By Ernesto Poza
As even the smallest companies become more global in their operations, many family-owned businesses are seizing opportunities to expand overseas. But others are resisting and, in turn, missing opportunities that could sustain their success. Much of their reluctance is due to the conservative fiscal management and risk avoidance that characterize many family businesses. Expanding overseas takes capital, often a loan with a long payback period. Currency fluctuations also are a hazard. So business owners find themselves looking hard for easier, faster domestic growth opportunities.
Managing risk will always be important, as companies must carefully balance their desire to invest capital for growth with shareholders' needs for liquidity. But by taking the following steps, you can diminish the dangers of going global.
Selling a product overseas, perhaps with the assistance of a foreign sales representative, is much less chancy than establishing your own distribution and production facilities. Those early sales also will help you gauge demand in the new market. If you are still not ready to commit to your own sales force and facilities, you can outsource distribution and manufacturing to a partner. Try to team up with another family-owned business, because family businesses, even those in different countries, often can find common ground and may be more likely to understand and respect one another.
DEVELOP A BUSINESS PLAN.
Make a thorough plan for the global opportunity and build a strong, eloquent case for it. Unless you can convince other family members of the merits of the idea and give them parameters for measuring its success, they may continue to see it as risky.
GET DIRECTLY INVOLVED.
It's a myth that you can manage remotely using sophisticated financial information and control systems. Different reporting practices, cultures, compensation, and incentives mean you can't manage solely by trying to detect financial variances. Meeting business, government, and education leaders, plus local employees and competitors, provides intelligence on strategies that will work in particular markets. Matt Litzler, the third-generation president of C.A. Litzler, a specialty machinery manufacturer in Cleveland, says his company has been exporting to Asia and Europe since the 1950s because the U.S. market for its continuous-process drying machine is limited. "We keep our passports up to date and we know that at any time we can be on a plane," says Litzler.
INVEST IN THE BRAND.
You may have a great reputation at home, but global brand equity often is created from scratch. Listen to local customers and do local advertising, and provide the quality and exceptional service that will differentiate your product. Because rivals often find it hard to replicate intangible advantages, it pays to have caring, skilled employees, and superior quality and performance.
BUILD AN ADVISORY BOARD.
If you do open a foreign subsidiary, develop a local board to oversee it. Advisers with local knowledge can help you understand culture, regulations, and competitors. Having a trusted and committed network will make venturing abroad far less risky and far more profitable.
Ernesto Poza is a professor of global business at Thunderbird School of Global Management and director of Thunderbird's Global Family Enterprise Center.