Staying Sane, Safe and Profitable Overseas
R. W. Nelson, Chairman, Kemin Industries Inc.
As an entrepreneur, I have been doing business internationally for more than three decades. A few years after my company, Kemin, was founded, a Chinese graduate student at Cornell University spotted an advertisement we placed in a trade publication. He asked us to ship pig-feed flavoring to his father's factory. Young as we were, we weren't about to turn down an opportunity: his request came with a check.
These days, opportunities abound across the globe, no more so than in emerging markets such as South America, Eastern Europe, Russia and parts of Asia and Africa. Entrepreneurial companies, in particular, must take advantage of them. As development costs soar and product life-cycles get shorter, small companies will need to sell in as many markets as possible to make a reasonable profit--maybe even to survive.
Once Kemin accepted the serendipitous Chinese request, we became global believers. In the late 1960s, we entered Europe through a distributor, setting up a full-fledged unit in Belgium in 1971. A decade later, we opened a subsidiary to serve Asia, New Zealand and Malaysia. Today, international sales account for two thirds of our annual revenue. We operate four overseas plants and 30 offices.
As we venture into countries that aren't as tame as the Western democracies and some in the Far East, we are using these valuable lessons as a starting point. At the same time, we realize that we need to take additional precautions in the rough-and-tumble environment of so-called underdeveloped countries.
The Basics Count
Whenever you enter any foreign market, first do your homework. Try using The Exporter's Encyclopedia, a classic reference. It contains information such as the size of the animal-feed business in each country and the names of companies in the business. These days, for a small fee, the U.S. Commerce Department makes this part of the job easier: It supplies a person to do the legwork.
The next step involves making a firm commitment. Usually, we put up no more money than we can afford to lose. Then we hire an individual to work full time, developing a market. That person begins by scouting the region, a process that takes about nine months.
Next, look for results. When we decided to enter Asia, the person we sent turned up 25 prospects during an initial three-week journey. Once you have prospects, expect orders and then, numbers. We believe a market should break even within a year and be profitable within two years.
Cash is King
With your emerging-markets foray grounded in the basics, you should understand that, away from developed countries, money will be your biggest problem: specifically, how you will be paid and, sometimes, whether you will be paid.
At Kemin, we operate by a rule of thumb: Until we do business for awhile with anyone even domestically or in the Western democracies we need our money up front. In the emerging markets, this isn't merely a rule of thumb. It's a rule.
Once, we received a big order from a customer in Russia, a market we had been developing for two years. The sticking point was how (and, as it turned out, if) we would be paid. The Russian customer argued for rubles. We demanded to be paid in a Western currency, backed by a letter of credit. Although the customer eventually agreed, our bank in Belgium wouldn't guarantee the credit line from the customer's bank in Russia. No matter how tempting the business was, we had but one choice: to turn it down.
Cash is king. Don't forget it, especially in emerging markets. Don't let the lure of a promising new relationship blind you. What you need, most of all, is a profit.
Manage Your Managers
With volatile governments and shaky currencies pitted against today's most enticing business opportunities, the emerging markets are nothing if not a beehive of frenzied activity. It's human nature, as well as in the best entrepreneurial spirit, for managers to get caught up.
Your job is to put clamps on enthusiasm when it doesn't make good business sense. In Russia, our people were pushing hard for that $1 million sale. Understandably, their "numbers" depended upon it. But we had to say, "Hey, we know people who've lost money there, and we don't want to."
Your managers will be the hardest to convince. Accept their exuberance as the engine for getting you where you want to go. Then temper it.
Just Say No
With the emergence of emerging markets, you mustn't lose sight of common sense. It just doesn't pay to do business in some parts of the world. You don't want to be caught in the aftermath of a bloody civil war, for instance, or in a country where the Sunday afternoon pastime is taking prisoners down to the beach and shooting them. Just say no if your employees' safety would be at risk.
We also avoid areas where custom calls for "passing the envelope." We don't do business anywhere where bribes are the order of the day. Stay clean. Bloodshed and bribery don't make for long-term business relationships. Once you start passing envelopes, if only to get your foot in the door, you're dead. Once you venture into unsettled countries, you could be literally dead.
Expect the Unexpected
Your business life in emerging markets will be full of surprises. To make the best of them, learn to expect the unexpected and manage the unexpected.
A while ago, in the wake of turmoil in the Asian financial markets, we discovered belatedly that our otherwise competent local manager in Thailand was selling in local currency, rather than in dollars. That meant we were getting 30 percent less revenue from those orders. We could have fired him. However, since the crisis was unexpected, we took the moderate course of denying him a raise and bonus.
The formula for winning in the rough-and-tumble emerging markets calls for playing the thrills against the mundane. With your venture grounded in global business basics, with a tempering hand on your managers, with a firm grip on the cash and a healthy dose of common sense, you can profit from the surprises.