Business Opportunities: On-Line Articles - Business Opportunities Abound Outside of North America

Business Opportunities Abound Outside of North America
by Michael J. McDermott

If you're pondering the benefits of going global, Charles Sokinva wants you to know one thing: "There is just no substitute for feet on the ground."

When it comes to finding and penetrating global markets, there is a lot of help available to U.S. companies, but the ultimate responsibility for nosing out opportunities in emerging markets and formulating a plan to capitalize on them rests squarely on the shoulders of the business owner or entrepreneur.

"There are tremendous opportunities in other countries, but you need to be there-or have someone else there on your behalf-in order to spot them," attests Sokinva, senior technologist at Opaque Tower Technology, a high-tech development company that has become a global leader in the market for compact, customized PC blade-server solutions.

"American sales culture is driven by a cold-calling, knock-on-the-door mentality, but that approach doesn't work in some other cultures. In China, for instance, you can't even begin to think about doing business with someone unless you've had a formal introduction. You need to establish a presence to start building a network of contacts that provide those introductions."

Sokinva speaks from firsthand experience. Since its founding in 1996, OTT has expanded into the U.K., India and Japan, and it is currently evaluating the China market opportunity very carefully, Sokinva says. While it has tapped government agencies for research and some preliminary help, its own legwork has proved to be the most critical element in the success of its international expansion.

"Once you have established that a market has the revenue potential to make it worthwhile, that's just the beginning," Sokinva explains. "Then you have to look at how much investment you'll need to make, what the culture is like, whether you'll be able to support customers from the U.S. or will have to get more people on the ground in that region.

When it comes to finding and penetrating global markets, there is a lot of help available.

"You also have to look for costs that go beyond the obvious business ones, things like having to port programs into another language," he stresses. "You have to be aware of restrictions and regulations on exporting technology products to other countries. There are no canned solutions for these challenges."

The rewards make meeting those challenges worth it for a growing number of U.S. firms. Once mainly the province of big corporate entities, international opportunities are now available to companies of all sizes.

In fact, small and medium-sized businesses account for the vast majority of growth in new U.S. businesses entering the export market, according to the U.S. Commerce Dept.'s Commercial Service -although there is still tremendous untapped potential for small businesses in the international marketplace.

HELP IS AVAILABLE

While help in finding and penetrating global markets is available from government agencies and private consultants in areas ranging from currency and tax issues to regulatory and cultural climates, U.S. businesses must be ready to meet the challenges Sokinva outlines if they are going to be competitive in the global marketplace.

For OTT, not meeting those challenges was simply not an option, Sokinva admits. He candidly acknowledges that international business is vital to OTT's future success.

"Most large companies that buy our technology are looking for system-wide deployment, and system-wide today more often than not means multinational, so the ability to go into other countries and operate successfully there is very important to us," he says. "It has been a major factor in our revenue growth."

Israel Hernandez, U.S. Assistant Secretary of Commerce, says Sokinva's observations are right on the money.

"It's a global economy out there, and international markets loom very large in the future of U.S. businesses-especially small and mid-sized companies," he says. "Ninety-five percent of the world's consumers live outside of the United States, so companies need to target them and take advantage of these global opportunities."

Businesses that decide to take to heart the advice offered by experts such as Hernandez and Sokinva have a number of factors working in their favor. An important one is the ongoing global economic expansion, which remained strong in 2005, according to the Washington, D.C.-based International Bank for Reconstruction and Development (the World Bank). It projects a similar economic environment in 2006 followed by accelerating growth in 2007.

U.S. businesses must be ready to meet challenges to be competitive in the global market.

That's good news for U.S. businesses, but as in the domestic arena, not all global markets are created equal. Companies need to do extensive research when weighing targets for international expansion.

"By far, the biggest story is China," says Yorgos Papatheodorou, manager of strategic and market development at Lockwood Greene Engineers, a Spartanburg, SC firm.

Papatheodorou cites the country's robust GDP growth and even stronger industrial growth-along with tremendous booms in manufacturing, telecommunications, power, transportation, construction and other industries-as powerful lures for U.S. businesses.

While software and service centers providing an ever-expanding menu of outsourced services in cities such as Bangalore and Hyderabad have been the biggest successes in India, he says, other sectors-including pharmaceuticals, biotechnology, telecommunications and transportation-are still in their infancy because of rigid regulations, protectionism and lack of infrastructure. They should open up in the near term, he adds.

Latin America remains a primary target for foreign expansion by U.S. ventures. The five-fold increase in U.S. exports over the past 25 years owes much to free trade agreements that have opened up markets in countries such as Chile and Mexico.

The Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR), signed by President Bush in August of 2005, promises to add to that momentum, creating the second-largest free trade zone in Latin America after Mexico.

TIPPING EMPHASIS

Opportunities for global growth will also be influenced by industry-specific factors, according to Warren Jestin, senior vice president and chief economist at Scotiabank Group in Toronto.

"For many industries, going global means tipping their strategic emphasis away from traditional G7 nations and toward Asian, Eastern European and Latin American economies, where production costs are very competitive and market growth is high," he says.

In the auto industry, for example, expansion prospects are hot in China, India, Eastern Europe and Brazil, Jestin notes. Energy and industrial commodity producers, as well as the construction and service industries that support them, also stand to benefit from the prospect of sustained rapid growth of output and domestic demand in Asia and other developing regions, he adds.

For U.S. businesses eyeing global expansion, just as important as a target country's demographics and economic climate are its political stability, financial infrastructure and factors related to the ease of doing business there.

The World Bank has developed a set of indicators it uses to rank more than 150 countries on the ease of doing business there, focusing on issues such as the procedural difficulty of launching a business; the commitment of time and capital required; licensing, property registration and other "red tape" challenges; employment, credit, tax, contract enforcement and cross-border trade environments; and similar issues.

International markets loom large in the future of small and mid-sized U.S. companies.

Based on those criteria, the World Bank ranks New Zealand, Singapore, the United States, Canada and Norway, in that order, as the easiest countries in which to do business.

Among emerging markets ranked relatively high are Lithuania (15), Estonia (16), Thailand (20), Malaysia (21), Chile (25) and Latvia (26). The overall rankings along with rankings by each of the 10 indicators are available for all the surveyed countries in a report entitled Doing Business in 2006, which is accessible via the World Bank's website (www.worldbank .org) for free.

However, as Michael Klein, World Bank's vice president for private sector development and chief economist for its International Finance Corp. subsidiary, notes, the ease of doing business index is limited in scope.

It does not account for a country's proximity to large markets, quality of infrastructure services (other than those related to cross-border trading), security of property from theft and looting, macroeconomic conditions or the strength of its underlying institutions.

"For example, Jamaica (43) and France (44) rank similarly on the ease of doing business, but that clearly does not mean businesses are better off operating in Kingston than in Paris," Klein says. "Crime and macroeconomic imbalances, two issues not directly studied in the report, make Jamaica a less-attractive destination for business investment."

Latin America remains a primary target for foreign expansion by U.S. businesses.

While there is virtual unanimity of agreement among experts on the importance of global trade to U.S. companies of all sizes, as well as plenty of help available for those seeking to tap emerging markets, one fact remains indisputable: The onus of responsibility for capitalizing on those opportunities and achieving success in the international marketplace rests squarely on the shoulders of U.S. businesses themselves. Taking the plunge into international expansion does require some research and thought, but the decision-making process should not be intimidating, according to Christopher "Kit" Lisle, managing director of Acclaro Growth Partners, a research-based strategy consulting firm for investors, middle-market companies and nonprofit organizations, which is headquartered in Leesburg, VA. "Breaking the process down into its component parts can make it much easier, especially for companies considering the prospect of entering unfamiliar markets for the first time," said Lisle, a former intelligence officer in the U.S. Army who also served as a Eurasia Desk Officer in the Office of the Joint Chiefs of Staff at the Pentagon as a reservist. Here is the approach he recommends:

Identify an unmet market need or underserved market niche.

Determine if you have a clear advantage over other prospective entrants or existing players. Unique technology, experience, access to customers or other competitive advantage could enable your firm to overcome barriers to entry that might appear imposing to other prospective entrants.

Find the "Goldilocks" size market. Niche markets may be too small to justify the cost of entry, and too-large markets may be out of reach for small and mid-sized companies. Your best bet may be a "Goldilocks" market-neither too large nor too small.

Look for a growing pie so your slice does not have to come from other players. It is much easier to enter a growing market than it is by trying to steal share from other players.

Conduct your own competitive analysis of each market under consideration. Use the simple framework created by Michael Porter (a noted Harvard Business School professor and author of Competitive Advantage and Competitive Strategy). He segments analysis of competition into five forces-bargaining power of customers, bargaining power of suppliers, threat of substitute products, threat of new entrants and current state of rivalry among existing competitors.

Understand the customer's purchase decision criteria. When a U.S. manufacturer of production equipment designed for the U.S. market built the same products at its new plant in Brazil, the results were disastrous. Every aspect of the decision process-quality, service and price-was different in the two countries.

Identify the most appropriate channels of distribution for your product in the new country.

All else being equal, choose the more profitable market.

Responsibility for achieving success rests on the shoulders of U.S. businesses themselves.

Observe macro-level trends. Are the demographics a good match for your business? How are the educational and health care systems? What are the attitudes toward the environment and political reform?

Beware of regulatory hurdles. Identify any limitations on trade, including tariff levels, quantitative restrictions, regulations and standards.

Consider the costs of "green-fielding" compared to acquisition or joint venture. Choosing between an acquisition and a new entity as a means of market entry is a cost-vs.-time decision. In addition to up-front tangible costs, there may be intangible costs related to barriers to entry, retaliation from existing players and your impact on the supply-demand balance.