Small businesses can add foreign partners


January 21, 1991|By Mark Stevens

You've heard it a thousand times. To grow substantially, small companies have to expand beyond their domestic borders, selling products and services overseas. With Europe, Asia and the Third World purchasing a wide range of products and services, the opportunities are unlimited.

But as many CEOs of small and midsized companies have discovered, setting out to do business overseas and actually making it happen are two different things.

For newcomers, the biggest challenge is how to get their products or services into markets thousands of miles away. Fortunately, the experts have some answers.

"You do it by forging critical business relationships at the very beginning of your quest for overseas business," says Harvey Morris, president of The '76-'92 Group, a consulting firm, based in Sea Bright, N.J., that helps companies develop business interests in Europe.

"In most cases, the best approach is to have an intermediary familiar with the overseas markets introduce you to perspective business partners who will manufacture, license or distribute your product in their markets. That way you enter foreign territory with a solid connection -- one that has a vested interest in helping you succeed.

"Take the case of a small U.S. company that recognized there would be a ready market in Europe for its automated paint-mixing equipment. Rather than taking the usual route of writing a bunch of letters and setting up makeshift meetings in hotel rooms, the CEO asked us to arrange a few critical introductions.

"With this in mind, we presented the company's product to paint retailers and arranged a series of meetings in London and Frankfurt. The response has been impressive: Five European companies are now negotiating to acquire the use of the company's paint-mixing technology. Before opening a single office overseas, the U.S. company will have substantial business in place."

Small companies new to foreign markets often fare best by joint venturing with other companies native to those markets. Put simply, joint venturing involves dual participation in sales, distribution or manufacturing.

For example, when a U.S. company came up with a good design for a high-efficiency boiler, management decided to sell the technology overseas. But rather than trying to muscle into foreign markets single-handedly, the company joint ventured with a German firm that had a high-efficiency burner of similar design that could be fitted to the boiler. Because the products dovetailed, the companies decided to produce each other's technology in their native markets.

Another way to gain a beachhead overseas is to work through a franchising arrangement.

"Burdensome government regulations coupled with a tight financing environment have made it increasingly difficult to launch a franchise business in the United States," says Arthur Karp, president of the Great American Cookie Co. and current chairman of the Washington, D.C.-based International Franchise Association.

"But just the opposite is true overseas. Because foreign governments recognize the positive impact franchising can have their economies, they are making it especially attractive for U.S. companies to develop franchises there.

"In the United Kingdom, for example, companies engaging in franchising may qualify for certain bank loans that are 80 percent guaranteed by the British government."

By investing in franchise activities overseas, U.S. entrepreneurs can also enter at a higher level of ownership than is often possible in the U.S.

"The way franchising is generally structured, a master licensee has the rights to an entire market or territory in which he can sell franchises and collect operating royalties from them," Mr. Karp says.

"But because franchising is so well established in the U.S., many of the master licenses at the top companies are already accounted for. But by venturing into relatively untapped markets abroad, entrepreneurs can still acquire these master licenses, often at attractive terms. For this very reason, a Texas businessman is now seeking to acquire the master license rights to the Great American Cookie Co. in Australia."

Those interested in exploring franchise opportunities overseas may contact the IFA, International Affairs Department, 1350 New York Ave., Washington, D.C. 20005.

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