Atop the strategic agenda of many executives is globalization. But infiltrating the fertile grounds of Europe is not so easy. Hundreds of years of tradition present challenging dilemmas for those who attempt to push the boundaries of their company, but the European market is too great to ignore — and to the worthy competitor the opportunities are abundant.
The way business is done on the other side of the world is unlike anything done in the United States, says John Buscher, executive managing director of Eurosourcing at Technology Partners International (TPI). And a company that attempts to replicate the business practices that it follows in the states will have very low success rates. “There are a lot of nuances that must be observed then practiced,” Buscher says. “And it takes time to learn them all. There is nothing predictable about them.”
Not only do business perspectives and culture change from the United Kingdom to France to Germany, but they also differ from region to region within the individual European countries themselves, says Dennis McGuire, president and CEO of TPI. “You’re not dealing with say, 14 European Countries; you’re dealing with more like 40 local areas that have a lot of history behind them,” McGuire says. “So it is a pretty complex environment.”
While U.S. companies move into unfamiliar international territory, McGuire recommends that companies expand slowly. “If you’re an American company coming to Europe it will be a struggle getting started,” McGuire says. “There is clearly a preference for European businesses to do deals with local companies that knows the idiosyncrasies of the legal system, the economy and are familiar with human resource laws. You also have to work through the bureaucracy of getting set up and then you have to get your name known.”
Learning to Crawl
Before TPI, a sourcing transaction consulting firm, launched its international practice, John Buscher says that the company did quite a bit of research to find out how ripe Europe was and where to look. Buscher and his colleagues at TPI discovered that the gross national product of Europe is equal to that of the United States, which is considerable. But they also found that the area of outsourcing was lagging behind the United States by about two years. Buscher attributes this to the fact that as a whole, Europe is much more risk-averse than the United States. It has traditionally been a continent run by labor unions that oppose outsourcing. And the continent also has an inadequate infrastructure from the abstract, the legal system, to the physical, transportation. Buscher says that this inertia will slow down the progress of business in Europe and will hurt the continent in the long run.
According to TPI’s research, the European country that was in the forefront of accepting outsourcing was the UK. The country, in fact, has taken on quite a few outsourcing contracts and continues to grow quite rapidly, Buscher says. In the area of information technology (IT), UK businesses and European firms as a whole, have a tendency to selectively source while American firms will look at their whole IT function and decide to outsource every function. “European firms do it one piece at a time, so they will do applications and then desktop might follow,” he says. It’s not sort of a big bang deal.”
The second country that TPI thinks is going to boom is Germany, which is followed by the Benelux countries (Belgium, Netherlands and Luxembourg), the Nordic countries (Norway, Sweden), then Italy, Spain and France. But even though the potential is there to make money, getting started can be expensive. “You really need to know what you’re getting into because it is going to be twice as hard as you’ve ever imagined and probably twice as expensive,” McGuire says.
TPI was able to gain international experience through practical application. Some of its projects with larger companies like Dupont and J. P. Morgan had international components to them. So they were able to test the market from a low-risk point of view and they also had a continuing revenue strain, in which they could operate internationally without tremendous capital investment.
International Hot Spots
There are other countries and regions that are also opening up to the idea of outsourcing. Australia is pushing the idea of business process outsourcing and may be a little ahead of the United States in that area, Buscher says. Along with New Zealand, Australia has a lot of the business characteristics of U.S. companies. “They are fairly new countries, they are pretty open, and they are much more, ‘what you see is what you get,’” he says.
McGuire thinks that the Middle East and selected parts of Africa are starting to get into the game. Much of their business is centered on the oil industry and chemicals. They are also beginning to become involved in international banking and the international transfer of funds.
A New World Economy
Buscher says that in the next two years companies all over the world are going to be developing partnerships and relationships. They will also begin to reduce their size and cost structure to compete. Electronic commerce is going to play a major role in how companies do business. The common market rule and bureaucracy are going to be able to prevent big changes from happening and companies are just going to have to change dramatically, which means they are going to have to be open to outsourcing.
If a company is going to be a player in the next millennium they have to expand internationally, McGuire says. Big clients expect no less because on average 50 percent of a large company’s revenue is from non-U.S. locations. “Also, if companies don’t go international there might be some international companies that will come to the United States and take away business, so there is a little bit of a defensive kind of thing there as well.”
International business has slowed down some with the Asian crisis, but businesses are rapidly moving towards a deregulated world economy. “Only the companies that are best-in-world are going to do well and they are going to have to focus on what they do well and outsource the rest,” McGuire says.
Lessons from the Outsourcing Primer:
- When a company in the United States expands internationally it can not follow the same model that it did in the states.
- Each individual country has regions within its borders that have a lot of history behind them, which can affect the way they do business.
- U.S. companies that expand internationally must move slowly in order to become acclimated to the country’s idiosyncrasies.
- Europe is two years behind the United States in outsourcing.
- The European country in the outsourcing forefront is the United Kingdom.