David Levey

Thursday, 23 October 2003 11:00

Making foreign acquisitions

Most companies begin doing business internationally by importing or exporting. The next step is to make a long-term, strategic foreign investment -- foreign direct investment (FDI).

FDI can mean buying or taking a significant interest in a competitor, a distributor or a supplier and is a major step toward internationalization. It is also a major commitment of time and resources.

FDI is a huge part of international transactions. If you take the value of all the cross border merchandise transactions in 2002, they don't equal the size of all the FDI last year. If you do it right, FDI opens up many opportunities. Otherwise, you can quickly lose your investment.

Here are five issues to consider before taking the plunge.

1. Decide on the objective of the investment. Create a plan to see if your goals are realistic. Each country has different rates of growth potential, and your partner's objectives may not be compatible with yours. Leave room for unexpected problems or opportunities.

2. Know your partner. Foreign cultures have different financial, accounting, legal and business standards. Some distribution or licensing agreements may not be transferable or revocable, and many accounting systems are less opaque than our own.

3. Find the form that provides optimal benefits and flexibility. Consider a step-up agreement that allows for an increase or decrease in ownership over time. In some cases, it makes sense to buy the assets of a company and leave a shell; other times, building a greenfield facility from scratch is the best way. There are different forms of ownership, and each has its benefits and drawbacks in terms of control, liability, profitability and reporting.

4. Understand the government's role. At the national, regional/territorial and local levels, government can provide incentives for investment and cut through red tape or it can make your life a living hell. Your position is strongest before you commit.

Sometimes the most exciting incentives are offered by regions and cities. These include tax abatements, creating infrastructure, repatriation of profits and direct grants and loans. Strike your best deal early and maintain good relationships with government.

5. Have an exit strategy. If you have a great run and develop a market but can't get out, then much of the benefit of FDI is lost. What is your divorce strategy for breaking the joint venture, selling the business and repatriating the profits?

Until your company has invested in a foreign market, it can't really be considered international. Nothing focuses a company more than realizing that a critical portion of its assets is at risk and operating in a foreign environment. David Levey (jdl@interax.com) is an adjunct professor of Global Management in the MBA program at John Carroll University. He is the former manager of the Cleveland World Trade Association, the international business education arm of the Greater Cleveland Growth Association.

Thursday, 26 February 2004 08:53

Global Views

No company spends tens of thousands of dollars sending someone on a foreign business trip without expecting results. You aren't there to relax, yet you should arrive in tip-top shape, ready to conduct business.

Here are some tips to help you do so.

Get in shape

Preparing physically is a key component to mental alertness. One of the best ways to reduce jet lag is to start a travel diet three days before a trip.

Eat lots of high-calorie food on the third day out from a trip. Eat lightly on the second day and normally on the day before the trip. On the day of the trip, eat lightly and change to eating times to reflect the normal eating times at your destination. Refrain from stimulants and alcohol when traveling.

If you travel frequently, consider membership in an airline executive club. Arriving early at the airport and being able to conduct business after clearing security reduces hassles. Most offer comfortable chairs, televisions, light food and ports to plug in computers, away from the crowds and crying children. The larger clubs sometimes offer services such as massages, dry cleaning, full meal service and sleeping rooms.

Be prepared

Going through airports, with their increased security and scrutiny, makes planning travel even more important. Having passports updated (with at least six months before expiration), vaccinations, letters of introduction, prescriptions and local currency in pocket can help reduce delays. Visit www.state.gov/travel/ for more information on travel warnings, visa requirements for Americans traveling abroad, required inoculations and more.

If you need samples or tools in your foreign destination, consider shipping them in advance. Samples or tools of value can be brought into almost any country duty free under a program administered by the US Council for International Business called ATA Cartnet. Your freight forwarder and/or trade show administrator can provide details of this program.

Think ahead

Upon arrival, having ground transportation and hotel arrangements already made relieves a great deal of anxiety.

Give yourself time to adjust before engaging in business as well. Based on a study by the Argonne National Laboratory, it is recommended that travelers give half a day's rest before a first business meeting in Europe and one-and-a-half days for travel to Asia and the Pacific. This also will help cushion any travel delays.

David Levey (jdl@interax.com) is an adjunct professor of Global Management in the MBA program at John Carroll University. He is the former manager of the Cleveland World Trade Association, the international business education arm of the Greater Cleveland Growth Association.

Wednesday, 17 December 2003 06:40

Global delivery

Shipping and transportation logistics have changed drastically in the past decade.

I recall trying to send shipments to large cities in China and Russia in the early '90s and being told, "We don't go there" or having packages arrive months later -- or even disappear completely. Today, packages of any size can be delivered in a timely manner from anywhere to virtually anywhere, often for far less money than in the recent past.

Here are five areas to consider when shipping internationally.

Wrong or no markings

Each country has different marking requirements. Some are certification seals (CE Mark) or markings in metric and in the language of the country where it is going.

For product coming into the United States, most must have labels indicating the country of origin, for example.

Packaging

Oceangoing shipments must be packaged differently than those traveling by rail or truck. The shipping container might be exposed to the elements such as saltwater and/or extreme heat or cold.

Use more packaging materials to protect your shipment than you would use for domestic door-to-door truck shipments.

Tariff classifications

Harmonization of tariffs has made it easier to determine what rate of tax will be due on your shipment. Still, there are many categories that products can be classified as.

Work with your logistics service provider to determine the optimal shipping format and classification number. This can be important, as some items come into this country with few restrictions, while other products can be taxed at 20 percent or more.

Transport terminology

What is the difference among EXW, FOB and DDP? Each is a term that designates who pays for what in an international shipment, including duties.

As with tariff classification, negotiate these terms and have them spelled out before the shipment is sent.

Give shipments extra time

The more hands on the shipment and the more time in transit, the more likely there will be delays. Although far more reliable than a generation ago, international shipments can get delayed due to strikes, weather, customs, paperwork or myriad other reasons. David Levey (jdl@interax.com) is an adjunct professor of Global Management in the MBA program at John Carroll University. He is the former manager of the Cleveland World Trade Association, the international business education arm of the Greater Cleveland Growth Association.

Tuesday, 22 June 2004 12:24

Asset security

The United States may be the largest world market, but the fastest growing markets for manufacturing and consumption are China and India.

Unlike in the West, Chinese culture has traditionally viewed ideas and innovations as society-owned. Intellectual property (IP) protection is a fundamental building block of capitalism, so if incentives are provided to build better mousetraps, they will be built.

How, then, does an innovative company step into the Chinese economy? Carefully.

Before you enter the Chinese marketplace, employ a middleman to ensure your manufacturing partner is reliable and trustworthy. Deborah Wilcox, partner and co-chair of the intellectual property litigation practice at Baker and Hostetler says, "I have seen cases where a factory is producing legitimate product for a customer on one end of the factory and knock-offs on the other end. Having someone on the ground who is working for your interests is critical to keeping an even playing field."

As a member of the World Trade Organization, China must abide by the rules of the game, which include IP protection. However, it's not always easy to protect intellectual property.

"From a practical standpoint, it is very difficult to protect your IP interests," says Gary Yingling, director of business development for Asia at Rockwell Automation. "If you can, try and keep your 'kernel,' that is, the proprietary core that differentiates your product, out of your Chinese manufacturing activities. Do that work in an environment where it can be better protected."

That's because many Chinese factories that intend to knock off your product, idea or design will first check to see if you have protected your rights with the Chinese Trademark Office in Beijing. Because China is a "first to file" country, if someone else files your IP before you, your rights will be in jeopardy.

China is beginning to develop enforcement mechanisms to shut down factories that violate patent and trademark laws, and the Administrator for Industry and Commerce will investigate and raid factories producing knockoffs.

Cease and desist letters may have little effect coming from your U.S. attorney. However, if it comes from the U.S. Embassy or if the product is seized at U.S. Customs, the impact will be stronger.

As quickly as change happens in China, values and traditions evolve slowly. Until China sees clearly the benefit from protecting the IP rights of foreigners and its citizens, it is unlikely that protections satisfactory to Americans will come quickly. Taking the proper steps, however, can reduce the chance of having your valuable property rights ripped off.David Levey (jdl@interax.com) is an adjunct professor of Global Management in the MBA program at John Carroll University. He is the former manager of the Cleveland World Trade Association, the international business education arm of the Greater Cleveland Growth Association.