Why the US Still Packs a Punch

For all the long-term potential of the emerging markets, it’s easy to forget that the US has a mighty $15 trillion economy tailor-made for the express purpose of doing business. So if you’re serious about competing with the best globally, chances are the so-called ‘land of opportunity’ is either a core part of your operations already or, for younger businesses looking to scale the heights, it certainly ought to be.

“I wouldn’t ignore America,” says Lady Barbara Judge, Chairman of the Pension Protection Fund and a former Commissioner of the US Securities & Exchange Commission (SEC). “It’s a big market and there are many people with vast amounts of wealth. The developing markets are important but it’s also vital to understand the optimism and economic potential of America.”

Gary Kildare, Vice President of HR for the Americas, Europe & Asia Pacific at IBM, comments: “The US continues to be one of the most important markets in the world. For many businesses it is attractive because of its size and scale, ease of doing business, language, receptivity to new ideas, innovation and products.

“The prospect of cornering or conquering the US market is certainly included in the growth plans of many businesses – big and small. Clearly, a lot depends on product, services, industry and market. It’s a fiercely competitive environment with an economy facing many of the same problems and issues as Europe and the US – though tackling them in a different way.”

Wise decisions

With a domestic market of over 300 million consumers, the ability to rapidly achieve scale in the US remains hard to beat. But, that said, the fierce regional differences, bureaucracy and culture of litigation can come as a surprise to those who imagine the country to be open, homogenous and easy to navigate.

Robin Buchanan, Non-executive Director of asset manager Schroders, warns: “Far too often Europeans make some fundamental mistakes when competing in the US. The most common involve underestimating the speed, innovativeness and intensity of competitors’ responses in the most competitive nation on earth.

“Then there is the assumption that the US is the world’s purest free market when hidden tariff barriers and complex, expensive regulations abound… If, however, you have the resources, skills, appetite and stamina to compete, the economic and strategic rewards can be enormous.”

David Wither, CEO of UK-based technology company Sarantel, says that with the right relationships and an offering that is not merely a ‘me-too’ product, even smaller businesses can make impressive in-roads: “If you’ve got people that are good and can make personal connections with customers then, I think, in a way, the US can be one of the easiest places to do business.”

Success takes planning, investment and having skilled and trustworthy staff on the ground who understand a particular market. Lady Judge says: “You have to be a little more focused than just saying: ‘I want to go and do business in America.’ Whether you’re a branded business or not, you have to decide whether you want to be regionally focused or to cover the whole country.

“There are regional differences in tastes and the scale of the opportunities. Texas thinks it’s its own country, so does California. One of the risks is in not understanding that cultural difference and the various ways of doing business.”

When Andy Houghton was in the US, driving the expansion of YSC, an international organisation of business psychologists, he believed clarity of purpose was essential if the company was going to succeed. “You have to decide why you’re going and why you’re putting your business there,” says Andy, YSC’s Managing Director.

In the beginning, this entailed opening offices in the North-East and in Texas to meet the needs of clients already there, but the next stage involved a test of the company’s ambition. Andy explains: “The two bets we made were in the West Coast and the Midwest. In part, I think to be treated seriously in the US you need to have reach in the key commercial markets and, actually, adding a presence in Chicago and San Francisco were entirely for that reason. Without those offices, we looked like a regional as opposed to a global player.”

Don Elgie, CEO of the UK-based insight and communications company Creston, led the acquisition of two healthcare companies to expand into the US. He explains: “Our view is that, in order to be credible, you need to have some scale in the States because it is such a huge market and, therefore, we decided on acquisitions rather than being a pure start up.”

When it came to selections locations, Don says the preference was for the East Coast: “That was simply because of management time and time zones. We’ve already got two companies in New York, so adding more there was easier to manage than buying something on the West Coast.”

Rule of law
The regulatory regime, especially for listed companies, is not to be trifled with. Although wrongdoing cannot be condoned, the fact that territorial boundaries count for little these days if a business has operations in the US or, for that matter, dealings with US citizens, is a worrying development.

Nicholas Fell, SVP Corporate Services & General Counsel for BW Maritime, who practised law in the US for 12 years at a different company, comments: “The difficult thing about the US legal system is on the criminal side as they do like to make examples of companies.

“As for the prosecutors, one gets the feeling that some are in it to make a name for themselves, not just to administer justice. You see a lot of successful politicians who started out as prosecutors and they’re looking for cases to enhance their careers.”

According to Andrew John, Group Legal Director and Company Secretary at TUI Travel, which has around twenty subsidiaries spread throughout the US, the legal framework is unlike anywhere else in the world. “Risk management in the United States is very important,” he explains. “Particularly if you are selling a product or service to American consumers where you are likely to be sued from time to time. You need to understand how your risk management strategy interacts with your litigation management strategy.”

For the majority of businesses coming to America, the real headache in setting up a business will derive from the cost of HR and the relationship between employer and employee. Don gives an example of some of the differences: “When you’re negotiating new terms and conditions for employees that you’re particularly keen to keep, the typical notice period that we offer in the UK would be at least six months.

“You would think that would be welcomed because America has a ‘hire-and-fire at will’ policy. However, when we bought our first company in New York, people thought six-months’ notice would be a handicap for them in getting a new job as and when they wanted. It was extraordinary; we imagined it would be a no-brainer in terms of security of employment, but it took a lot of selling.”

Andy says that the setting-up costs in the US are significant, particularly around healthcare. “Sometimes the employment relationship in the US can feel like it can be structured on an explicit understanding of the benefits an employer will give an employee. It’s not unusual in an interview for people to ask you to talk through your private healthcare scheme or how your 401k [pension plan] works, whereas the equivalent of that in the UK would probably never really raise its head until the final stages of the conversation.”

Think big

Expanding into the US needs commitment, but there’s a reason why it continues to be the UK’s largest non-European Union export partner (accounting for 25.8 per cent of trade) and its largest non-EU import partner too (15.9 per cent of the total value of trade).

The risks aren’t to be underestimated but for those companies not in the firing line of regulators in an Election Year (think financial services), the bureaucracy and legal framework is manageable. Nick says: “The Europeans do have fears because of all the scare stories. But it’s not the Wild West completely when it comes to the application of the law, so people shouldn’t be put off by what they hear.”

Although Lady Judge does recommend that businesses new to the US hire a good lawyer, she doesn’t believe that the differences in regulation between the UK and US are so far apart. “There seems to be more regulation in the UK because you have to add on the numerous regulations of the EU and their constantly changing nature,” she says.

Opinion may be divided, but there must be something right about the business environment in the US, stretching as it does from Silicon Valley to Wall Street, given the ease with which it regularly creates companies that go from start up to blue-chip status in the blink of an eye.

“It is such a great market, full of conspicuous consumers,” says Andrew. “There is nowhere else like it in the rest of the world.”

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