Doing Business Across Borders
Apr 1, 2003 12:00 PM, Mark Mayfield
As the world grows smaller because of increasingly efficient global communications and multinational corporations, chances are good that your business will take you outside your home country. Sound and video contractors, pro A/V installers, and consultants are all finding that international business can provide an avenue for growing their business. Sometimes a customer's international operations will require your services in other countries. Even if you never plan on opening an office outside your national borders, you may find that your best customer has. Your customer may want to count on your involvement in equipping his or her international installations. In any of those scenarios, you should know what you're getting into before jumping in.
Americans are at more of a disadvantage in being prepared than their international neighbors. For reasons having to do with geography (as well as perhaps an historical proclivity toward isolationism), international travel and multilingual and multicultural awareness do not come naturally to Americans, unlike citizens of many other continents. But during the past several decades, international business has become a matter of survival in many industries.
For sound and video contractors, systems integrators, and consultants whose businesses achieve a certain size plateau, global expansion becomes an obvious consideration for continuing their development objectives. But careful consideration of these opportunities can help you avoid costly mistakes. International business opportunities are not always as attractive as they might seem. As Harvard Business School Professor Pankaj Ghemawat says, “Businesses routinely overestimate the attractiveness of foreign markets. They become so dazzled by the sheer size of untapped markets that they lose sight of the vast difficulties of pioneering new, often very different territories.” Failure in foreign markets is often the result of evaluating the opportunity based only on potential sales while ignoring the costs and risks of doing business in a new market.
In our industry, which relies primarily on referrals for business leads, the lure of international business can be less related to actively seeking expansion opportunities than it is a result of foreign clients looking for reliable, proven systems integrators. Many times the leads will come from business opportunities half a world away. SPL Integrated Solutions of Columbia, Maryland, found that to be the case after completing the audio systems installation in the First Union Center in Philadelphia. As a result of that job, the developers of the World Cup 2002 soccer stadium in Seoul, Korea, sought SPL for its expertise in designing and integrating the massive sound system for their new stadium. “Establishing international business in cases like the Seoul stadium was a little bit of luck,” says Fred Curdts, executive vice president of engineering. “In that case, the video systems installers, who were working with Samsung [the Korean electronics manufacturer] on the job, introduced us to some of the Samsung people. Samsung Data Systems and Engineering Company was also the lead contact for the stadium in Seoul.”
For many domestic companies, doing business in other countries does not necessarily mean having to establish branch offices in foreign lands. For example, though SPL Integrated Solutions has done business in countries such as Japan, Korea, Singapore, and Thailand, it has operations in none of them. Instead, once system designs are agreed upon, systems are preracked, tested, and assembled as fully as possible in its U.S.-based offices and then shipped as a total package to the destination country. Local labor is often hired to execute the final installation. That is different from manufacturers who must conduct sales operations and move finished product from one country to another. In either case, most international businesses agree that it is critical to hire logistics experts.
“Having a logistics company that's used to liaising with the receiver country is a must,” says Steve Villoria, CEO of Advanced Media Design, an A/V technology solutions provider based in Southern California, with offices in the United Kingdom and Southeast Asia. “International logistics companies can save many headaches because they can advise on how your shipment is classified — certain classifications can make it easier or more difficult to get a shipment into or out of a country.”
One of the most common challenges in international systems installation work involves dealing with the hundreds of different power scenarios you are likely to encounter in different countries. In the United States, contractors are used to a single voltage and current feed from the power grid. However, it is not uncommon for some countries to have two or even three power standards. The difficulties that can create when shipping product from a central location can be staggering.
“We send out a crew with an isolation transformer that does power conversion,” Villoria says. “This provides assurance that they can run their tools and test equipment in the 110V realm, but they can also leave it behind if they run into a situation where they can't get clean, stable power. Even though it may be a few thousand dollars investment, it's worth its weight in gold to send that power transformer with the crew.” (For detailed information about different voltages and current standards, visit Visicomm Industries' Web site at www.50hz.com/pwchrt.htm.)
High-profile design consultants are also increasingly involved in international work. Most agree that having an international presence is easier if offices are run by local nationals. Shen Milsom and Wilke, headquartered in New York, staffs offices in Hong Kong, London, and the United Arab Emirates. Its business takes the company literally all over the world. “While Shen Milsom and Wilke has in-country branch offices, whether domestically or internationally, we like to put people there who are familiar with the neighborhood,” says partner Steve Emspak.
That obviously helps with issues such as language, cultural differences, and local government connections. Sometimes the biggest challenge in doing international business is simply understanding that people in different cultures conduct business differently. Decision making and negotiations are conducted in ways that may be totally foreign to a U.S.-based contractor or consultant. “First of all, you learn to be accommodating,” Emspak says. “You also need to understand cultural differences, work process, work ethic — all of these are key elements if you intend to operate on an international basis. You have to be hypersensitive to all of these issues.” In some cultures, business body language can differ to the extent that miscommunication occurs, even when negotiating in the same language. For example, in some Asian cultures, head shaking from side to side accompanied by verbal agreement can be interpreted as conflicting messages to a Western businessperson, when that is not the message at all.
Being aware of subtle aspects such as differences in international body language is one example why it is important to consider some of the less obvious challenges. “Most of the costs and risks result from barriers created by distance,” Ghemawat says. “By distance I don't mean only geographic separation, though that is important. Distance also has cultural, administrative, or political and economic dimensions that can make foreign markets considerably more or less attractive.” His CAGE Distance Framework (“Distance Still Matters,” Harvard Business Review, September 2001) for analysis of the impact of distance on the viability of international business considers many factors that don't usually occur to a novice global businessperson. These factors are applicable whether you are considering opening a branch office or providing installation services in another country.
The idea of developing business outside your own national boundaries can seem like a natural progression in growing your business. Some systems integrators and pro A/V installers may find themselves heading down this road by default, courtesy of their good relationships with large corporate customers. Others may make global expansion a part of their business plan. Whether by association or by deliberate planning, it makes sense to fully explore the risks and benefits. Aside from all of the readily available advice from international business consultants, perhaps the best place to start is to interact with your colleagues and associates in the industry. Organizations such as NSCA, ICIA, and CEDIA can be good sources of networking opportunities to conduct such informal research.
Eight Tips for International Business
Author, columnist, and management consultant Jeff Wuorio offers this checklist when considering international business:
- Lose your tunnel vision. This is step No. 1 in taking your business across borders. Forget the misconception that conditions around the world are just as they are in the United States — or should be. They aren't, and they never will be. The sooner you embrace that essential truth, the faster you'll latch on to other salient issues for doing business overseas.
- Get to know the culture. Someone once said that it's an incredible faux pas to offer a Japanese executive your business card without first turning it around so that he or she can read it right away. That detail illustrates the importance of understanding the traditions and nuances of the cultures with which you wish to do business. Check out Web sites that discuss various cultures; if possible, talk with businesspeople from foreign countries to gain a sense of appropriate business practices. Is a handshake sufficient to close a deal? Is bribery an accepted element of business leverage? “I once spent an entire summer in Europe asking waiter after waiter when I was going to get some ice in my water,” says Richelle Shaw, chief operating officer of workz.com and an authority on developing business overseas. “We think the ways of America are the ways of the world, and they're simply not.”
- One size does not fit all. Granted, barriers are breaking down worldwide, but that still doesn't mean that one product will work in every situation. Expensive, proprietary software likely will not command the attention of a developing third-world nation that it would in Western Europe. Part of getting to know a country's traditions and culture is understanding interest and demand. That, in turn, can help better direct marketing and other sales efforts.
- What price is right? Likewise, it's essential to understand what pricing structure is going to be attractive — but nonetheless profitable for you — in various parts of the world. Again, less developed nations may not be suitable if a product or service is too expensive. By the same token, more affluent cultures may be able to obtain like products less expensively than you can offer. This can really be an overwhelming task, one that often happens through trial and error. “It's usually a good idea to start prices a little bit high and then come down if need be,” Shaw says.
- How are you going to ship your product and at what cost? Depending on where you want your wares to go, it's essential to gain a realistic grasp of prospective shipping costs (likely more than you think). Equally important is establishing who's going to pay that bill. If you're setting up an international network, make certain you negotiate whether you or your customers will be covering shipping (or, by contrast, if you can share costs). “The European Union has that Value Added Tax that always adds to the cost of goods,” Shaw says. “You should also pay attention to the culture of the country in which you're doing business. That may dictate who should pay shipping.”
- How will you get paid? Credit card use is far less common internationally than it is within the United States. Give just consideration how you're going to set up a reliable payment structure. Look into wire transfer systems or, if you're doing business on the Internet, online payment programs (it's a way of getting what's owed you, and many also offer currency exchange features).
- Consider language differences. If you operate a small business on an international scale, not everyone who stops by your Web site is going to speak English. That means another salient issue is making sure your site content also offers services in a sufficient number of languages. On top of that, recognize that the time will come that an overseas customer, like his or her American counterpart, will want to speak with a living customer rep. So don't overlook staffing, or having access to, bilingual customer-service personnel.
- Pay attention to politics. Lastly, never overlook the political environment — or even worse, the threat of terrorism — in areas where you hope to do business. That's particularly true if you're planning on siting a warehouse or some other facility overseas. Make certain you gauge the economic and social stability of prospective markets, not merely to protect any resources that happen to be located there but also to ensure that any goods shipped will, in fact, arrive at their intended destination. Also, make sure you are dealing with a country that is receptive to products from the United States. But, adds Shaw, don't let attention wilt into fear. “If you're an entrepreneur, you're a risk taker,” Shaw says. “Don't let politics deter you completely. That's especially true if you're selling on the Web — anyone can access you there. Always keep in mind that it's truly a global market these days.”