Global Strides: How to gain a foothold in the international business game

“This area is becoming more sophisticated and businesses are growing to the level where they’re able to expand their reach into other countries,” said David Agee, a Blackwell Sanders LLP attorney with experience in international law.

According to the World Institute for Strategic Economic Research, that $12.8 billion is a record in exports for Missouri, up 22 percent from 2005.

With that expansion, however, comes a wide range of legal and cultural issues that must be addressed.

As businesses eye more countries that might be ripe with growth opportunities – Dubai has caught the attention of at least two area companies – they will have to be attuned to the cultures of those regions.

Cultural gap

The most important aspect of doing business in any foreign country is understanding the cultural differences, according to representatives of area companies involved in overseas operations.

Springfield-based home furnishings designer and manufacturer Decorize operates a furniture manufacturing facility in Indonesia and a smaller facility in China.

Decorize CEO Steve Crowder said the two countries operate very differently from each other; Indonesian culture is more laid-back, while China is more industrious.

Crowder learned about those differences the hard way.

“I went to Indonesia, and I got the whole team together,” Crowder said. “I told them about our goal, and I said, ‘If you make this goal, we’ll give everyone an extra day’s pay.’ In America, that’s a big deal.”

The employees, however, weren’t impressed. The Indonesian manager explained to Crowder that most of the workers live in large group settings and need very little money to get by; they prefer extra time off to spend with family.

When he tried to apply that principle at the company’s China facility, though, he found that there’s no one-size-fits-all mindset for international business.

“I told them that if we hit our container mark – thinking I’m armed with this new knowledge – they can have a three-day weekend,” he said. “The country manager says, ‘Why’d you do that?’ I said that I thought people in Asia wanted time off. He said, ‘This is China – these people work in the cities and send money back to their home village – they’re not going to the beach or playing golf. They work six days a week. They want cash.’”

Springfield-based Incredible Pizza Co. opened its first Mexico location in June. The company’s Mexican franchisee, Gonzalo Barrutieta, is under contract to build 19 more locations, most likely in Mexico and Central America.

Company founder Rick Barsness said that opening a Mexico location created new challenges because of cultural differences.

“(Mexico doesn’t) want anything to do with China, and 99 percent of the plush toys we use are made in China,” he said. “They’ll allow you to bring them in, but they add a huge tax. So we had to find another source.” He said the company also had to change some of its menu items and recipes to meet the country’s flavor preferences.

Incredible Pizza Co. also is developing stores for the China market; company officials have said they hope to open the first of at least 10 stores there as early as 2009.

Other hurdles

Attorney Agee said that companies that want to set up physical locations overseas should always look for local partnerships.

“Many countries still require local ownership, so you may have to set up a joint venture,” Agee said. “The entity may have to be majority-owned by people in the foreign country. Licensing and government regulation is key. And tax planning goes without saying – each country has its own tax rules.”

Barsness said it cost more than $100,000 just to make sure Incredible Pizza Co.’s franchise agreements met Mexico’s legal standards.

Collecting royalties from the Mexico store, he added, also is difficult.

“The Mexican government wanted to tax the royalty stream, so we had to figure out a way to not get taxed by both the United States and Mexico,” he said. “We had to hire a tax attorney to figure that out; otherwise you get hit with huge taxes on both sides.”

Still, some companies do head south of the border with their own holdings.

Springfield-based PROFormance Technologies entered the Mexico market through its October purchase of Automotive Remanufacturers de México, based in Aguascalientes, Mexico.

Clint Georg, president and CEO of PROFormance, said the purchase offers new growth opportunities.

“The company in Mexico produces certain configurations of engines that we don’t currently produce in Springfield,” Georg said. “It broadens our product offering. Also, it gives us an entree into the Mexican and Latin American market. There are more than 60 million automobiles in Mexico, and it’s an underserved market for remanufactured automobile engines.”

The Mexican facility, which will be renamed PROFormance Technologies Mexico, will serve as both a source of new products for the American market and a distribution point for engines produced in Springfield.

Rather than setting up physical locations abroad, some Missouri companies are making the larger impact through exports around the world.

When companies are ready to ship their goods outside the United States, Springfield-based Marisol International can help. Marisol coordinates product shipments for companies exporting and importing goods around the world.

Carie Samuel, general manager of the company’s Springfield operations, said Marisol’s work comes with its own challenges.

“Everything that comes into the country has to clear customs,” she said. “Anything that goes out has to have an export declaration submitted, usually electronically, and it has to go through the Bureau of Export Administration.”

Samuel said the most popular export destinations for her company’s clients are Europe and South America, though she declined to name specific clients.

Overall, the largest portion of Missouri exports – nearly half – stays in North America, according to the World Institute for Strategic Economic Research statistics, with Canada the most popular target.

Future targets

Decorize’s Crowder pointed to India as a possible target for expansion for his company, though there are no immediate plans.

Crowder also mentioned Dubai as a popular area for U.S. businesses, due to the abundant wealth and rapid growth. The Middle Eastern nation is on the radar of Springfield architecture firm Butler, Rosenbury & Partners Inc. radar as well; company principal Geoffrey Butler told Springfield Business Journal in October that he is going to the country this month to discuss possible projects there. BRP already has spread its wings abroad with ongoing work in China.

While there may be new market potential in the Middle East, Samuel said that exporting to the region is especially tricky.

“The Middle East is pretty touchy, because if you’re exporting there, (the material) is often military, which creates extra hurdles to go through,” she said. “There are also countries with embargoes, and there are some you can’t import (from) or export to at all.”

According to the U.S. Treasury Department’s Office of Foreign Assets Control, the following countries are among those that have some sort of trade sanctions from the U.S.: Cuba, Iran, Iraq, Ivory Coast, Liberia, Libya, North Korea, Sierra Leone, Sudan and Zimbabwe.

Overall, Agee said that doing business internationally, at least in some parts of the world, is getting easier because of advances in technology.

“A few years ago, you might have had fax capability and difficult long-distance dialing,” Agee said. “Now you have cell phones that sound like the other person is in the next room. You can be on a computer and see faces, and you can transmit data instantly.”

Billion-dollar Business

Missouri companies shipped $12.78 billion in exports in 2006. Here’s how the shipments break down:

Exports by top industries

1. Transportation equipment – $4.99 billion

2. Chemicals – $1.94 billion

3. Machinery, except electrical – $1.10 billion

4. Food and related products – $721 million

5. Electrical equipment and appliances – $592 million

6. Computers – $489 million

7. Fabricated metal products – $388 million

8. Waste and scrap – $361 million

9. Minerals and ores – $350 million

10. Primary metal manufacturing – $286 million

Exports by top destinations

1. Canada – $4.82 billion

2. Republic of Korea – $1.65 billion

3. Mexico – $1.24 billion

4. Mainland China – $769 million

5. Japan – $547 million

6. United Kingdom – $377 million

7. Belgium – $372 million

8. Germany – $327 million

9. Australia – $267 million

10. Netherlands – $170 million

Source: World Institute for Strategic Economic Research