Winning Strategies for Asia

Comm update_12 November1 The scale and pace at which markets across Asia are growing can leave you breathless. For both indigenous and foreign corporates, the pressure is on to move fast, whether it’s responding to urbanisation, creating new technology or simply meeting customer demand. It all presents a rigorous test for executive teams as they are expected to devise winning strategies in a complex, competitive landscape where talent is in short supply.

These were some of the key themes to emerge from the Criticaleye Asia Leadership Retreat, held in partnership with China Europe International Business School (CEIBS). Over the course of 24-hours, attendees gathered in Hong Kong to share ideas on innovation, sustainability, talent and what the rise of China’s private enterprises means for multi-national corporations (MNCs).

Hellmut Schütte, Vice-President and Dean of CEIBS, observed: “Perhaps the golden age in China is over for foreign MNCs. Everyone is here now, labour costs keep rising, and China’s own MNCs are making enormous progress.”

Aside from the emergence of international powerhouses like e-commerce conglomerate Alibaba and telecom equipment and smartphone maker Huawei, competition was described as particularly acute in China’s third and fourth tier cities, where an increasing number of home-grown private enterprises are capitalising on their local market knowledge. “China still presents significant opportunities for MNCs but it’s now a lot harder to realise,” said Stephen Mercer, Partner in Charge of Multinational Clients at KPMG.

“You have to understand what segment of the market you are dealing with as they can be so different. If you were operating in Europe, you wouldn’t replicate your market entry strategy for each country or market and China [is] the same. Unless you are clear about what you are trying to achieve in China, it will be very difficult to succeed.”

For those companies that do get it right, China’s $9.2 trillion economy provides plenty of openings and areas for growth. Hellmut said: “If China ‘only’ continues to grow its GDP by 7 per cent over the next ten years, it will still almost double the size of its economy. If you combine [Brazil, Russia, India and South Africa] … and the next ten emerging markets, all together they add up to the size of China’s economy today. This is very much in the mind of China’s Government when it deals with the outside world.”

The ability to bring new products to market rapidly was generally agreed to be a significant differentiator for successful businesses. George Yip, Professor of Management and Co-Director of the Centre on China Innovation at CEIBS, said: “Chinese companies have a deep understanding of the customer – [they take] a pragmatic, profitable and customer oriented approach to innovation… Western companies can be too slow because there are too many processes in place.”

Sujit Chatterjee, President & CEO of TATA Consultancy Services China, said that “innovation, as it was understood in the Western world, was for a long period about creating new markets, but, as we see in Asia, especially China, innovation is about capturing markets”.

Companies have to be capable of adjusting to the characteristics of a rapidly changing and geographically diverse country. “Each year, Western companies set-up more R&D centres in China than in any other country in the world, including the US,” George added. “Western companies have an appreciation for Chinese methods of innovation; they are eager to learn how to innovate faster.”

A long-term view

If businesses are to continue to take advantage of the consumer appetite for goods and services, attendees agreed that it needs to be done in a sustainable fashion. Peter Wong, President of Dow Chemical Greater China, said: “Sustainability is very much part of our strategy in terms of driving business growth. For example, in China we are looking at a few of the issues the Government is focusing on, such as food security and safety.

“If we bring our capabilities together, we believe that we’ll be able to find a solution that is going to help the Government tackle some of these challenges, like food spoilages.”

Setting the right strategy and implementing it is key. Peter Lacy, Managing Director of Strategy Practice & Sustainability Services for Asia Pac at Accenture, said: “Companies need to be aware of opportunities to improve their approach to sustainability… It needs to be integrated into organisational design so that support functions are created to incentivise people, so they want to make improvements. That’s as true here in Asia and China as it is elsewhere in the world.”

The challenge is to create alignment across the whole organisation. “At Dow in China, I’ve been trying to build a cross-collaboration model,” said Peter Wong. “It’s been about looking at what the issues are and seeing how people can jump beyond their own boundaries. Hopefully they’re thinking about how we can better collaborate, utilising the R&D lab to [address] the issues we have – if you don’t even understand your true capability, you can’t really develop an innovative mindset.”

Cecilia Ho, President of International Paper Asia, commented: “There actually has to be a change in mindset around sustainability; you’ve got to accept that if you do not operate sustainably you cannot operate at all. [If you understand that], then you’ll do it because it’s beneficial to the company as well as to the environment…

“You can do all the communication and internal marketing – and we certainly do – but the most important thing is that employees are convinced that you practice what you preach. So it needs to be driven by the senior leadership team.”

According to Peter Lacy, thinking sustainably can be a real driver for innovation:  “At the moment a lot of the focus in Singapore, India, China and Japan is on urbanisation and smart technologies and how they can be used to better manage energy and transport systems. There is a ‘digital revolution’ taking place, and we are really only just beginning to see the power of connected physical and digital infrastructure in areas like cloud computing, mobile tech [and the] Internet of Things (IoT).

“This is clearly a strong business imperative, but it’s also a sustainability benefit… Companies in China especially are using things like smart-metering and smart-grids to drive energy efficiency per unit of GDP.”

Matthew Smith, Global Head of Market Development for the Internet of Things at Cisco Systems, estimates that over the next ten years the connectivity of devices will create profits and cost savings of approximately $19 trillion. “People are not afraid to fail in China and that type of attitude is going to be really beneficial in this kind of economy,” he said.

The impact of the IoT will be felt in multiple sectors, from retail and healthcare to life insurance and, of course, energy. Matthew continues: “Texting went from zero to $300 billion in about six years. Thanks to WhatsApp and We Chat, it’s gone back to zero again – the point is a lot of new markets will emerge due to the Internet of Things.”

People first

If technology is unlocking new business models, and globalisation creates a more competitive environment, what kind of skills-mix is required to come out on top? Even for those companies that have a theoretical answer to this question, the reality of identifying and keeping the right people continues to be tough.

In the marketing industry, for instance, digital is having a seismic impact on the way customers behave and this requires a different set of skills. Chris Riquier, CEO for Asia Pacific at Taylor Nelson Sofres, said: “As marketers, we’re not investing sensibly and we’re not recognising the ROI today. We’re also ignoring new platforms, which means we don’t have the skills and expertise in the business.”

The quality of graduates, particularly in China, was also discussed. Hellmut questioned whether the country’s education system, with its emphasis on hierarchy and rote-learning, was preparing the younger generation for the dynamism and innovative thinking required for the modern workplace. “Ten years ago there were one million graduates, whereas today you have 7.5 million graduates and the number of universities and colleges has doubled during the same period,” he said.

“There has been tremendous growth but there is the problem of young people coming into the job market and being unable to find employment. At the same time, you have companies crying out for people. As companies must innovate in order to compete, it is not easy to find the talent you need when they come from this rules-based background.”

In order to overcome the shortfalls in talent, companies were encouraged to start looking regionally to bring in people of the right calibre. Michael Guo, Partner of Human Capital & Change Management Advisory for Greater China at EY, said: “Businesses are increasingly connected. Ten years ago the prime movers in Asia were China, India and Indonesia…

“Now … there are so many different countries where different solutions are required, and for that you need a diverse range of talent, especially for your senior leadership team.”

Global leadership

When discussing ‘Asia’, it’s important to remember the distinct national and cultural differences. Each country and region will present its own idiosyncrasies in terms of doing business, from how relationships are built, bureaucracy navigated and the regulatory environment understood. Nevertheless, the Retreat demonstrated there are questions being asked of senior leadership teams in Asia that will resonate internationally.

Andrew Minton, Executive Director at Criticaleye, said: “Whether leaders are confronting issues around sustainability, talent or digital transformation, they must be able to… see the bigger picture in order to shape their own strategy.

“That’s why, regardless of geography or culture and irrespective of industry or function, there is an overwhelming need for leaders to step out of the day-to-day if they’re to combat complexity successfully.”

Executives need to be prepared to reflect, collaborate and benchmark with others. Trying to establish strategic clairity in isolation is no longer an option.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

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The Hunt for Fast Growth

Comm update faces_27 Nov

Genuinely game-changing innovation may be something of a rarity, but if companies are to prosper then it’s imperative that they invest in R&D and look to find ways of standing out in what continue to be tough markets. The good news is that plenty of companies are doing just that, investing in technology, looking to conduct acquisitions and expand so as to accelerate growth.

Marnie Millard, Group CEO of soft drinks business Nichols Plc, says: “Internationally, while our core markets continue to perform, it is newly developed markets within the African regions which provide growth and development.

“Although indicators suggest the economic conditions are improving, the UK consumer, we believe, remains cautious. They are still using their weekly budgets wisely which means value for money remains very important. We will invest in products which are core in terms of meeting the growth areas of health, well-being and convenience.”

It’s always somewhat difficult to pick out specific sectors for growth, but it’s evident that healthcare, TMT and financial services are set to be hotbeds of activity for the foreseeable future. “The recovery in the UK and global economy are macro factors in increasing demand,” comments Chris Hurley, Regional Managing Director at private equity firm LDC. “But at the micro level, it is technological innovation that is probably the key growth driver across most sectors.”

Chris gives examples of a number of portfolio companies, including Angus Fire, a specialist in fire fighting technology, and NRS Healthcare, which are investing in new services and products to boost growth and capitalise on the opportunities in their respective markets. There’s also been M&A activity, such as the merger between the production company Boom Pictures with Twofour Group.

The mid-market has received a lift from improved financing conditions, although it remains a fragile state of affairs. “The continuing difficulties SMEs and growth companies have in accessing funding is still an issue,” adds Chris. “Various finance industry and Government schemes, plus a great willingness by banks to lend, have helped but businesses do need to be able to have access to adequate funding… Here confidence remains key all round.”

Ambition to burn

On the public markets, there has been a positive change in mood during the past year. Alastair Walmsley, Head of Primary Markets at the London Stock Exchange, comments: “The mindset of public market investors has been yield focused for an extended period of time, whether you’re talking about equities or fixed-income instruments…

“In the broadest possible terms, I would say businesses that want to pursue growth, whether it’s geographical or in terms of product line, M&A or organic led, are finding funding through the markets more readily than for a number of years.”

At student housing provider UNITE Group, CEO Mark Allan has been busy ensuring equity funding to the tune of £215 million is in place to support ongoing growth (in addition to an already secured pipeline). He explains: “In London, we have been busy developing and growing over the last three to four years but land prices are now getting more expensive… While there is still good customer demand, the margins on investing in development activity in the capital are eroding in our view.

“Whereas, in the regions, customer demand is still very high, certainly for the strongest universities, but the input costs are much lower. It’s more a case of we think costs have fallen as much as they are going to in the regions, we’ve got good customer demand, and now is a good time to be investing while the costs of doing so are pretty much as low as they are likely to get.”

Globalisation presents the big opportunity for many businesses (not without a significant number of risks, naturally). Mark Garrett, COO of global technology consultancy Ricardo, says: “The US and mainland Europe are both very interesting areas for us to expand a little bit more outside of the UK business.”

Latest figures for Ricardo sees revenue up by 16 per cent to £229.7 million and underlying profit before tax increasing by 31 per cent to £23 million (the company acquired environmental consulting specialist AEA at the end of 2012 for £18 million). Approximately half of the company’s sales come from the UK and the plan is to address that by diversifying geographically.

He says: “We’ve seen Europe in the doldrums for quite a long time and there’s no immediate prospect of a bounce-back. China has been reasonably strong all the way through and, although the US has obviously had problems, it seems to be coming back strongly too.

“The UK economy now seems to be on a path for growth… [but] if we are all in one location we are very much bound by the local economic conditions. We’ve also found a lot of our customers are based globally too, and so we want a business which matches them on the basis of our geographical footprint.”

For Geraint Anderson, CEO of TT electronics, which supplies electrical systems to manufacturers in the defence, aerospace, medical, transportation and industrial markets, there are plenty of good signs. “We’re a big player in the German luxury auto market and that’s continued to perform well over the last couple of years,” he says. “We’re seeing an acceleration of demand, particularly coming out of very strong North American and Asian [markets]. Europe is not necessarily getting any worse, but it’s still early days to say it is getting better.”

Some £30 million is set to be ploughed back into the business over the next couple of years to develop operations. “We’re investing heavily in the right manufacturing cost centres around the world,” he explains. “So, we’ll make sure we continue to invest in Asia, Eastern Europe and over in Mexico as well.”

For many executive teams, the past few years have largely been about restructuring and change management. Now the focus is going to be on finding ways to win back customers or to identify new ones, which may be seen to require an altogether different kind of high-performing executive team.

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

Is the Feel-Good Factor Back for Boards?

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Reading tea leaves may prove more useful than relying on official measurements of how the economy is faring. There’s staggering national debt, real fear of inflation and overwhelming frustration at the short-termism of politicians, but this needs to be counterbalanced by the fact that, from a business perspective, confidence is picking-up in the boardroom today and it can’t all be due to a new royal baby.

Growth, and how to drive it in a sustainable fashion, is what’s on the agenda. Criticaleye spoke to a range of business leaders to get their take on the economic fix we find ourselves in, looking at it from both a local and global perspective. Here’s what they had to say…

1) Things are Getting Better

Optimism is returning and the vital signs – for the UK at least – are stronger than they have been for some time. In July, for example, the IMF upped its forecast of UK growth for 2013 to 0.9 per cent from 0.7 per cent in April. It’s positive news but with the national debt at 75 per cent of GDP and concerns about cheap money and subsidised credit, no-one’s getting carried away…

It’s more meaningful to talk about ‘optimism’ in the context of business performance and in this sense there are certainly some reasons to be cheerful. Brendan Walsh, Senior Vice-President of American Express’s Global Corporate Payments division in Europe, says: “At a macro level there are definite signs of improvement. When I look at my business month by month, over the last nine months, I can point to, at the aggregate level, total improvement, although the pace of improvement differs country by country.”

There are signs of a recovery in recruitment too. Stephen Barter, Chairman of KPMG’s Real Estate Advisory practice, comments: “We’ve seen quite significant job growth over the last nine months. Our recent Report on Jobs has shown the highest rate of growth in vacancies in the last three years, the fastest acceleration in permanent jobs being created for the last two years and the beginning of a movement in wages… The sectors that show the strongest growth have been engineering, IT and healthcare, but in recent months we’ve also started to see executive professional posts picking up too.”

Naturally, your view on whether things are improving will depend on the space you’re in. David Harding, who sits on the boards of two smaller UK companies, says they’ve both had diametrically opposing experiences: “The consumer business has been caught between rising input prices and an inability to increase prices in the supermarket. As a consequence, growth has been limited to trying to focus on specific segments where we have a strong USP, and give them a more direct service via the web. Conversely, the B2B business has just enjoyed a record year as cash-rich corporates unlock capex spending.”

2) Danger Signs

So, to come back to the big ‘E’, what’s currently weighing on the minds of business leaders?

“I keep my eyes on what’s happening to public spending and waiting for inflation to explode – and it will do,” insists Jon Moulton, Chairman of turnaround specialist Better Capital. “There is no means out of this deficit and debt position for the government other than inflation… We have reduced the amount of government debt in real terms and I’m sure we’re going to see a lot of inflation come through in the next few years.”

According to Jon, the situation at present is divorced from reality. “We’re in a very peculiar economy where the free market really doesn’t dominate any more… To a very large extent the economy is dominated by the behaviour of central banks, and the effect of low interest rates is, of course, to have very odd effects on asset allocation because people are perfectly happy to pile them into low-yielding assets, property and the like.

“People are not looking for an economic return, they are looking to preserve the value of their money. Higher interest rates would mean that people wouldn’t pursue hopeless business strategies because they couldn’t afford to.”

David Turner, CEO of outsourced contact centre company Webhelp TSC, comments: “Confidence and the economy remain fragile. My belief is that consumer spending will lead us out of recession but my worry is that we are beginning to see some levels of inflation coming through which could cause an upward trend on interest rates. We have to keep hold of inflation but higher interest rates will take away consumer confidence to spend and business opportunities to invest in the future.”

For Dominic Swords, economist at Henley Business School and a Criticaleye Thought Leader, the main cause for concern over inflation is that it could spark a hike in import prices. “Whether that’s around energy and commodity prices or a weakening of the exchange rate, it would mean that we have to pay more for our imports, which would all spell bad news because it would increase input or raw material costs for companies,” he says.

As for Europe, there continues to be lots of uncertainty. Mark Spelman, Global Head of Strategy at Accenture, comments: “In the UK and most European countries, with the exception of Germany, there’s going to be a debt drag that will last most of this decade, so you’ve either got to find the underlining fast-growth segments or find new geographic markets…

“Politically, too, the next two years are going to be quite turbulent because we’ve got the European Parliamentary elections, the Scottish referendum and the UK General Election. British business is going to have to navigate some quite choppy political waters.”

3) Supply and Demand

Deep concerns over food and energy prices persist, creating intense pressure for businesses and consumers. There has, however, been excitement over the implications of the shale gas boom, particularly in the US (albeit mixed with some genuine environmental concerns).

Lady Barbara Judge, Chairman of UCL Energy Institute and former Chair of the UK Atomic Energy Authority, comments: “I keep a close eye on the price and availability of energy. The greater availability of energy across the world is driving optimism with respect to manufacturing, so it’s having a clear economic impact. In the US, the discovery of shale gas and the economic revitalisation of shale technology have made America feel more optimistic, because the price of energy has gone down which is bringing manufacturing back to the US.

“But there is a dichotomy between price and availability. In the US, energy prices are going down and economic activity is going up, while in the UK and Europe, energy prices are going up because renewables are expensive and unreliable. So, in Europe, the economic vibrancy attributed to energy is less obvious and is not happening as fast.”

4) The Race for Growth

Plenty of CEOs actively dismiss pessimism over the economy. They prefer to concentrate on the positives of winning contracts, doing deals and seizing opportunities. In 2013, blaming the economy for poor performance can sound like a well-worn excuse.

Dominic says: “I see a lot of evidence from a number of businesses in a range of sectors that well positioned products can pick up on some quite high growth trends. For example, if you think of the healthcare and nutrition markets and the concerns that we as consumers have around obesity, well-being and healthy living standards, then you’re hitting a hot spot for a high growth market…

“For a well-positioned product in a company that understands its consumer markets, there are plenty of growth opportunities both in established Western markets and those in the BRIC economies.”

David says: “We’ve now got to the stage where everyone is looking for growth… [and] the same conversations are happening at the macroeconomic level, saying: ‘Yes, we have to control our debt and pay off our loans, but the more pressing need is what we are going to do to invest in the future?’

“It’s taken quite a long time for people to understand what being in a recession means and what you need to do to manage your way through it. What I’m now starting to see is senior managers coming back to the table feeling much more confident about taking a decision… which means the leadership can push on and assess what needs to be done.”

Any good strategy that’s decided on will contain a healthy respect for risk. Jon says: “We’ve been adopting such sophisticated planning scenarios as flat lines, assuming that we won’t have following tides of economic prosperity and therefore we run the companies in our portfolio along that basis. It’s very different to a fast-growing economy, where you would be doing new product developments at pace, so it’s made us adopt a safer strategy than we would do in more buoyant times.”

5) Relationships Matter

Following on from David Turner’s point about what it means to do business through a recession, it’s become increasingly important to communicate with stakeholders, manage uncertainty and build strong relationships with existing and prospective clients to understand exactly what they’re looking for.

Duane Lawrence, CEO of InferMed, which provides software solutions and technical services to the healthcare industry, says: “A good portion of our business is related to public spending on health and, with the NHS cutbacks, we’ve had to look not just at selling the clinical advantages of our software, but also at proving how it can take costs out of the system… the manner in which we go about talking to individuals about what we’ve got has changed pretty significantly.

“[Previously] we could just go in and talk about how we could make a difference in people’s lives by helping doctors treat patients better. That’s just not enough anymore because there has to be an economic benefit associated with it.”

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Questions around how to solve the GDP/debt burden remain largely unresolved, with governments refusing to tackle austerity head-on or have a meaningful plan for recovery. Be that as it may, many businesses have identified where the growth spots lie for them and, as a result, they are a whole lot more optimistic than they have been for some time.

Given the systemic economic problems we face, it may be premature to say the ‘feel-good factor’ has come back to the boardroom, but there is a sense of direction and focus that’s been absent for way too long.

I hope to see you soon.

Matthew

https://twitter.com/criticaleyeuk

Criticaleye Launches New Asia-Pacific Offering for Members

These are exciting times at Criticaleye as we announce the establishment of our new subsidiary, Criticaleye (Asia) Ltd, headquartered in Hong Kong.

asia-pac1-webSince its launch in 2003, Criticaleye has established itself as Europe’s pre-eminent boardroom Community, providing integrated layers of support across industries, business functions and geographical locations to resolve issues through peer-to-peer debate and discussion. But, as the needs of our Members have grown in the more globalised world of business, it’s clear that now is the right time to provide a truly international service by extending our presence to the Asia-Pacific region.

The success of Criticaleye lies in our ability to support our Members across the world in challenges core to their roles and ambitions – both areas in which they will typically need to engage with others to access peers’ insights, support and advice.

For more information, please contact us.

Five Steps to Achieve High Growth

Comm-update-26.02.13

No-one succeeds in isolation which is why high-growth companies need access to a clear network of support, encouragement and advice. It’s frustrating when you see that a fantastic business with huge potential has faltered in that journey from toddler to titan because management lacked that crucial bit of experience, or didn’t quite know where to turn in order to get the finances right.

It is a risk for the founder of a successful private company, which provides a secure and comfortable lifestyle, to raise the stakes and go for high growth. Here are five of the most common barriers which need to be overcome:

1) Working capital and finance

Richard Barley, Director of Deal Origination at private equity firm LDC, comments: “You don’t want to be overtrading, especially as a business starts to grow quickly. In past recessions, what’s been found is that as economic conditions improve there is a spike of businesses going under because of a lack of working capital.”

It’s easy to be overwhelmed by success. David Soskin, Chairman of SEO specialist Smart Traffic, says: “If sales appear to be going up, then everyone is feeling good and that is a danger because you have to be paranoid when sales are rising quickly. You have to watch your finances even more closely than you would in a company that’s growing stably as obviously there are huge implications on cashflow and, in many cases, the quality of the debtors.”

As important as it is for a growing company to remain agile, it’s easy for CEOs to become distracted and dazzled by opportunities. “It’s tremendously challenging for SMEs to turn down business and this is why overtrading is such a problem,” says John Williams, Head of the Breakthrough programme at Santander.

Terry Stannard, Chairman of interior furnishings group Walker Greenbank, says: “If you’re in a start-up phase and you’ve got some initial funding, even if that’s pretty small, the key thing is to plan ahead with cash in mind. You don’t want to get carried away by all the opportunities… as you need to understand that when that first round of funding is exhausted, you must have a pretty good story to attract some more.”

2) Listening to the customer

Customer-centricity should be a priority for any business, but early-stage companies can be naïve about how vital it is to interact with customers and shape innovation accordingly.

Jay Patel, CEO of mobile data provider IMImobile, says: “The single biggest danger I’ve seen is that people get preoccupied with a product rather than focusing laser-like on what the customer wants. It is something that needs to be watched as the customer needs change and you will never get it right by producing a product in the abstract.”

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3) Evolving management & culture

For many CEOs, this is the number one challenge because as a company shifts through the various stages of growth, the skills and expertise required to make the business successful will be different. David says: “The faster a company grows, the more pressure it puts on the top team. There are some people who thrive in a very demanding environment – others don’t.”

Henri Winand, CEO of fuel cell business Intelligent Energy, comments: “When I came in, I set the expectation that every 12 to 18 months we would have a major organisational change. You need to be able to work out how to execute that without breaking the business, because if you change too quickly or too slowly it can [cause problems].

“But you have to constantly think where you are going to be in two years’ time and the reason for that is because any change we implement can take between 12 to 18 months to stick, and then a few more months to basically operate and ripple through the business.”

This is where the CEO and senior management team earn their stripes (and the introduction of experienced non-executives can add significant value) as they address conflict and tension within a changing business. Maria Pinelli, Global Vice Chair for Strategic Growth Markets at professional services firm Ernst & Young, says: “You start out as an entrepreneurial, innovative, fast growth company and you want to sustain that growth, but what’s difficult is that you need to do that while building infrastructure, systems, processes and controls.”

4) The case for partnerships

Joining forces with another company may have its dangers, but it can be an effective way to gain new business. Rob Wirszycz, Non-executive Chairman at technology consultancy Portal, comments: “You’ve got to deconstruct your routes to market through all stages of the buying and selling cycle, and you’ll then be able to work out where you may be able to benefit from a partnership.”

Bill Payne, General Manager of Customer Experience and Industries at IBM, says: “Many business leaders have a sales strategy that overlooks the opportunity to use partners as an indirect sales channel. It’s easy to be overly focused on organic growth from your own direct sales team, but young dynamic businesses cannot afford the luxury of time to grow and so using a partner channel becomes second nature to them. In particular, SMEs have a significant opportunity to expand their selling if they understand how to sell through a larger enterprise or specialist partner.”

5) International expansion

Headaches and heartbreak, that’s what international expansion can bring to a business if done in haste. The added cost, bureaucracy and problems around staff recruitment can be a massive drain on what domestically may be a very successful business.

Terry says: “It’s usually better to establish the business profitably in the UK and start to properly do due diligence and find out the opportunities overseas in terms of the best model for expanding, whether it be agents; distributors; joint ventures; acquisitions – for the very biggest companies; where your priority countries are; what product is likely to succeed; and whereabouts the competition is not so entrenched. But all of that needs to be done at the appropriate stage of growth.”

There has to be significant commitment and planning. Steve Jones, CEO of pharmaceutical company Special Products, says that attention must be given to recruitment and that, although an international strategy is often necessary, you can’t underestimate the time and investment it requires, along with the knowledge that there is no guarantee of success. “It always takes longer than you think it’s going to, so if you’re in any way half-hearted you’ll do your profit lines all kinds of damage.”

However, an international strategy, executed properly, will take a business to the next level. John says: “Fast growth businesses are obviously not all international businesses, but they should be thinking internationally, either in terms of their own growth outwardly or a consciousness that international competitors will be entering this market.”

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There will be those who scoff at the idea of year-on-year double-digit growth presenting a “problem”. But it is necessary to have an eco-system whereby real entrepreneurs feel confident about maximising the potential of their business, so they can go on to conduct an IPO, find backing from private equity or some other heavyweight private investors.

Any attempt to back ambitious businesses should be welcomed, such as the recent move by the London Stock Exchange to bring in a High Growth Segment which will help niche companies wishing to transition to the Main Market. “It’s part of a longer term and wider dialogue about how to make equity aspirational for investors and management teams again,” says Marcus Stuttard, Head of UK Primary Markets at the London Stock Exchange.

Whatever the path taken, it’s all about ensuring businesses don’t lose momentum. John says: “If there is a single biggest barrier to growth, it is finding a willingness within the management team to drive for growth as opposed to settling for business as usual.”

And who wants that?

Certainly not Henri at Intelligent Energy: “Without a shadow of a doubt, this is going to be a huge business. The reason for that is we have excellent technology and it is proprietary. This, combined with the demand for [energy] efficiency… all points to our technology being a significant player.”

Own Goals in Cross-Border M&A

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The acquisition of a foreign company figures highly on the agenda of many executive teams as the quest continues for new markets and improved economies of scale. Such transactions pose a considerable amount of risk and that’s why management must ensure the strategy is sound and the legal and cultural differences are understood, so a clear plan for integration is in place once a deal has been signed.

There will always be an element of risk associated with purchasing another business, domestically or abroad. Here are five of the most common howlers that CEOs need to avoid when they decide to go shopping overseas:

1) Assuming too much

It’s a dangerous game for management teams to make assumptions about foreign markets. Jim Wilkinson, Group Finance Director at online gaming company Sportingbet, says: “Every country has a different culture to the UK, with different rules and regulations, so you need to understand everything from holiday times, payment processes, bonuses, how they actually work, levels of remuneration, and how quickly people expect integration processes to happen.

“In the US, for example, where I’ve done a couple of acquisitions, management have expected all the redundancies to happen straight away, whereas in other countries, particularly in parts of Europe, they don’t expect redundancies to happen at all. Understanding how people expect you to manage them afterwards is important.”

Aleen Gulvanessian, Partner at law firm Eversheds, comments: “Local teams mustn’t be left to make assumptions which might be inappropriate in the foreign country, so you conduct the transaction in the way you would locally at your peril when dealing with a cross-border acquisition. It’s very easy to think that there won’t be a problem and just not be aware of something potentially critical.”

There will be differences, legal and otherwise. Ian Bowles, CEO at software provider Allocate, says: “It’s a mistake for an acquiring company to automatically assume that their way of doing things is absolutely correct and try to do things exactly in the way they would in their own territory, and I’ve been a recipient of this rather than a manager of it.

“There are legal and process differences and you need to understand the working environment and customer environment. You’ve got to be culturally sensitive when you acquire something overseas. You can endorse corporate standards but you’ve got to do it in a way that is acceptable to the team you’ve acquired or you’ll create misunderstandings and false barriers that’ll make smooth integration more difficult.”

Nothing kills a deal quicker. Jim says: “The biggest single mistake is cultural, where people assume that it’s the same as the country they’ve already operated in, and if you want to destroy value very quickly then do the acquisition and watch the management team walk as you end up with a rudderless company.”

2) Inexperienced management

As an acquirer, you need people you have absolute faith in on the ground. Paul Budge, UK & Ireland Managing Director at consumables distributor and outsourcing business Bunzl, says: “Because we’re very decentralised as an organisation, when we do an acquisition, the person that’s going to run that business, whether they are from the acquired company or our own resources, is going to be working remotely, so it has to be someone we absolutely trust.”

Bob Emmins, Finance Director at ABF Ingredients, says: “You’ve got to have a local presence. You can’t run it from the head office or another geography. You’ve got to have people that know the geography, the language and customers, the legal practices in particular and some of the local nuances that are applicable in that market, otherwise you’ll be very lucky to conclude the deal and you will not integrate it.”

It’s a case of getting the balance right. If the acquirer brings its people in and drives change too quickly or, by equal measure, too slowly, then the value in a company can quickly be eroded. Alan Howarth, Non-executive Chairman of telecoms specialist Cerillion Technologies, says: “The first 100 days of any M&A activity is key to an enhanced future business. Too often there appears to be a lengthy period of inertia where fear of the unknown travels across the combined business.

“The desire for change – always underestimated – is seldom found beyond those that initiate any such programmes. So the board has a responsibility to communicate the advantages and consequences the changes will bring to the new corporation. All too often, senior executives work very hard in this period but in isolation.”

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3) Post-deal lethargy

Another danger is that the process of integrating two businesses can be lost on executives. They get excited about the value creation on the balance sheet but forget the hard part lies in knitting the companies together. Aleen says: “We find that where the acquirer is disappointed with the target they’ve acquired, it’s often because you’ve got a different team dealing with the integration post transaction to the team that was involved with actually doing the deal.

“You should be thinking about integration during the course of the deal process. Where your team doing the deal overlaps with the one conducting the integration post acquisition, you tend to find the most successful transaction.”

Jim says: “You need to keep control of it from your head office; you can’t just leave it up to the local team. This means a lot of time is spent on the phone and it requires frequent visits to the country while you’re conducting the negotiations and due diligence, and once you’ve made the acquisition you need to physically be there.”

There are no shortcuts. Alan says: “In my experience, both in terms of mounting an international acquisition and more importantly integrating the target organisation with the host, success revolves around the understanding of culture and change. The more you appreciate the drivers and operating style of the acquired business the greater your likelihood of successful integration. Due diligence pays scant attention to the less quantifiable measures when the key to integration is ensuring that a new corporate message can be embraced by all parties.”

Bob comments: “People can get wrapped up in doing the deal and money talks, so money can often be used to get over the normal negation tactics to conclude a deal. But when you come to integrate it, if you haven’t thought about that market and put the right local resources in place, you are just destined to fail. You’ve got to have knowledgeable local resource with local connections.”

4) Poor use of advisors

Aside from having seasoned non-executive directors who know what to expect, it makes sense to invest in quality advisors as they can make an enormous difference during negotiations. Jim says that “you need local advisors as the local tax rules, regulations and laws are important, so you need people that know what they are doing”.

Bob says: “Third party advisors are the voice of reason that prevents you from going headlong into the pitfalls. They should not just be encouraging you to do a deal because they get a healthy commission on completion, but they have got to do more to protect the risks. For a longer-term benefit for their customers they need to be helping that customer ensure that the integration is successful.”

5) No plan B

Surprises in M&A are rarely of the good variety. Things will go wrong. That’s not to be cynical, but when you have volatile market conditions, different ways of operating and cultures and large sums of money involved, it’s probably wise to expect the odd hiccup along the way.

Simon Braham, Investment Director for cross-border M&A at private equity firm LDC, explains that contingency plans are crucial when a business begins to operate internationally and makes acquisitions, such as putting in place someone whose role is to specifically liaise between the domestic board and local management in order to ensure that any fires within the business are spotted and extinguished quickly.

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A lot of M&A loses momentum because management focuses solely on the deal and loses interest in implementing the rationale for increasing the size and presence of the business. Few companies can afford to be that lackadaisical in their thinking anymore. As Don Elgie, CEO of insight and communications agency Creston, puts it: “The key point is that acquisitions stand a greater chance of success if there is a strategic reason for them, rather than just financial roll up.”

That’s true regardless of where you’re buying a business, although acquiring abroad will undoubtedly present a greater test in terms of putting your ideas into practice, largely because of there being more variables to overcome.

Nevertheless, it’s not something to be shied away from. “Acquiring companies in faster-growing overseas markets gives UK companies an opportunity to more quickly build up scale and buy into the growth of these quickly expanding economies and markets,” says Simon. “Importantly, cross-border M&A offers a very strong alternative to what could be a higher risk and importantly slower ‘greenfield’ organic growth strategy.”

Just be sure your team are up to the task and the reasons for expansion have been examined. Pankaj Ghemawat, Criticaleye Thought Leader and Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Spain, warns: “It’s the oldest mistake in international business, companies going overseas when they’ve succeeded at home.

“If you’re Walmart and you’ve mowed down Sears and K-Mart at home, obviously there’s a tendency to think: ‘If we can do this in the US retail market we should be able to do it in South Korea, Brazil or elsewhere.’”

Risk and Reward in 2013

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Hold onto your hats as it’s going to be another rollercoaster ride over the coming 12 months. Businesses will both flourish and be punished by changing industries and shifting consumer habits, while market confidence soars and plummets in cardiogram fashion as countries continue to battle through the debt crisis. So where do the opportunities and key risks lie for businesses in 2013?

According to Steve Culp, Managing Director for Risk Management at Accenture, many international companies are factoring in the volatility caused by the euro crisis, the threat of the US ‘fiscal cliff’, the slowdown in China and widespread regulatory reform. “We are seeing progressive, growth orientated organisations changing their mindset around alliances, key partners and how they operate, rather than believing they need to own everything. That’s not to be confused with an outsourcing model, but different relationships are evolving where companies work in a more collaborative manner.

While their current focus may be increasing efficiency and reducing supplier and trade partner risks, for example, Steve warns that, as companies become more international and look to new markets, they need to think more carefully about how the key leadership team is deployed. “The number of platforms and customers, suppliers, and the geographic distribution of products are all significantly greater, but the one thing that has remained a lot more static is leadership. If you look at the headquarters of a UK company now and compare it to five years ago, sixty to seventy per cent of them are still roughly the same.

“Many businesses have no material plan to shift the leadership team elsewhere, even though they’re clearly fighting new battles in places where they don’t have a long term presence, and are using new tools in new markets.”

Criticaleye spoke to a number of Members from around the globe, operating in a variety of areas, from pharma and construction to private equity and investment banking, to examine how they are dealing with this volatility and what their expectations are for 2013.

Mark Castle, Managing Director of the contracting arm for construction and consulting company Mace, is positive about pent-up demand being released in the UK as the government looks to push funding into more schools, roads and other infrastructure. “As we look to grow our business in a recovering market, there will inevitably be some inflationary pressures as we exit the recession and raw material increases are passed on through the supply chain.

“I think the pipeline of opportunity remains strong and encouraging as we see opportunities for growth both here and overseas. But the difficulty remains that margins remain under pressure and recruiting good people to support our growth plans continues to be our daily challenge.”

For Bruce Cox, Managing Director of Rio Tinto Diamonds, the growing middle class within China and India is hugely encouraging. “We now have got hundreds of millions of new consumers who are moving out of poverty to having discretionary and disposable incomes that they didn’t have before,” he says.

Balancing this upside, however, is the sense that growth in Asia is slowing down and that the economic recovery overall is going to be a long, drawn out process, which partly explains Rio Tinto’s decision to cut an estimated $5 billion of costs over the next two years. Although the main cuts will be in specific geographies, the repercussions will be felt across the entire organisation.

“All of the large organisations are going through this incredible cost reduction, with Rio Tinto being no different,” says Bruce. “The cuts will be in many forms, such as reducing our staff or making it harder on suppliers and pushing down prices, which means they have to cut costs as well.”

Doing more with less

Bryan Marcus, Regional Director of the South America Region for Volkswagen Financial Services AG, sees a tougher proposition for the next 12 months when compared with the last. “In those markets where we experienced growth in 2012, we have an opportunity to maintain momentum by reinforcing our alliances with partners and customers,” he explains. “We can also take advantage of our larger customer portfolio and, through innovative offers, increase customer loyalty and further grow our market share.

“But with slower than expected growth in developing markets, and a range of economic challenges in the US and Europe, I am adjusting my priorities in 2013. My focus will be on finding short-term operational synergies and tactical reductions in our cost base. These savings will ensure I can deliver projected profitability, without reducing planned investments in infrastructure projects and HR renovations activities.”

At telecoms concern Alcatel-Lucent, UK CEO Lucy Dimes observes that there are plenty of opportunities given the communications revolution underway. “We’re in a bizarre scenario where the demand for internet-based services, capacity and infrastructure of the internet just keeps increasing. But customers who are buying that infrastructure have become more focused and short-term in many respects, with regard to what they spend their money on and how much they spend.”

There will be growth as the company leverages its innovation and patents portfolio, seizes on the disruption that occurs as 4G usurps 3G, but that cannot disguise the need to adapt to a harsher economic environment. “We’re downsizing and reorganising because, in order to realise the reductions in people, we need a more focused organisation,” says Lucy. “That’s difficult as the sheer logistics of doing all that work and continuing to meet your customers and operate as normal in the marketplace is challenging, as you’re trying to do the same with fewer people.”

In this environment, smaller companies are definitely at an advantage given their innate agility and adaptability. Paul Brennan, who has held numerous non-executive director and CEO roles and is currently Chairman of the private-equity backed cloud concern OnApp, comments: “The opportunities for 2013 in the sectors I work in depend on companies being nimble and having a good value proposition. If they do, they’ll be able to drive significant revenue through the internet, as opposed to the more costly route to market through the bricks and mortar channel and having capital tied up to produce goods before they’re actually sold.

“One of the great advantages of being a software company is that invariably if you’ve got the capital to do the R&D and establish your software solution, and you have an online market environment, then you’re not suffering the same degree of difficulty of requiring cash to drive your business. I think the bricks and mortar guys will find it more difficult.”

An international perspective is also fundamental for many of these fast growing companies. Matthew Parker, CEO of talent management software company Lumesse, says: “Today, eighty-five per cent of our business comes out of Europe. Of that, half comes out of the UK and Germany. My view is that if business in the US could double in size, and my business in Europe could grow by ten per cent, then I would get more money out of the latter but the point about North America is that once it’s doubled in size, it has a much bigger impact when we double it again.”

The company has 650 employees and operates in 18 countries. For Matthew, who predicts growth of between 15 to 30 per cent next year, it’s absolutely vital to stay focused as the business grows. “We cannot be all things to all people,” he says, observing that within the business it’s important to ensure everyone is aligned on strategy and the best people are being invested in. “We have regular sessions with our management teams where we go through the organisation, and we’re small enough to still be able to do that.”

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Push the boundaries

There are plenty of good stories out there. Darryl Eales, CEO of mid-market private-equity firm LDC, which supports businesses with equity of between £2 million and £100 million, says: “My general view is that although the market is challenging, many companies are more than holding their own although they are reticent to shout it out… The key drivers of growth continue to be seeking new markets, especially internationally, and exploiting competitor distress through judicious acquisitions.

“Pressure points will mainly be the same [next year]. Price and margin pressure are ever present which forces management to be more innovative, driving optimisation of services and value add to customers. A number of companies are also experiencing difficulty in collecting from debtors and so a relentless focus on customer quality and the ability to pay is crucial.”

Within PE itself, Darryl observes that more management teams are looking to de-risk by taking an element of cash out of their business. “This could presage an increasing number of secondary and tertiary buyouts where the incumbent PE house rolls through, at least in part, with management,” he says.

As for public companies, they are very much at the mercy of the economic recovery. Paul Staples, Head of Corporate Finance at BNP Paribas, comments: “We anticipate that the IPO market in London will remain quite challenging, certainly during the first half of next year. We are focusing on developing a constructive dialogue with leading institutional investors, specifically to ensure we focus on bringing high quality growth companies to the market with a compelling investment thesis. However, we expect the eurozone dynamic will continue to represent a difficult backdrop – investor sentiment and confidence remains bruised.”

It comes back to the ramifications of the sovereign debt crisis and its escalation – businesses need to know they have enough in reserve should the economic situation takes a drastic turn for the worse. Paul says: “Our barometer reading for business confidence is delicately balanced as we head into 2013. Economic data from the US, Europe and China points to a softening in aggregate demand, suggesting there may well be a short-term downward pressure on international trade activity. There appears to be quite limited forward visibility on sustainable growth trajectories within most major economies, providing a challenging backdrop for next year.”

Mark Phillips, Head of Development, Supply and Service for GlaxoSmithKline, comments: “Despite the doom and gloom, there are clear signs that companies can be successful. A well-run business should continue to do well and the businesses that are struggling are likely to have more systemic issues, so there is a risk that market conditions can be used as an excuse. There are opportunities, not only in existing markets – provided the product and service offering are good – but also in newly developed and emerging markets too. Companies that have or are positioning themselves for these markets should do well.”

As the ‘tough times’ of the financial crisis continue, it’s now reached a point where leaders accept this environment is actually business as usual. Perhaps the real difficulty they’ll face next year, particularly in organisations where there is significant change and cost reduction, is retaining key staff and keeping people motivated.

At Rio Tinto Diamonds, for instance, aside from a cost-reduction programme, there is the added uncertainty caused by it being publicly known that the division is up for sale. For Bruce, it is important to ensure everyone is engaged so people don’t become demotivated. “I think we have to explain the longer term vision, why it’s appropriate and what it sets us up for,” he explains. “We are in a robust industry which is underpinned by the millions of consumers that do spend their money and have disposable income. We are doing a lot of work around culture and operating principles and trying to communicate vigorously.”

Although different pressures apply in her business, Lucy advocates a similar approach: “The one thing I would say that has been important is that you need to speak adult-to-adult and not try to pull the wool over people’s eyes. That’s when you get engagement. If you try and speak adult-to-child, that’s when you get compliance.”

There are difficult decisions to be made and some real areas of growth to capitalise on. What’s for certain is that leaders need to embrace change and not just batten down the hatches, hoping for a miracle recovery in fortunes.

It’s a case of being brave and making it happen.

Why the Ageing Population Means Business

Rather than judging the ageing population as a burden, it’s time to see the opportunities that can be gained from harnessing the skills and knowledge of an older workforce, while tapping into the demand from five generations of consumers. Without this shift in mindset, businesses are going to be at a serious disadvantage in the global marketplace.

The numbers speak for themselves – by 2050, more than two billion people will be aged 60 or over. Dominic Swords, Criticaleye Thought Leader and Business Economist at Henley Business School, says: “The biggest thing to observe is those businesses that notice that there is an opportunity here and that can innovate in a way that meets the needs of the population, whether it’s tailored holidays, or leisure facilities that service people with more time on their hands during week days.”

Simon Johnson, UK Managing Director at HarperCollins, says: “Book publishers have long successfully targeted the silver market. Technology offers the ability to increase access to our content. Device retailers regularly comment on older consumers being attracted by the variable font size on e-readers – the digital equivalent of the relatively niche large print format – and new features that sync audio to text on e-readers will surely open up the market for audio books.

“Digital and print on demand offers the potential of unlimited shelf space. With books staying ‘in print’ forever, it allows us to profitably target niches… But often, the same piece of base intellectual property will be compelling to widely different demographics. Our challenge is to work with our authors to properly create the different products from the IP that works for and reaches each demographic, and to do this at scale.”

Andy Pomfret, CEO of wealth management concern Rathbone Brothers, comments: “On the whole, this notion of an ageing population has been fairly good for us. Thirty-odd years ago men retired at 65 and were expected to live into their mid-70s, equating to ten years of retirement. Now, up until a year or so ago, you’d expect to be retiring at 60 and live into your 80s, so it’s doubled the amount of time you are in retirement. About half our clients are retired, which means we have them for twice as long.”

Preconceived ideas and stereotypes need to be quashed, such as how an older generation embraces technology. Mark Purdy, Senior Executive and Chief Economist at Accenture, explains: “If you think about the iPad, it’s actually incredibly age-friendly. It’s intuitive and designed for anybody to use. This idea that older consumers are less likely to adopt new technology is a myth… There are quite easy changes that manufacturers can make and by doing that they actually open up that segment of the population so they can tap into that important source of demand.”

However, it would be a mistake to ignore the differences between baby boomers, Gen X, Y and millennials. “In order to understand the impact on business of new products and services, you have to understand the properties, dimensions or attributes of the segment profiles, then, as a business, try and figure out how you can contribute to that,” says Steve Muylle, another Criticaleye Thought Leader and Professor and Partner at Vlerick Business School. He provides the example of ‘technology anxiety’ among patients in hospitals, where the younger generation might be happy to book an appointment online, whereas for older patients it remains important to have a person to talk to, either face-to-face or over the phone.

Hard labour

The other side to this is how businesses manage their workforce. This means getting smarter about incentives and tax systems that currently – in the UK at least – penalise people for working later in life, alongside encouraging flexible working to create an environment which accommodates the needs of different age groups.

Dominic says: “Flexibility [over retirement] can be a sensible idea, allowing people to stay in the workforce but on different contractual arrangements, like annualised hours so that the business can tap into capacity, knowledge and experience when required but not have a permanent, full-time commitment to it.”

The economic case for this appears strong, with a study by the UK Government last year showing that increasing time in the workforce by just one year per person would boost the level of real GDP by approximately 1 per cent.

Likewise, according to research by Accenture, in collaboration with Oxford Economics, increasing the number of older people in the workforce could see the US increase its GDP by $442 billion and lift employment levels by 5 million by 2020, while Germany could see a €61 billion hike in GDP, and a lift in employment levels of 1.5 million in the same timeframe, if it harnessed the power of the silver economy.

Mark comments: “If you think about the employee lifecycle, you start off in a job on probably a relatively low wage, you get more experience and then it plateaus just before retirement… Often it can be quite expensive to hold onto people at the top of the wage curve. So, one of the challenges is how to get more flexibility, and it’s not always the case that just because someone is more senior they have to get paid more. Actually, people who are on the verge of retirement may not always want to work full time and at the same wage rate.”

There are examples of employers adjusting in order to capitalise on demographic trends. “BMW compared the productivity of younger and older workers in one of their factories and found that there was some decline in productivity with the older cohort,” continues Mark. “They reorganised the production line, introduced ergonomic equipment and looked at the health of the workers. They equipped them so that they could work better, and the difference in productivity disappeared.”

Dominic comments that, in the UK, the DIY store B&Q was one of the first to recognise that older, part-time workers could fill a need for providing advice on buying products. “The maturity that those people represent in the store has the double benefit to the workforce, both in terms of showing mature leadership but also because of the expertise, skills and knowledge that they can offer customers and staff,” he says.

Age-old problems

Questions over demographics are as pressing in the East as in the West. Nandani Lynton, Criticaleye Thought Leader and Adjunct Professor of Management at CEIBS, Shanghai, says: “The change in China is coming among the under thirties, who have the bulk of the spending power, because not only will their parents give it to them, but also in terms of their sheer earning power, they are in a really good spot. That’s where industry has to look.”

As for ways to incentivise staff, Nandani says that although China will undoubtedly have to raise the retirement age, the bigger questions centre on how the older population is cared for. “Anything that a company can put together to help their younger workers, aged between 30 and 40, whose parents are already starting to retire… such as a mortgage for the house of the parents, more health insurance and so on, are some of the best ways to tie in your young people.”

For businesses and policymakers, the age profiles of the population cannot be ignored. There are tremendous problems to solve, particularly around healthcare, elderly care, the pensions time-bomb and whether a more active older workforce makes it harder for the younger generation to find employment.

What’s certain is that the silver economy is here to stay. Dominic says: “As of the beginning of this year, the genuine front-end baby boomers hit 65 years of age and for the next 18 to 20 years we’re going to have an additional half a million people hitting retirement. The product and labour market model we’ve been used to will be forced to change, if they haven’t started to already.”

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.”

Joined-Up Thinking in China

A joint venture can often be the best way to crack the tough nut that is China. Such partnerships allow you to leapfrog the dangers of being an unknown challenger in an aggressive, highly competitive environment. But for all of the perceived benefits, you need to know exactly what you’re getting into and have a clear idea of what constitutes success.

Brian Stevenson, Non-executive Director at the Agricultural Bank of China, says: “A joint venture with a local firm gets you into the market with someone who is already experienced with the culture and behaviour there, and if it is a regulated environment, you are more likely to get an approval if you go in with somebody who already holds it.”

As with any JV, it would be foolish not set parameters. Martin Bloom, Non-executive Chairman of Chinese solar wafer manufacturer ReneSola, says: “Over time people’s objectives change. In any business relationship it is essential to have a break clause because whatever one thinks today, things won’t always move in the same direction… [such a clause is essential] even if people feel it may show bad faith to look at how the JV will break, because it has negative connotations about the partnership.”

A similar note of caution is struck by Marc van Grondelle, Head of the Joint Venture Practice for KPMG UK and Europe: “Some of the largest companies in the world struggle to be effective in today’s joint venture space – particularly in the emerging economies. Even if a good joint venture agreement, which is a rarity in itself, is signed, this is no guarantee of success, as cultural differences continue to be potentially disruptive long after the ink is dry, and value-destructive issues frequently only emerge two to four years into the venture.”

Clearly, there’s a reason why The World Bank recently ranked China 79th out of 183 countries in its ‘ease of doing business’ rankings. Mike Howe, Managing Director at Stannah Stairlifts, which is building a joint venture with an existing Chinese supplier, says: “It’s a different kind of relationship when you go into a joint venture [with a supplier] as what worked well as an arms-length relationship suddenly has to be buttoned-up much more tightly… Although we have experience in Europe and the US of setting up our own businesses from scratch, our intuition and the advice we got [was to seek a JV].

“We wanted good advice from legal and financial organisations that understood both the UK and Chinese culture and practices, which meant there were significantly higher costs than if we’d used simply a Chinese organisation… But it’s worth paying the money, particularly if you have concerns, because crisp, clear advice – albeit at a price – helps you move forward that much faster.”

Know thyself

The excitement of international expansion through an alliance can get the better of cold hard reason. Nandani Lynton, a Criticaleye Thought Leader and Adjunct Professor of Management at CEIBS, Shanghai, says: “Lots of people don’t stop to think about exactly what they want a partner for: is it for government relations, channels to markets, or both? You need to be clear, because companies have often found to their disappointment that you may have a partner who has fantastic access and channels, but who is only in one province and is almost as incompetent crossing the provincial boundary as a foreign company.”

Brian says: “The sorts of things a Western, capitalist joint venture partner may be looking for, such as return on equity, may not be what your partner necessarily wants, at least in the short term, and that will influence things like reinvestment decisions. Those sorts of issues are critical arguments for getting it right up front.”

Viewing a JV as a shortcut can also be a mistake. Peter Lorange, President Emeritus of the IMD and a Criticaleye Thought Leader, says: “Looking at joint ventures as a way to overcome cultural differences could be a disaster as you are abdicating the development of your local understanding. [Entering a new market] is a matter of developing the understanding to exploit it, not exporting your view there.”

Jon Dymond, Director at management consultancy Hay Group, argues that it’s important to go beyond whether the agreement makes financial sense. He explains: “There’s a need to pause and acknowledge differences, so apply some of the due diligence into the ‘soft’ cultural issues: how a different culture, norms and rules will impose time costs on you…

“Far more time and effort [than you expect] needs to go into building a proper picture of where you do and don’t overlap. If you don’t do that kind of due diligence work, the thing will founder, no matter how compelling the business logic for it to happen.”

It’s a lot to consider given how much can go wrong. Marc says: “The average life of a JV in China tends to be less than in more mature markets, so business leaders must question whether they are creating something that has long-term strategic value.”

Complex it may be, but business is always a case of nothing ventured, nothing gained. Mike says: “What always makes me laugh about these situations is that you spend most of your time on the legal issues, dealing with what could go wrong. But all the time that you’re talking about the negatives, you’ve got to remember that what’s driving you [to do] this is a big positive