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_Breaching International markets _
By: M. Brotich
Measuring a potential business venture has many aspects which the
international manager must be aware of in order to convey the correct
information back to the decision makers. Being ignorant to any of the aspects
can lead to a false representation of the project, and hence an uninformed
decision being passed. In order for a business to survive it must grow. For
growth to be optimal, management must first be able to identify the most
attractive prospective leads. The country as a whole, specifically geography,
government, and financial aspects must be looked at in order to yield the best
possible picture of the market a company wishes to enter. Concentration should
be placed on gathering reliable facts that are backed up by more than one
source. It is to be hoped that after creating "a picture" of the market,
management's analysis of the potential business venture and plan of action
will be structured as to avoid losses and to find the most profitable
scenarios. The success of the multinational corporation lies on the shoulders
of it's management. International management and organization-design expert
Henry Mintzenberg says every CEO has three essential duties: direct
supervision, development of the organization's strategy, and management of the
organization's boundary conditions. Top management's responsibility at and
beyond the organization's boundaries is largely a communication
responsibility; however, no commonly accepted model exists for decision,
execution, and assessment of communication opportunities. Within even some of
the largest and most venerable organizations, the process used is haphazard
and inconsistent. The Wyatt Company's survey of communications professionals
showed that just 58.1 percent agreed that their organization's communication
objectives are linked to business objectives, and 83.3 percent reported that
their organizations conduct no formal review of return on communications
investment. CEOs must establish and reinforce an organization's image in
public by viewing each target public as a client; by doing research, looking
at trends, and talking to experts, a CEO focuses on selling what the client
wants to buy.1 Finding a country to conduct business in can be a very easy
task depending on if the organization's top management follows the advice of
Mr. Mintzenberg. The way a company normally discovers where to conduct
research is through leads on potential operations from outside sources. The
selection of which leads to investigate becomes the difficult task. After
sifting through the leads and finding the right ones to investigate management
must formulate an international marketing plan. This further helps management
in locating potential markets for their products. The first step is to use
secondary research to find out what the sales potential is in a given market.
Asking the questions of need, demand, and support gives one a starting point
for research. If we were a company that sold pants we might want to ask the
following questions. Is there a need for pants? Is it cold enough there to
wear pants? Do people that demand the pants have money? These are the
questions that one should ask of potential markets. Table 1-located at the end
of the paper-shows the statistics that are needed for a general market
picture. After gathering the information from the secondary research, the
picture of a potential market becomes more evident. However, to make the
picture clearer, one must conduct primary research. This research outlines the
specifics of the potential market that directly pertain to the product. Robert
Douglas' book, Penetrating the International Market, addresses the issue of
locating potential markets in greater detail.2 [mg1] After finding a lead that
contains profitable markets it is necessary to analyze the venture as a whole.
The decisions of companies must be based on the facts of reliable sources on
all investments. To gather the information needed for investment projects,
management must organize a competent feasibility team. The members of this
team should be comprised of employees of the company, this is so that the
knowledge will stay within the company. If the resources are not available for
an employee conducted study then outside consultants may be used, it may also
be beneficial to use a combination of the two. The first step in conducting a
study is to design it by using project objectives as the base. During the
second step the team must be staffed with people that have the ability to
solve problems in any situation. In the third step the team should be properly
placed and instructed. In the fourth and final step the product of the
feasibility study should be properly communicated to the decision-making
management.3 Table 2-located at the end of the paper-shows a general timeline
that a company follows through the progression of a feasibility study. The
design of a feasibility study first assumes that a company possesses the
skills and resources necessary to be competitive in the market under analysis.
Management must know the limits of its operations abroad. The operating margin
for the expense of establishing and starting operations abroad should be
easily recoverable within a reasonable time period. The design should also
include the management's goals, which comes down from the investors of the
company. The goals of management should be to acquire specific knowledge of
the partner, in a joint venture situation, as well as the financial aspects,
and the business-environment. The currency of the host country along with the
political situation, and the economy are finer points of detail that the study
must cover when analyzing the business-environment.4 In a less formal sense
the design of the study should cover relevant material so that when viewing
the final report decision-makers will know with what they are becoming
involved. Staffing a feasibility study is of major importance. Not only must
the members be competent in communication and understanding, but the
management selecting the team must be confident in the abilities of each
individual. Communication in international affairs plays a great role for the
fact that different languages spoken and unspoken are involved. The
communication through a translator let alone person-to person communication
can be vastly misconstrued.5 The individual's communication skills should be
top-notch in order to be selected for the team. The members of the team should
also be aware of the cultural factors that play a role in communication.
Cultural interpretation and adaptation are a prerequisite to the comparative
understanding of national and international management practices.6 For
example, during contract negotiations with a Japanese company there are times
of long pronounced silence on the part of the Japanese. They state that the
negotiations, (will take a little longer,( and (this is quite difficult.( From
the American perspective one would become frustrated at the slow pace of the
negotiations. From the Japanese point of view the negotiations are proceeding
quite well. Differences such as the one illustrated must be kept in mind at
all times while communicating to any foreign counterpart.7 The placement of
the team is dependent upon the profession of the individual. The accountants
obviously speak and gather their information from the counterpart's accounting
offices, and so on. Concerning placement, their daily schedule should allow
time for team meetings. During the meetings, progress and the experiences of
each member should be shared. This sharing of information can bring the team
closer together and also allow the supervisor to measure progress and
disseminate any changes in plans.8 As the importance of correct understanding
of the translator and the foreign counterpart are during communication, the
final communication of the study should be understood by the top
decision-makers. When these four steps are taken while conducting a study the
measure of feasibility will become more accurate. Understanding the importance
of proper analyzation of ventures can be seen with the following example of
the Patras Cement Company, SA.9 Yankee Cement Company Inc. of Denver Colorado
needed to approve an expansion of it's subsidiary, Yankee International SA of
Switzerland. The expansion was to build a 500,000-ton cement plant in
conjunction with Titan Cement Co. SA of Athens. The plant would reach full
production capacity within two years after the beginning of construction.
Estimates by both Titan and Yankee showed that total capital needed for the
Patras operation was US$15 million. The equipment manufacturer, F.L. Smidth of
Copenhagen would finance 40 percent of capital expenditures, and another 20
percent would be financed through the National Investment Bank for Industrial
Development, SA. The remaining 60 percent of Patras shares would be equity, of
which 75 percent of shares would be owned by Yankee, and 25 percent of Patras
shares would be owned by Titan. The international division manager of Yankee,
Bob Walbecker, dealt with the Manourpoulos family, who were the owners of
Titan. After establishing the connection with Titan, Mr. Walbecker continued
to establish good rapport between his division and Titan. Ten days after
preliminary negotiations between the two parties Mr. Walbecker was assembling
a feasibility team in Denver, which was Yankees' domestic headquarters. The
team consisted of a market analyst, an accountant, a geologist, a civil
engineer, and Mr. Walbecker, who managed the study. For each American there
was a Greek counterpart that translated and disclosed all information known to
Titan. After four years from the start of the study Yankee expected that
personnel within the subsidiary would be able to handle any further
developments. Preparing for the in country phase of the study is perhaps more
important than the actual time spent in the country conducting research.
Before departing for Athens with his team, Mr. Walbecker prepared an outline
for each day's activities for the entire study period. He also had the
individuals make a contact list, which contained a bank, an accounting firm, a
lawyer, an equipment supplier, the embassy, the ministry, as well as industry
source phone and cable numbers. Another important point that was covered was
that Mr. Walbecker made maps available to the team of the location, and showed
documentary films discussing the political and economical situation of the
country as well. Shots and medical supplies were also made available and taken
with the team. Language was also a concern to the accuracy of the study. Based
on this fact personnel were required to attend classes on the language even if
they had some prior knowledge. After sufficiently preparing the personnel for
the trip, Mr. Walbecker departed with the team for Athens. For the first four
days the team was allowed to orient themselves to their surroundings. There
are several reasons why the team was given this time to relax. First, they had
to recover from the long flight. Physical and mental stamina were at a
low-point when the team left the plane. Secondly, the change in surroundings
has an effect on the emotions of a person. Third, it allows for the creation
of a team from a group of individuals. A sense of camaraderie can be
established during this free time. By the beginning of the week the team was
eager and ready to start work on the study. Using the contact list and each
individuals daily schedule the team was sent about to gather information. From
each contact on the prepared list each member was expected to gain at least
two additional contacts. While meeting with contacts the team was asked to
differentiate between opinion and fact. This is because misinformation
gathered by inexperienced people is very abundant. Fortunately for Walbecker
the team he had assembled was able to distinguish between relevant and
irrelevant material. During the study the team was also required to take notes
every day. They were also encouraged to go outside of the metropolitan area in
order to gain a better feeling of the country and it's people. Upon return of
the team from Athens, Walbecker concluded the following: the rate of return
would be 16 percent, the partners had good integrity and intentions, the
political situation was not extremely stable, the ownership option was good
for other projects if the Patras investment was slow, and there were no
technical or market developments evident to slow down progress in
construction. From these findings Walbecker had to persuade the Board to agree
to the venture. He concentrated on the soundness of the venture, the
reliability of the partners, and the advantages of Greece. Using market
analyses and forecasts, an audit of Titan's financial affairs, the geological
report, plant layout and consolidated capital estimates, and a
business-environment report, which covered the political situation, the
economy, partner evaluation, and an outlook on the country's currency-the
Drachma-Mr. Walbecker was prepared to start finalizing the report. Concluding
the report were the financial details on the US$4.5 million equity needed by
Yankee. Before giving a formalized presentation to the Board and other
important associates, Mr. Walbecker had informal discussions over breakfast
with the three top executives at Yankee about the project. The reason for this
was not only to give the executives a briefing about the information that was
gathered, but also to get an idea as to result of the vote on the project.
After the formal presentation, the Board was given one month to decide on
accepting or rejecting the project. At the conclusion of one month's time from
the formal presentation the Board's vote revealed the acceptance of the
project. This example should have revealed the importance of the site
selection, gathering, and transmission processes used in conducting a
feasibility study. The main point of conducting a feasibility study is to find
the intricate details which are necessary to make the right choice for
expansion. The example presented above is just one particular situation. In
trying to maintain brevity, the paper could not possibly include all of the
suggested actions that management should take in every situation. Management
must be able to adjust and plan a course of action to find the details of
their particular situation that are essentials to making a viable decision. As
an overall idea in dealing with foreign counterparts one should be objective
in judgment and abundant in knowledge of the person's/people's backgrounds.
Knowledge is a valuable resource when expanding operations. Conducting venture
analysis is one way in which a company can perceive how the investment will
contribute to future operations. Table 1: List of statistics that portray the
market situation. Essential Market Statistics: 1. Population by language,
religion, ethnic groups 2. Population by age, income, major occupations 3.
Population by regions and centers-with growth rates 4. Number of households
and rate of creation 5. Percentage of households with car, radio,
refrigerator, TV set, washing machine, running water, electricity. 6. Per
capita disposable income (per capita national income less taxes and savings)
broken down by region 7. Personal and household consumption pattern; changes
over ten years. 8. Government purchases of goods and services, broken down by
product groupings and buying agency. 9. Type, number, and purchasing of state
enterprises 10. Imports, and exports, by product and by origin or destination
11. Statistics on market for your product (internal production plus imports
less exports) * Source: Penetrating the International Market, p.27-8. Table 2:
Diagram showing the timing of project events over a 12 month period. Months
Actions 0 Project received by outside party 1 2 3 Preliminary evaluation by
company completed 4 5 Initial screening in country completed 6 Decisions to
conduct study, employ intelligence service 7 Departure of study team for
country 8 9 Completion of field work 10 11 Completion of Report 12 decision by
Board on acceptable terms * Source: Multinational Management, Venture
Analysis. p.58.
_Bibliography _
1 McGrath, John J. Sell Your CEO! Vital Speeches of the Day. vol. 61-14. May
1, 1995: 444-7. 2 Stuart, Robert Douglas. Penetrating the International
Market. American Management Association. New York 1965: 25-39. 3 Haner, F.T.
Multinational Management. Merrill. Columbus, Ohio 1973: 43-58. 4 Ewing, John
S. and Meissner, Frank. International Business Management; Readings and Cases.
Wadsworth. Belmont, California. 1964: 146-70. 5 Robinson, Richard D.
International Management. Holt, Reinhart and Winston. New York. 1967: 71-85. 6
Morden, Tony. International Culture and Management. Management Decision. vol.
33-2. 1995:16-21. 7 Harris, Philip R. and Moran, Robert T. Managing Cultural
Differences. Gulf. Houston, Texas. 1979: 12-24. 8 Fayerweather, John.
International Business Management; A Conceptual Framework. McGraw-Hill. New
York. 1969: 51-64. 9 Haner, F.T. Multinational Management. Merill. Columbus,
Ohio. 1973: 60-64. [mg1]
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