Economists resoundingly agree that exports are a key element to rebuilding America’s economy post-recession. “If we grow our exports, we can have a job-filled recovery. If we grow our exports, we can have an increased standard of living. If we grow our exports we can meet the demand coming out of Brazil, India and China,” asserts Bruce Katz, VP of Brooking Institution’s Metropolitan Policy Program.
Texas now leads the nation in exports. According to the Brookings report released in July, two of the top five metro areas for exports are Houston and Dallas-Fort Worth, respectively taking 4th and 5th place, and Austin coming in a respectable number 26. The comprehensive report focused on where exports were produced, rather than shipments going out from ports.
Texas’ energy, electronics, computer, chemical and petroleum industries are successfully producing products to meet President Obama’s call to double U.S. exports in the next five years.
As these CEO’s shared, expanding globally is not for the faint of heart. Success comes slowly, is challenged across cultural lines of communication, requires a local presence in most cases, and demands your focus and constant attention. Success, however, leads to profits.
Moderator: What was your process for going international?
Patrick Balthrop, CEO and President, Luminex Corporation: In our case, like everybody else in the room, I am sure we put together the appropriate plans with what we expect to achieve by when, but we live by the maxim that planning is essential, but plans are useless. As soon as you put a plan together, you need to start figuring out what’s wrong with it and what assumptions you made that are now invalid.
Mike Dailey, President/CEO, Fabworx Solutions Inc.: I think I can describe quite accurately how to do it wrong.
Moderator: We’d love to hear how you did it wrong.
Dailey: We thought we did have a process. We thought our products were universally pretty close to what the market needed. And we had previously run a distribution company in the United States, so we thought there would be similar distribution companies that thought the same way we did, in Asia and in Europe. We made what we thought were very wise decisions, well thought out, and set off to begin to sell. But we learned that the DNA of somebody in Asia is entirely different than the DNA of somebody here, so we stumbled for a few years, not really understanding our customer and how you access them.
Moderator: How do you decide when the time is right to expand?
Ed Trevis, President and CEO, Corvalent: I think expansion into a foreign market is a chicken and egg situation. If you are in a competitive business, and you are not bringing the latest innovation, it will be very hard for you to do business without a complete infrastructure in place. If you are a leading innovator, and you have a product that no one else has, yes, you can have distributors all over the world because of your innovation. If you have a large, competitive market and you don’t have that local presence then it’s extremely difficult to find success.
Balthrop: How one decides to expand to a geographic market is loosely defined as having the right opportunity, the right product or the right service for the market. When you are making a decision to expand into different countries, taking China as an example, you need to pick the right geographic regions within that country to expand. If you’re dealing with scientists in Shanghai, the likelihood they can read and understand English is reasonably high. If you’re in other parts of China like the interior, it’s more risky.
Dailey: I think another significant cost is the division of your attention. Anytime you are moving to new market, it’s going to take a really serious effort – either you are going to allocate a lot of money to add people, or you’re going to take your key people who know what they are doing, and have them go work on that new market. You’re giving up something in both cases.
Dr. Masarrat Ali, President & CEO, Alpha Diagnostic International: There are no set rules for any given business. The decision to expand will be dictated by your own business category, what you can afford, the volume of business, and whether the timing is good.
Moderator: How do cultural differences come into play when selling, manufacturing and entering various global markets?
Trevis: In South America the logistics of importing products, the logistics of development, and the logistics of manufacturing are completely different than in the U.S. Things here are easier than many countries in the world, including Asia, which is a manufacturing power house. It’s a lot more difficult to do business in countries like that, than to do business in the U.S. today. We take all this for granted.
Ali: We have an office and some manufacturing going on in Shanghai and my native country, India. There are cultural issues, and sometimes they can make or break you if you are not essentially involved in local culture. The way business is conducted in India is entirely different than any other place. You can almost never expect to get paid in 30 days, and paid in full unless you have someone who will push that file. You have to be sensitive about how the business is conducted in those countries.
Bill Clabby, Executive Vice President of Research and Special Programs, ISA (International Studies Abroad): Our President and CEO, Gustavo Artaza, and I just spent three weeks in Asia and the Middle East and we went, primarily, for signing ceremonies with our university partners – meeting with university presidents and deans. I had envisioned this trip as more of a formality. As we sat down at dinner in Seoul, we started talking about the business side of things. Our host asked us not to talk about business all night, and said, “I wanted you to come here so I could get to know you as people. So let’s not talk about the business, that’s all going to work out, instead I’d like to get to know you.” The same thing happened in Shanghai and Beijing.
Balthrop: I am going to take a contrarian point of view here. I lived in Hong Kong in the ‘90s, and I had responsibility for 14 different Asian countries, and it was about a year into that assignment that I personally, and not coincidentally the business, turned the corner. After a year I was able to demonstrate my willingness to be knowledgeable of, and sensitive to, the various cultural differences.
But, I also recognized that, like it or not, I was an American working for an American company with the requisite American expectations. I came to the realization that it was important to distinguish when it was necessary to find a way to do business and deliver results in the context of the local culture, and when you were being held hostage by comments about culture as an excuse for why things weren’t getting done.
Dailey: It’s a blend of patience to learn the other cultures and the time it takes to build relationships. A friend of mine, who had a lot of experience in Asia, joined us with the initial charter, “Help us understand how to sell in Asia.” But after our first trip there together, the charter changed to, “Help our whole company to transform to become Asia focused.” It came to be, “Understand the culture and how to change our company to work successfully within it.”
Moderator: What are some of the pitfalls you wish you could have avoided?
Luis Medina, CEO, Director, TechBA, (Technology Business Accelerator): The largest pitfall we see over and over is scheduling optimism. Expectations have a much shorter time frame in the U.S., compared to Mexico – from integrating with the culture, to logistics, to gaining the trust of the customer, to transforming the products. It all takes time, which impacts everyone financially. Six months easily becomes a couple of years.
Trevis: We have expanded because we had a customer that wanted us in their market; our pitfall there was not truly and initially defining success. We didn’t do that at the beginning, and realized that sometimes that metric is really difficult to define. If you don’t establish that goal, you’re going to make it really difficult to run the business, and if you are going into a new market, you have to provide time and you have to support it. It is one of the adages of American business – you need to define your success strategy.
Jim Clishem, President & CEO, Active Power: The biggest pitfall we saw in our international expansion was internal culture, which we didn’t anticipate the extent of how important this was at the time. By internal culture, I’m referring to the communication systems, and ensuring people from these new entities feel they’re part of the same company. We held conference calls and did video conferencing, which helped some, but it was putting executives on airplanes to visit those countries and really dialoguing about what was going on with our companies globally that provided us and them with a lot of insight.
Moderator: How often do you travel back and forth?
Clishem: All my executives have a requirement as part of their compensation objectives to spend time with customers here in the States and overseas, so they are out on the road constantly. I believe it also helps just asking people their opinions, “What do you think we should do with the company?” When you ask the company manager in Beijing about communications, support and training, this approach has more impact than saying, “Here’s what I need from you.”
Moderator: Are there security concerns with your employees working abroad?
Clabby: Security is ongoing for us. We closely follow the Overseas Security Advisory Council, osac.gov, which combines U.S. government, corporate, NGO, and other constituencies in each country who meet regularly to talk about security issues. For example, the students say Mexico is not safe and are not going there, so that affects our offerings.
Clishem: We had a presence in Algeria for a while, and it was very difficult because we had to have people escorted from one place to another. We also have employees based in Mexico that are very worried about their own personal safety within the country. There are definite personal safety concerns.
Moderator: What are the major IT security concerns a business has and should address before expanding globally?
Balthrop: We make sure we plan for, budget for, and implement appropriate investments on the data security side, regardless of the size of the office. One of the things that can be overlooked is how expensive it can be if you don’t make the right investment on the front end.
Clishem: Data security is probably driven more from the U.S. We have proprietary technology for manufacturing in China, and the Chinese don’t necessarily respect trademark and patented intellectual property. Again, it goes back to knowing the culture and the people to help protect your intellectual property.
Moderator: What changes, if any, need to be made to marketing messages in foreign markets versus domestic marketing strategies?
Clishem: Your market messaging is rooted in how your customers buy. Would it be better for you to market to the influencers of the people that distribute your product or for you to go directly to the end users and market to them directly? You create a “push-pull” strategy – pulling it from the customer directly or pushing it through the influencers to the customer. I believe this varies from market to market and needs to be tailored to that market’s preferential buyers.
Medina: I think you also have to lean heavily on local resources. There is no way you can have a universal marketing message in every culture – and it’s much more than the language.
Moderator: What do you see as the major growth markets globally?
Angelos Angelou, Principal Executive, Angelou Economics: We see significant growth in Brazil, and they have taken a keen interest in anything related to semiconductor technology. In Vietnam, they have interest in public investments from the build to transfer, and build to operate projects. These projects are on a very large scale, multimillion dollar opportunities. The Middle East and Vietnam are hungry for US education, particularly in Vietnam. In the Middle East I see the insurance market opening because the concept of insurance does not exist there. One company has managed to provide insurance to expatriates, and be based in the Middle East.
Ali: You do see development in growing economies like China and India, but you have to realize the United States is still the dominant economy. The two or three percent growth in the U.S. is still, in terms of volume, a lot bigger than 15 or 20 percent in some of those countries. But, I don’t think we can expect the BRIC Countries to grow 9 or 10 percent for many years in the future.
Clishem: I also think there’s a tremendous transfer of wealth taking place globally that is, in some respects, reflected in the GDP. That’s about 10 percent in China and about eight percent in India, whereas the U.S. market is going to be 2.5 to three percent over the next five years. There is a global balancing act where these growing and converging markets will reflect the cost of labor over time. Yes, the pie is getting bigger, but the size of the slices are proportionally changing the wealth.
Moderator: What about gaining access to capital in foreign markets?
Ali: Access to capital is virtually impossible unless you have local partners in India and China. We have a significant presence in both countries. Unless you have a 51 percent partner in India and China, you cannot get any capital there.
Angelou: I think it is a lot easier to attract equity capital from overseas into the U.S. than it has ever been. This is because much of our nation’s wealth has shifted into Asia. Foreign governments still value the American businessmen as their idol. For example, in Vietnam, they don’t trust the Asians any longer because the Vietnamese feel they will never be allowed to develop or surpass them. In terms of cultural adjustments, I believe American businessmen have to change the prevailing stereotype of them, which is “visiting, presenting and expecting Middle East investors to make an immediate decision.” Middle Easterners expect multiple visits to occur to reach a level of comfort with you on a personal level before they will be able to consummate a business transaction. And this is where American businessmen are at a disadvantage compared to European businessmen, who tend to focus on building relationships over multiple follow-up visits with their Middle East counterparts.
Clishem: We just completed a working capital line, and one of the issues we had was trying to expand in some foreign countries with domestic debt facilities. In the U.S., debt facilities typically want to secure the assets and often they won’t do that when you go to a foreign country. In the end, our bank gave us partnerships and facilities they had in international markets, which allowed us to use our line globally. The capital markets, especially in Asia and Europe, have a much stronger presence now for the availability of capital, especially in the Asian market.
Moderator: President Obama launched the National Export Initiative to help farmers and small businesses increase their exports, and reform export controls consistent with national security. Have you seen or heard of companies benefitting from these initiatives?
Dailey: I informally asked senior managers of several local companies, both big and small, if any of the new government programs are helping their company or causing them to hire more people. And then I asked what they would suggest the Federal Government do to help them. After the laughing stopped, the answer to the first question was, “No” and the answer to the second was, “Leave us alone and quit spending our money.” Though I will plug the Commerce Department, I have hired them to help me with things like partner searches overseas and I found that service to be fantastic. They also have a very extensive website that ties into a number of other different government services.
Balthrop: Again to take the contrarian point of view, it might be industry specific, but as we have expanded in the last 18 months into three countries, with offices in Japan, China and Australia, interacting with the Commerce Department was not very helpful. After two or three meetings with them in each country, we just decided to go it alone.
Angelou: The U.S. commercial offices overseas are grossly understaffed. The UK has three times the commercial officers around the world. It’s hard to get into markets when you do not have the personnel on the ground to establish the necessary relationships. We are not even competitive with the Europeans who seem to base much more emphasis on trade relationships with other countries.
Trevis: Another thing we should mention, especially for people who have products built overseas is that the Export Administration has insurance for credit – it’s very affordable and guaranteed by the U.S. government.
Moderator: What advantages do companies in Texas have over other parts of the country in terms of global expansion?
Angelou: I think it’s a terrific advantage—Texas has brand recognition around the globe. In many parts of the world The Texas brand is vividly remembered by re-runs of the “Dallas” show.
Trevis: The fundamentals of this state are fantastic, from education, to cost of living, to cost of doing business, much less bureaucracy! This state is way more self sufficient than many other large states in the union, and about the only thing we don’t produce here is steel. What is missing in Texas is good and aggressive marketing of the state.
Conclusion: While challenging, global expansion is worth the effort to capture a share of the double digit increases outside the U.S. As the number one exporting state in the U.S., take advantage of the knowledge of your peers, and tap into the resources in Texas.
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