As the global marketplace continues to expand, CEOs who aren’t looking to take their companies global are losing out, says Jim Pope, a partner at Moss Adams LLP.
“With a global marketplace and growing markets, CEOs would be remiss if they weren’t looking globally for opportunities for their companies,” Pope says. “It’s a long-term process, but it’s compelling enough from a business standpoint that you take advantage.”
Smart Business spoke with Pope about how to expand globally and why now is a good time to get started.
With the downturn in the economy, is this really a good time to start thinking globally?
This is a great time to get started. Companies have taken their foot off the pedal because of the downturn. But for many U.S. companies, this is an even more opportune time to think about establishing a global footprint. You shouldn’t put your plans on hold indefinitely because of a down market.
Now if you’re looking at a large capital investment, such as putting money into a plant overseas, this may not be the right time. But for someone to put global expansion plans on the back burner for now because of the downturn is a little shortsighted. You need to continue to move forward and think of the future opportunities that present themselves by going global.
What are the first steps toward creating a global presence?
You need to make sure everyone in the company, including your investors, has a consistent vision of commitment to global business expansion. Then, you need to analyze short-term and long-term issues such as the competitive landscape, potential geographic locations, growth prospects and infrastructure needs, among others. Ask, ‘What geographic locations and countries are strategic to our growth? Where are the current and future markets for my products or services?’ You need to do more diligence in this process than in the past. In the past, people would say, ‘We need to do business in Europe,’ then would set something up as soon as possible. Now, people are more focused, looking at it more prudently and doing more diligence regarding the costs of doing business in one location versus another or hiring local employees versus sending people over from the U.S. There is a host of critical decisions that must be made to make this work, and it needs to be a longer-term focus, not just looking out six months or a year. For example, many companies do financial modeling over several years under different business operating assumptions.
So, make sure you consider all the factors and weigh them appropriately. Do your homework. It’s not a race. It’s a process that takes time and requires preparation and dedicated resources.
How do you determine which markets to enter?
Focus on your strategic business objectives and possible global marketplaces to determine whether there’s an opportunity there for you. Because so many consumers are in China, for example, anyone who makes a consumer product would be remiss not to consider China as a potential area of growth for their business. Also, with today’s technology, it might not be necessary to have a physical presence in a geographic location in order to do business, especially for a start-up business. Another aspect is that a global business plan may require, for example, a source of raw materials that is not readily available where you want to do business. This might require expanding your global footprint to find and be closer to these resources in other geographic regions.
Can you go it alone in new markets, or do you need outside help?
It’s a combination. For example, if you’re looking at Asia, it’s very difficult unless you hire someone who is familiar with those markets. Generally, you’re going to need some local help.
Many governments have their own investment agencies to encourage investment. For example, I recently met with representatives of a venture capital fund financed by a foreign government. They are looking for opportunities to invest in joint ventures with U.S. companies within their country. They add money to the equation, but they also add critical business connections.
Of course, cultures are different, and the way people do business in other countries is different. You need someone on board who can speak the local language and knows the customs and culture of the country you’re going to. They can help you wade through the various business and nonbusiness issues. You can make those connections through an investment agency, by word-of-mouth, or by leveraging the experiences of others who have had success. For example, many people have done business in China and have been successful, and they know who those key contacts are. Ask, ‘Have you worked with these people before? What was your experience?’ These questions are especially important when considering emerging economies.
How do you gauge your costs to expand into other countries?
To gauge your costs and return on investment, model it out to see if it really works. You have to be conscious of costs, not only in terms of human capital but also in terms of facilities and physical capital. In this economic downturn, companies may be less willing to make capital investments in factories, machinery and equipment, but they’re more likely to make human capital investments. Perhaps you might delay those capital expenses, but hiring key employees can really drive your business in a global economy.
Jim Pope is a partner at Moss Adams LLP. Reach him at (858) 627-1466 or [email protected].
