Beyond Borders, the Key to Survival

As published in the Business Finance Magazine
May 11, 2011

http://businessfinancemag.com/article/beyond-borders-key-survival-0511#commentsby Alexander Gordin

Ninety-five percent of the world’s consumers live outside the U.S. In 1999, one-third of the revenues derived by the companies on the S&P 500 index came from outside of the U.S.; today it is already one-half, and by 2025 two-thirds of the revenues of the 500 largest American companies will come from beyond our country’s borders.

As the global economic landscape evolves, it has become increasingly clear to a majority of business owners and top managers that international expansion is no longer simply an option to diversify markets, obtain larger profit margins and reach more target customers. It has become an absolute necessity for long-term survival.

Yet companies in the U.S. need to shore up their competitive positions in order to successfully compete on the new global playing field. Sixty-five percent of the world’s population is bilingual, but only nine percent of the U.S. population speaks a second language. Only one percent of U.S. businesses now export, says the Small Business Administration. Roughly one-half of them export only to a single country.

Much has been written about the need for more effective policies, education, information and support from government and Non-Government Organizations (NGOs). I would like to focus here on steps that companies themselves must take to develop and implement successful plans for international expansion. Each step could command its own chapter in a book, but here is a brief overview. Take a hard look at your business and ask yourself and your colleagues if international expansion is suitable for your organization.

  • Is there an organizational culture in place to facilitate and support cross-border transactions?
  • Do your company’s products or services offer a strong and sustainable international competitive advantage that is adaptable, if needed, to local market conditions?

If the answer is yes, then ask yourself if there is sufficient commitment among your top management to mount a sustainable, long-term, focused, and somewhat expensive effort to expand internationally? Without true commitment, any efforts will be doomed.

If the answer is no, then a key question remains: Is your organization willing to invest time, effort and money to develop the international culture, and modify or change the product or service offerings to become competitive overseas?

Once these issues are addressed, next steps would be to assess potential markets and their current and hopefully future economic, political and business climates. Most foreign expansion takes place either via a top-down approach of systematic analysis and orderly market penetration, or bottom-up market entry, which could be a result of an individual foreign buyer meeting a U.S. seller at a trade show or finding him/her on the Internet. A combination of the two is a rather frequent scenario.

Once the market selection is set, a comprehensive scouting trip needs to take place by senior management to visit all the target countries. Prior to the trip, and on an ongoing basis, management and relevant personnel need to immerse themselves in studying the language and culture of the chosen market(s). The objectives of such trip include:

  • Developing a comprehensive local network of U.S. government and NGOs, financial, legal and business development professionals;
  • Finding local partners and assessing the competition, understanding organizational issues, personnel qualifications and availability, reviewing available financial systems and financing alternatives. (This is not a complete list, but just a sample of the many issues that must be addressed.)
  • Most importantly, it is vital to look beyond the veneer of high-voltage optimism and hype, which often accompany rapidly growing emerging markets. You must carefully piece together the true and realistic picture of what is happening in the target country. Many international markets today can and will offer superb opportunities for the U.S. companies. Yet, entering a situation with rose-colored glasses and not doing thorough due-diligence to understand the market is tantamount to suicide.
  • If the initial scouting visits confirm the viability of the target market(s), it is then prudent to explore political risk insurance for direct investment, or credit insurance with a political risk component for export shipments. Then, your company must institute a compliance program in accordance with the Foreign Corrupt Practices Act (FCPA) and indoctrinate all its employees and foreign partners in what constitutes compliance.

In larger organizations, it is vital to create an environment where international managers have sufficient autonomy to make decisions locally without having to involve the home office in every step. On the flipside, top management needs to become comfortable enough with the international markets so as not to panic with every headline coming out of those markets.

International expansion is a very serious business that requires commitment, deep understanding of local culture, language and the business landscape. It requires constant management and analysis, with total focus and a strong team of professional advisors.

Expansion abroad should be planned for the long-term and be impervious to the “shakes and rattles” that can occur even in mature, let alone emerging and frontier markets. Risk mitigation is key and risk-reward analysis is even more important when doing business outside our borders.

Advertisements

About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Site Title

“Love recognizes no barriers. It jumps hurdles, leaps fences, penetrates walls to arrive at its destination full of hope.” — Maya Angelou

Museum of International Trade & Merchant Banking (MoMBIT)

chronicling the importance of international trade and merchant banking in the global development

STEMpi

Modeling for Success

Fluent In Foreign Business

Helping To Grow Your Business Abroad

Emerging Market Insights

How to make a killing in Emerging Markets without losing your shirt?

Ideas That Work @ GIDASPOV.COM

Strategy | Creativity | Innovation | Fundraising | Marketing

Nu Leadership Revolution Blog

“Helping Emerging Leaders Gain the Competitive Advantage in the Future"

Mike Z's Blog

Exploring the causes of cancer throughout the world

Bucket List Publications

Indulge- Travel, Adventure, & New Experiences

FranchisEssentials

Sharing Information, Insight and Perspective about Franchising, Small Business and Entrepreneurship

bizrisk.wordpress.com/

We Help Insurance Agencies Stand Out

The WordPress.com Blog

The latest news on WordPress.com and the WordPress community.

%d bloggers like this: