Outsourcing International Business Expansion

“International Expansion Outsourcing Considerations”

for the Annual Globalization Innovations Section of

Silicon Valley Business Ink

October 3-9, 2003 Issue

By: Jason L. Ma

CEO, Congruent Partners LLC

In Silicon Valley, 19 out of 20 technology companies fail. To succeed, a company must provide solutions that match real customer needs, plot sound strategies and execute well short to long term, while staying on top of dynamically changing market and competitive conditions. They must be run by people who work hard and smart as a team, with enough capital. This is a tall order for small and midsize tech companies.

A credible company’s quantifiable metrics should include growing customers base, distribution channels base, revenues, margins, a path to profitability or profitability, market and shareholder value, a customer satisfaction index, and others, quarter to quarter. Customers success, relationships, and numbers matter. Customers feel more comfortable with a healthy supplier who deliver as promised. Consistency and frugality are virtues. Investors like their ROI head north and surprises controlled.

Tech companies’ revenues are generated domestically and internationally. For enterprise markets, North America is by far the largest region worldwide. For consumer and carrier/service provider markets, Asia Pacific is the largest region worldwide and is growing the fastest. Europe, Africa, and Middle East is a large region. Latin America is smaller but growing.

Worldwide, besides the giant tech companies, small and midsize tech companies generate up to 20% of hundreds of billions of USDs in annual revenues in the communications and information technology markets worldwide.

Historically, many smaller tech companies shy away from attacking international markets until they see a comfortable level of success in their host country (e.g. the US). This can be due to perceived constraints on capital and other resources, inadequate management skills, lack of support from the board, internal politics, and/or fear of uncertainty. But the fact is for many tech sectors, international market revenue potential is huge. Windows of market opportunities are limited. If a company delays international market entry or expansion, chances are some competitors may have raised the barrier to entry or success. They may have created knockoffs or adapted well to local markets and relationships, in disfavor to the company. It can take 6X the time, energy, and money to get a new customer than to keep an existing customer. By the time the company wakes up to really go global, it may be too late, or its international market potential is much more restricted if not gone. This adversely impacts shareholder value.

Market leaders such as Google, BEA Systems, Cisco Systems, and Intel all worked to become distribution leaders worldwide. Their distribution channels systems include direct, indirect and/or Internet sales/services, and a spectrum of relationships and processes between the end customers and them as suppliers. Channels can include systems integrators, VARs, distributors, dealers, agents, consultants, OEMs, and the Web, depending on the business. Creating and managing a successful distribution system is an art and science. The complexities can be high outside a company’s host country.

To succeed, a company must go to and grow in international markets cost-effectively and efficiently. Proven international success add to market valuation. Ideally, a company wants to execute with great speed, precision, low costs, and low risks – delivering sustainable growth in customer base, financial top and bottomlines, innovations, and shareholder value. It takes coordinated execution to make this happen and sustain this, driven by customer-oriented top and sales management and staff who understand demand pull and technology/product push. Unless a company is extremely knowledgeable, high-bandwidth, and efficient, they need external help. Organically building a global team of employees to do this can be slow, expensive, and risky. Besides the direct costs, international misfortunes and turnover costs can add up. Business process outsourcing is becoming a common practice these days.

If you are the CEO of a small or midsize tech company, here are some considerations when seeking out international business expansion outsourcing help:

Identify tangible and intangible outcomes you want.

Select an outsourcer whose people have a proven background and capabilities, market and domain know-how, operating experience, service offerings, and the right chemistry.
Determine a clear set of objectives and terms, negotiate, ink an agreement, nail down sound business/market strategies, and execute cost-effectively, efficiently, and closely with the outsourcer.
Expect to pay a quality outsourcer retainer, performance-based commissions, and perhaps also equity. Offering success fees-only incentives might not get you quality help.
Measure periodically the progress and adjust the execution with the outsourcer as needed. Improvements and innovations should be never-ending.
Keep working with the outsourcer and scaling until you are ready for select employee hires to replace the outsourcer for tangible and strategic reasons. A quality outsourcer can also help you hire permanent employees to replace them.

Good luck executing!

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Jason Ma is CEO at Silicon Valley-based Congruent Partners LLC, an international business management consulting firm serving communications and information technology companies. You can reach him at jma@congruentpartners.com.