
Finally, a business may conclude, after an analysis of the market, that for reasons of difficulty in penetrating the market, the time and/or cost involved in establishing a presence, regulatory or legislative limitations, or any range of other reasons, it is not ready or is unwilling to make a direct investment into the new market. It will then have the possibility of structuring an alliance along the lines described above, without the intention of developing it beyond a contractual relationship. Even more commonly, many businesses find that their interests in a new territory would be best served via a set of commercial relationships limited to the representation and commercialisation of their products or services. So what may initially start as an investigation of the expansion into a new market, may turn into a definition of a channel strategy for a particular region. This aspect is dealt with in more detail in articles elsewhere.
A final word of warning: in my experience, the selection of the most suited individual(s) among the senior ranks of the business is fundamental for the success of any internationalisation initiative because it ensures that the key questions and decisions are taken ahead of any investment. It is very likely, in fact, almost guaranteed, that if the person has been correctly selected, they will wish to remain involved with the business expansion or internationalisation programme. Whether selected in-house or recruited from outside, the individual will stamp their individual approach and touch on the initiative. Unless it is concluded that the business is not in a position to follow through (an issue in itself as it could lead to demotivation of the person and their team) or that there are no obvious new markets into which to expand (unlikely in my experience), the person will almost certainly wish to remain involved. While involvement can vary from providing punctual hand-over support to wanting to run the business in the new region, planning the career progression and succession of any individual selected to lead this sort of initiative, is fundamental. Given that the candidates most likely to be presented with these opportunities are the successful and the talented, all businesses should ensure that the success of a new initiative does not come at the expense of the stability of an existing one. That, in my experience, will ultimately result in the downfall of not only both regions but possibly of the business as a whole.
ABOUT THE AUTHOR
Luis da Silva (CBS) MA BSc BA is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is business internationalization. He has achieved an MA, and BA from UNISA and a BSc from the University of the Witwatersrand. He has been employed as a CEO and board member of a listed company with a turnover of €250 million and value of €1 billion and has experience within the Manufacturing, Electronics, Banking, Agribusiness, Travel/Airlines and real estate industries. His clients or employers have included Fractional Villas Inc, Invest CV Limited, BGR Ltd, API Undercliffe Ltd, DMS Lda, Emeritis, Quillion Ltd, Datanomic Ltd, E-business Partners, PLAUT and Andersen Consulting. He has geographical working experience in the USA, UK and Brazil. His language skills include English, Spanish and Portuguese. His service skills incorporate business management, business expansion or turnaround and people management. To contact Luis da Silva, please contact the Academy of Business Strategy by forwarding an email.
The radical commute: the emergence of fly-to-let
THE ACADEMY OF BUSINESS STRATEGY
BUSINESS INTERNATIONALIZATION BLOG
THE RADICAL COMMUTE: THE EMERGENCE OF FLY-TO-LET
AUTHOR
Luis da Silva (CBS) MA BSc BA
Those who have worked in the United Kingdom for the last decade have almost certainly noticed the change in working habits. Not least is the huge change in the attitude towards the office: before 1990 rare was the employee who accepted a job that did not involve a physical office and a desk. It was the sign of solidity, of security and of permanence. Enter contracting. During the 1990s the external consultant, office-based but with no fixed employment ties, created a mini revolution in working practices. Hugely paid while often able to dictate working hours and commandeer best jobs, this mass of risk-takers, many of whom made a fortune while they could, set in motion a much greater working practices revolution. Even the traditional consulting firms started to experiment with shared office space and part-time home-based working. With a fast-approaching Y2K and a return to the re-engineering (read downsizing) of the 1980s, suddenly even employees started to think that maybe having some form of independence from their employer might not be a bad thing. Since giving up the job was not on the cards, giving up the office and the desk was the most obvious consequence.
The change in employee mentality was matched by a shift in employer attitude, in particular driven by a need to drive down fixed costs. The two met perfectly in a situation where remote or home-based working, hot-desking and other similar techniques proved to be the perfect solution.
Fast forward ten years to the end of the noughties and senior executives find themselves increasingly mobile. Moreover, many spend so much time on a plane or the nature of the business is such that it can be run (and has to) from a car, an airport lounge, a serviced business centre or the company office on another continent. Why, then, if senior executives have their fair share of take-home work, not live where you want and travel into work when required?
Seem like a crazy idea? For a time, I lived in east Hertfordshire. To travel down to King’s Cross and up to a client in Newcastle, took me over four hours as there was no easy way I could go straight up from where I lived. When I established a base in the south of Europe, direct flights to Newcastle meant that my travel time including driving at either end, was less than four hours. I flew thousands of miles, got through border and passport control and had time to work. And the price of the return flight including taxes was normally lower than the return train trip!
Regular plane travel has become a way of life in the US, where executives spend days on end flying from city to city in different states, week in and week out. The culture in Europe, where the distances are comparable or shorter, leans towards limiting travel to typically one trip per week. In Asia, where distances are longer, trips would typically incorporate multiple stops and longer periods. However, one thing is common among all these regions: many executives and professionals are opting to live where they wish, and ‘travel’ in to work. No longer is the commute limited to car snarl-ups at the entrances to cities, or train rides cross-country, or even helicopter rides across a crowded metropolis, but now also features professionals of all descriptions who choose to fly in to work. Expanding businesses need to recognise this growing trend.
Clearly the advent of low-cost flights has enabled the start of something that as recently as half a decade ago would not have been viable. And while in certain regions, such as Asia, the sheer distance that needs to be covered is too large, the model works with variations in many regions of the world. A few examples include:
The European parliament, which sees many members return to home countries once or even twice a week ;
Northern European businesses, which see their executives and professionals travel from Southern Europe, often with working couples travelling to different destinations for work, and then meeting at home at the weekend, or choosing to meet for a weekend escape elsewhere before flying back to work;
In countries such as Brazil, where regional employment opportunities may be hugely different to those in main cities, the professional bread-winner might travel to a city for the week and return home on the weekend. One way flights may be as long as five hours!
South East Asia professionals might have a love for one of the Thai islands, or Singapore, but fly into Bangkok, KL or even Manila, for example.
In the continental U.S., travelling professionals usually return home every weekend. Due to the varied nature of much US travel, these warriors of the road tend to spend time in hotels rather than opting for an out of town second home. In the Far East, travelling Westerner professionals, together with their Asian counterparts, can often afford, as a result of the lower cost to both them and their businesses, to duplicate their lifestyles, one in the country of residence and one on the country of work. Europeans fly-to-lets tend to exhibit very different, sometimes even frugal, lifestyles in the country of work.
While analysing these aspects of behaviour and profile is beyond the scope of this brief article, clearly the growing influence of the fly-to-let phenomenon is an increasingly important aspect when planning to contract successful senior management. These individuals, often a constant target for international companies, have become accustomed to building a work travel profile around a personal or family base which must remain stable. While on the surface this might appear to be a less than ideal situation for the company and the executive, it is often proved that the ability to avoid the distractions involved with relocating a family, often unsuccessfully, allow the executive to focus on the business without the distractions of adjusting an entire family unit to a new set of circumstances. While this clearly is a challenge the first time, many seasoned professionals whose families have now adjusted to the new way of working, find that they are not only able to be more productive when working, but are slowly clawing back that quality time with family that seemed so difficult when the family was together and the bread-winner often absent.
Looking for work-life balance and the search for a greater focus of the business around the founders or executives (memories of a start-up – full circle and the circle of life?), opportunity to choose lower cost base and start a support structure at a distance.
So like many new trends emerging in the global world of business, fly-to-let executives and employees will increasingly be a factor in the competitive labour market. Whether driven by employee demands or business requirements, the ability to work fly-to-let employees into the business model, could well be the differentiator between finding key employees, or providing the right set of circumstances to allow them to flourish. And that (apologies to Frost), can make all the difference.
ABOUT THE AUTHOR
Luis da Silva (CBS) MA BSc BA is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is business internationalization. He has achieved an MA, and BA from UNISA and a BSc from the University of the Witwatersrand. He has been employed as a CEO and board member of a listed company with a turnover of €250 million and value of €1 billion and has experience within the Manufacturing, Electronics, Banking, Agribusiness, Travel/Airlines and real estate industries. His clients or employers have included Fractional Villas Inc, Invest CV Limited, BGR Ltd, API Undercliffe Ltd, DMS Lda, Emeritis, Quillion Ltd, Datanomic Ltd, E-business Partners, PLAUT and Andersen Consulting. He has geographical working experience in the USA, UK and Brazil. His language skills include English, Spanish and Portuguese. His service skills incorporate business management, business expansion or turnaround and people management. To contact Luis da Silva, please contact the Academy of Business Strategy by forwarding an email.
Language and internationalisation
THE ACADEMY OF BUSINESS STRATEGY
BUSINESS INTERNATIONALIZATION BLOG
LANGUAGE AND INTERNATIONALIZATION
AUTHOR
Luis da Silva (CBS) MA BSc BA
¿Habla Usted Español?
I got my first big opportunity in an international career of more than twenty years for two main reasons: I spoke the right languages, and clearly the Board thought I was performing. To this day, as I cast my eye back on how accepting the challenge meant becoming a Board member of a €250 million turnover company before turning 30, I continue to believe that the language factor was the real clincher. The fact of the matter is that if any company seeks to expand its business, one of the most critical success factors will be the extent to which its senior executives, the ones most likely to be relocated and drive international growth in the business, are likely to integrate socially and culturally into the target market, and thus succeed.
Speaking the local language is only one of several important criteria required for international success, and which may include demonstrating empathy towards the local culture, understanding social structures, gestures, facial and body movements or postures, and, of course, simply understanding how senior people like to do business (golf course versus restaurant, for example). Nonetheless, there is, in my experience, and assuming all other things being equal, no other factor that contributes as much to the success, especially to the early stage success, of a business and its travelling executives, as one or more of them speaking the local language.
Let’s take a look at a few reasons why:
An arriving manager or director is always the outsider, even if they are the boss. For this reason, the expectation is that the ‘intruder’ will build the bridges either to an existing team or with a new team. Being able to understand people in their own language is an excellent way to understand people and personalities and personalise the bridge-building approach;
The most important elements of the local team are, well, the local team. How then does one conduct an interview without being able to ask the questions or understand the answers in a local language? Undoubtedly translators or the use of head hunters can help to an extent, but for a quick integration of new team members and to facilitate their understanding of the corporate culture, it is critical to get the selection process right first time round;
Most senior executives who have worked internationally have at one point or another faced a situation where they are uncertain as to whether they are being dealt a fair hand in a negotiation conducted in a foreign language. If you ever doubt this, try to negotiate on for a rug in Kusadasi and then get a local Turkish national to negotiate down the price, paying them 50% of the saving. You will see how you will save money. Now multiply that by hundreds of thousands. Unless the negotiating parties can be convinced to use a language both understand, it is normal for the language of the customer to be used. Even small nuances which are missed, can result in the loss of millions;
Selling! All senior executives are expected to sell. More than ever, being unable to close business and calling oneself a CEO, VP, or Director, are incompatible. To clients, to employees, to suppliers, these roles have selling as one of their integral facets. If you are in a foreign country, you will not stand a chance if the local market is not open to being pitched in a foreign language. The competitors will use a simple attacking argument: “if they can’t even do a proposal in our language, imagine how well they’ll understand your business requirements!” Door shut, no business there. On the other hand, knowing the language can set you apart from your competitors and win you valuable business. When one of the businesses I ran opened an office in Bangkok, we recruited a Thai person who had lived and worked extensively in the US. She was also well connected which didn’t hurt! But what made the difference was that she was the most senior member of our team on the ground in the country, and also technically an expert in the technology solutions we were selling. When clients were faced with choosing between an expert who spoke to them in their language, or a foreigner who needed a team around them, our competitors did not stand a chance. We were quickly winning two-thirds of all business in that sector within months.
Many companies today have English as a corporate language, even if the company does not have Anglophile roots or is not headquartered in an English-speaking country. However, many still retain a different corporate language. These companies drive the use of a foreign language at senior levels for different reasons. They recognise that to find senior talent will be more difficult if language is used as a criterion, especially if the language is not widespread or particularly prevalent in the talent pool of the market into which they are expanding. Therefore they create a ‘senior management double’, a two-person team, hopefully one with the ultimate regional responsibility, but one of whom will be a fluent speaker of the corporate language so that at any moment, the Board are able to obtain a view of the business’s performance at any time. While this method may be frowned upon by senior executive(s) affected, leading to people management issues including at times uncertainty over levels of responsibility, all of which have to be addressed with some sensitivity, it can be a very effective way of information-harvesting for a Board that is remote from the business in the regions.
Whether it be to extend the reach of the organisation in an effective way, or to ensure that the ‘offspring’ don’t stray too from the motherland’s roots, the power of language as a force of expansion, and of unification and uniformity within an organisation, cannot be underestimated.
ABOUT THE AUTHOR
Luis da Silva (CBS) MA BSc BA is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is business internationalization. He has achieved an MA, and BA from UNISA and a BSc from the University of the Witwatersrand. He has been employed as a CEO and board member of a listed company with a turnover of €250 million and value of €1 billion and has experience within the Manufacturing, Electronics, Banking, Agribusiness, Travel/Airlines and real estate industries. His clients or employers have included Fractional Villas Inc, Invest CV Limited, BGR Ltd, API Undercliffe Ltd, DMS Lda, Emeritis, Quillion Ltd, Datanomic Ltd, E-business Partners, PLAUT and Andersen Consulting. He has geographical working experience in the USA, UK and Brazil. His language skills include English, Spanish and Portuguese. His service skills incorporate business management, business expansion or turnaround and people management. To contact Luis da Silva, please contact the Academy of Business Strategy by forwarding an email.
International expansion: The importance of vision
THE ACADEMY OF BUSINESS STRATEGY
BUSINESS INTERNATIONALIZATION BLOG
INTERNATIONAL EXPANSION: THE IMPORTANCE OF VISION
AUTHOR
Luis da Silva (CBS) MA BSc BA
A good founder or CEO usually knows where he or she wants to lead the organisation. It is one of the defining characteristics of a good leader. Knowing where to lead his or her team. Where the organisation should be taken to ensure that it achieves both its strategic vision and makes significant returns to its shareholders, employees and other stakeholders. Another of the defining characteristics of an exceptional leader is knowing how to do it.
And one of the key ways in which visionary leaders often aim to deliver growth is to plan for, and execute, a globalisation, internationalisation or regionalisation strategy for their businesses. To ensure that this decision has the highest possible chance of being successful, aligning its implementation and execution to the very essence of the business’s strategic vision is essential.
Some of the strategic reasons for undertaking a move beyond the borders of the business’s initial market might include:
Reaching markets with larger populations. Especially in end-user driven sectors such as retail, telecommunications, motor manufacturing, and food and beverage, there can be a huge benefit in developing a route into a market that provides access to tens if not hundreds of millions of users. The focus on the BRIC economies is testament to this ambition on the part of many companies, and in some instances (see the case of Telefonica de España in Latin America, for example) evidences how an international expansion can generate multiples to the top line revenue and result in a huge impact in its valuation, allowing it to raise money on international money markets and fund yet even more growth.
Expanding the geographic base of the base of the business in advance of an Initial Public Offering. Markets and institutional investors like to see, in many sectors, the ability to be international or even global. Not only is this sound from a business perspective but it also broadens the pool of investor funds into which both the IPO and subsequent trades in the company’s shares;
Making the most of any languages or cultural practices which might be common across markets. In this sense, businesses in the northern United States often exploit the proximity to the Canadian border (retail and wholesale is a good example) just as Mexican businesses try to establish a presence close to the massive US market (manufacturing an obvious candidate here);
Reducing costs by moving a manufacturing facility to a country in which the employee cost, in particular of blue-collar labour, is lower. Thus many European businesses have been moving manufacturing bases to Eastern European countries which continue to offer significantly lower labour costs while often still delivering all the benefits of being within the enlarged EU-27 or close to it. Delivering services back into the core of the world’s largest economic bloc is thus efficient both in time, cost and distance;
Reducing the cost burden by making the most of financial incentives provided by the government of the state into which the business seeks to invest. Thus, the incentives provided by the Brazilian government (both national and regional/state) to motor manufacturers, and the low-corporate tax regime implemented by the Irish economy and which kick-started the Celtic tiger economy, are examples of how fiscal stimulus draws foreign investment and should be borne in mind by businesses who look to expand, relocate and in particular create employment elsewhere;
To participate in a cluster that provides the business with contact and interaction with businesses in the same vertical sector. While Silicon Valley may well remain the most well-known example of a cluster (the hi-tech and software sectors) relatively few know, for example, that one of the world’s most active life sciences clusters comprising almost 300 members, lies in Denmark close to the Swedish border.
The list is potentially endless but importantly in all cases, an international expansion implies the absolute need for support at the highest level of the business. A commitment from the Board, the utmost importance given to the plan by the CEO and the full focus of the senior management responsible for implementing the programme, are all essential to ensure that the business has every chance of successfully moving into a new market.
In times where it is not only top line growth that is important but also the value that such an expansion will mean to the business and for shareholders, understanding the true reasons for any venture outside one’s existing territorial footprint is a critical success factor (CSF) for the business. As in any instance when the business undertakes a significant step, it is not only the fact that the step is (successfully) taken that is important, but also the future potential business which might be generated via the expansion itself. Whether it be the size of the new market, the extent of the overlap of the installed base of existing clients or a reason such as global coverage, ensuring that there is someone on the team who is able to guide the company through the process of weighing up the pros and cons of each option, is essential to the long-term strategic success of the business.
ABOUT THE AUTHOR
Luis da Silva (CBS) MA BSc BA is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is business internationalization. He has achieved an MA, and BA from UNISA and a BSc from the University of the Witwatersrand. He has been employed as a CEO and board member of a listed company with a turnover of €250 million and value of €1 billion and has experience within the Manufacturing, Electronics, Banking, Agribusiness, Travel/Airlines and real estate industries. His clients or employers have included Fractional Villas Inc, Invest CV Limited, BGR Ltd, API Undercliffe Ltd, DMS Lda, Emeritis, Quillion Ltd, Datanomic Ltd, E-business Partners, PLAUT and Andersen Consulting. He has geographical working experience in the USA, UK and Brazil. His language skills include English, Spanish and Portuguese. His service skills incorporate business management, business expansion or turnaround and people management. To contact Luis da Silva, please contact the Academy of Business Strategy by forwarding an email.
Enterprise Resource Planning (ERP)
BUSINESS INTERNATIONALIZATION BLOG
Enterprise Resource Planning (ERP) as an enabling factor in internationalisation
AUTHOR
Luis da Silva (CBS) MA BSc BA
Many of us can recall the days of complex and time-consuming systems development. Anything from stock control, to maintenance, to notice deposit solutions, to sales management, well, in fact, any and every function within a business that needed to be designed, developed, tested and implemented in a bespoke or individualised way, was reflected in thousands of lines of code. The advent of the integrated system put paid to the need for man-months of programming activity (and in the process to very lucrative consulting development engagements).
Since the nineties, when integrated systems truly came into their own, the use of coding and programming work to develop central functions within computer-based solutions has significantly diminished. Through phases that saw programming relegated firstly to interface development, then to adaptation for industry-specific solutions, and then to support for outsourced solutions, the integrated business system, or enterprise application, emerged on a global basis as the substitute for systems development. As a result, rather than create an individualised solution for every company, often very similar to another in the same (or different) sector, companies began to implement packaged applications that contained a core set of functionality which, broadly speaking, could be equally applied to a number of market sectors and to many companies within each. As a result, companies across the globe could access the same set of electronic processes and procedures to which their counterparts in other countries might up until that moment have had exclusive access, primarily by accessing skilled computer developers. It also meant that the same business could now quickly implement the same procedures and processes simply by toggling a language switch on a programme interface (clearly implementing an ERP is not a simple nor problem-free process, as I can bear witness to after more than a decade of running programmes as a consultant with Andersen Consulting (now Accenture), Plaut, Emeritis and other firms. However, across multiple industries and on different continents and involving businesses with multiple sites, it’s definitely more efficient than developing every single business function through millions of lines of code.
As the model and its market penetration entered the phase of consolidation, the industry settled on the term Enterprise Resource Planning to describe a set of broad-based functions, covering almost all aspects of any business’s activities. In this sector, a clear leader emerged. The German powerhouse SAP was then, as it is now, the leader in providing integrated solutions for international businesses. While SAP, and indeed the ERP market as a whole, has over the intervening decades evolved to occupy the SME market, and provided vertical-market solutions which deal with the specificities of everything from pharmaceutical research to oil & gas exploration, and from hotel management to wine production, the main benefit that this sort of solution has achieved is the standardisation across sectors (and complementarily albeit contradictorily, the ability to also address specificity by sector).
Importantly, the development and improvement of these solutions has meant that very similar answers can be applied to different businesses in the same sector, in a similar way. While some companies have argued that this homogeneity eliminates the possibility of differentiation, I would argue that precisely the opposite occurs. For most businesses, technology is an enabling platform on top of which the business’s core offerings can be delivered. If there is no differentiation after the technology has been implemented, then clearly the business is not in the right sector or it simply does not have a sufficiently unique or competitive offering to survive. However, for those businesses that capitulate on technology as an enabling mechanism for their processes, it is an excellent way of quickly delivering the underlying infrastructure and basic business processes without the need to expend excessive amounts of time and energy on those aspects. When a business grows internationally, it is important in operationally and psychologically, for the senior executives involved to know that the administrative tasks of implementing a business in a new country can be done quickly and with consistency.
This ability will have an immediate impact in a few key areas:
• Any team members in the new region will be able to more quickly assimilate the company’s standard procedures and, to an extent, any corporate ethos that can be conveyed via the written word (or even the spoken word if senior executives’ presentations are loaded onto an intranet, for example);
• Preparatory work such as the creation of account structures, sales and purchasing procedures, and contracts including translated versions, can be completed in advance of any physical expansion or the commencement of the hiring of the local team;
• Any (corporate) cultural or procedural homogeneity can be assured;
• Consolidation of financial and management reporting information is much easier from an early stage of the new business;
• Help is likely to be more readily available;
It is likely that skills exist within the organisation (or via a partner who has accompanied the implementation of the ERP system) to ensure that the new region is seamlessly integrated into a global network of offices. Further, if the choice of ERP is made in favour of one which is globally recognised as a market leader, such as SAP or Peoplesoft, then the likelihood of a choice of support resources from a global pool is more likely.
With the ERP system and its associated procedures providing a solid foundation for any new international presence, this will allow senior executive to concentrate on the core tasks of business expansion. It also means that any expert advice which the business may seek as it expands into a new region, can focus on support for the business’s executives and/or help with the development of the people and client related aspects of doing business, rather than expending valuable effort on support for administrative or bureaucratic processes.
ERP has transitioned over the last decade and a half from an emerging technology to an essential component of any business serious about simplifying and improving the way it does business. If a business is international or has aspirations to be, the selection and implementation of a suitable ERP system is almost fundamental to ensuring that the business is not at a disadvantage when it moves beyond its home market.
ABOUT THE AUTHOR
Luis da Silva (CBS) MA BSc BA is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is business internationalization. He has achieved an MA, and BA from UNISA and a BSc from the University of the Witwatersrand. He has been employed as a CEO and board member of a listed company with a turnover of €250 million and value of €1 billion and has experience within the Manufacturing, Electronics, Banking, Agribusiness, Travel/Airlines and real estate industries. His clients or employers have included Fractional Villas Inc, Invest CV Limited, BGR Ltd, API Undercliffe Ltd, DMS Lda, Emeritis, Quillion Ltd, Datanomic Ltd, E-business Partners, PLAUT and Andersen Consulting. He has geographical working experience in the USA, UK and Brazil. His language skills include English, Spanish and Portuguese. His service skills incorporate business management, business expansion or turnaround and people management. To contact Luis da Silva, please contact the Academy of Business Strategy by forwarding an email.