- Understand the U.S. market.
- Plan, plan, plan!
- Allocate sufficient resources.
- Build support at the home office.
- Hire competent U.S. management.
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Over the years we have counseled a number of German firms entering or expanding their presence in the U.S. market. Some have succeeded, while others have experienced difficulties. Based on our experience, we have identified five steps which will help assure success in the U.S. market:
1. Understand the U.S. market.
German and American businesses use the same raw materials and processes to manufacture and sell the same types of products. Germans and Americans share a common Western European heritage. The widespread availability in Germany of American television and cinema has made most educated Germans knowledgeable about life in the United States.
Despite the similarities, however, the U.S. market is different in many unexpected ways from the German market. There are differences in relationships with suppliers, employees, customers, and government; differences in distribution systems, transportation networks, and legal and accounting frameworks; and differences in business customs and usages.
The United States is a vast country. The distance between New York and Dallas is more than twice the distance between Frankfurt and Rome. In traveling from Boston to San Diego, the traveler passes through four time zones, and a direct nonstop flight takes half again as long as a flight from Oslo to Madrid.
The U.S. economy is also large. The gross domestic product of the United States is only slightly less than that of the entire European Community. The gross domestic product of the state of California is larger than that of Canada, and the gross domestic product of the state of Michigan is larger than that of Austria.
Because of its size, the United States is a tempting market. But one needs to take the time to understand it, and to fully grasp its size and differences.
- Research the market. Obtain government and trade association publications dealing with your industry. Do your homework.
- Travel through the parts of the United States you have identified as your focus. Talk to the German Embassy and Consular staff, and to state and local chambers of commerce and economic development officials.
- Attend trade shows in the United States. Talk to prospective customers.
- Talk to other German businessmen and women who have had success in the United States market. Learn from their experience.
- Get good professional and consulting advice. Market research firms can help focus your efforts. Lawyers and accountants experienced in representing European businesses can help you how best to understand the market.
You will have to spend both time and money on these investigations. It is worth the effort and expense.
2. Plan, plan, plan!
A recurrent theme underlying difficulties experienced by German firms in the United States is inadequate planning. Americans are fond of quoting sports figure Yogi Berra, who said "If you don't plan where you're going, you'll probably wind up someplace else."
Planning should be careful and complete. Month by month, looking out at least 3-5 years, what do you expect to do? Expect to take at least as much time to set up distributors in the seven states in the northeastern United States as you would take, for example, to establish distribution in the four Scandinavian countries. The gross domestic product of the northeastern U.S. market is one and a quarter times as large as the gross domestic product of Scandinavia, and its population is half again as large.
Action plans should give rise to financial plans, with special emphasis on cash flow. What will have to be invested, and when?
Your research should help you understand the ranges of likely costs of investment in physical facilities, and in inventories and accounts receivable. You will also have to invest in legal fees and expenses, accounting fees and expenses, and marketing expenditures. Don't forget employee training, and be sure to allocate enough time and money for it.
Planning should involve all areas of your company: finance, production, sales, engineering, purchasing, and personnel. Planning also needs to be tested by people familiar with the realities of the U.S. market. An example: Your U.S. workforce will probably not be as well trained, and as ready to work, as, for example, a German workforce.
- Begin planning well in advance of your targeted entry into the market.
- Involve key executives from all areas of your company in the formulation of your plans.
- Use experienced consulting help in developing the plan.
- Involve your intended U.S. manager in the planning at an early stage.
- Ask your accountants to help prepare your financial plans. (Most U.S. accounting firms have developed computer models for this purpose.)
- Test your plans with an American bank operating in the selected market. (Most banks have developed computer models to test business plans.)
3. Allocate sufficient resources.
The saddest tales of German business in the United States are those of a brilliant start followed by a dismal failure because the German parent cut off the supply of capital to the growing business. Careful financial planning should minimize this risk, but good plans sometimes go awry, and you need to be prepared to fund the enterprise through unexpected economic downturns or other unforeseen difficulties.
It is better not to enter the market at all, than to spend just enough to fail. If you have taken the time to understand the size and scope of the market, and if you have made careful plans, with appropriate contingency reserves, you should not run out of funds. But this is not the time, as the English saying goes, to be "penny wise and pound foolish." More investment at the beginning will repay itself many times over during the life of the enterprise.
Let us give an example. A Netherlands firm one of us has represented decided to take six months to train those employees who had been hired to be supervisors in its new U.S. manufacturing facility. While the plant was under construction, the company brought all of those employees (as many as thirty) to the Netherlands for six months of hands-on training at the home office. The workers were invited to have their families join them, at the company's expense! Expensive? Perhaps. But when that workforce returned to the United States, they knew how to do their jobs, were well equipped to train new employees, and were proud of their experience and enthusiastic about their employer.
- Don't stint. You have to spend money to make money.
- Line up capital resources before launching the expansion. Be sure your banks or investors will support you even if things don't go totally according to plan.
- If you don't have the resources to fund the venture adequately, change your strategy. Perhaps a more limited market entry, or a joint venture partner, is the answer.
4. Build support at the home office.
Many a well-planned U.S. venture is sabotaged on the shipping room floor. Your entire management team needs to be onboard. If the U.S. operation signs up distributors but can't give them sales materials because the home office is dragging its heels, or if U.S. orders reach record levels but shipments are delayed because the domestic market always gets priority, then the business will suffer and perhaps fail.
To meet this concern, some companies make it a point to send key executives, including middle managers, to the United States during the period when the new operation is being planned and developed. It is easier to ignore someone you've never met and to discredit a market you've never seen. Your key employees need to see and understand the U.S. operations as important parts of their business. As an American manager would put it, they need to "buy in" to the new operation.
- Share with your key managers your reasons for entering this market, and make its success the responsibility of all.
- Give the U.S. operation a tangible presence in your management team's minds. If possible, let them visit it. Seek opportunities for them to meet their U.S. counterparts.
- Pay attention to communications. Share your expectations and the results of operations with your managers. Solicit their advice on solving problems.
A caution: Some companies designate a single individual as the person "responsible" for the U.S. operation. This has some advantages, but can give rise to unfortunate "turf" wars. It is probably better to make the whole team responsible for success in the United States.
5. Hire competent U.S. management.
How could anyone disagree? Yet, how often this simple rule is violated--"Mr. X will do a good job; his sister is the cousin of Herr Y.," or "Mr. Z speaks fluent German; we can teach him the business."
How absurd! Far easier to teach a good manager some German than to teach an inexperienced German speaker how to run your business. And friends and relatives, while great fun at parties, are only by sheer chance capable of managing your business.
Your manager should, first and foremost, be bright, honest, well-trained, and experienced. He or she will bring to you a native understanding of American business and a knowledge of the industry in the U.S. If you need to have the new manager speak German, send him or her to a two- or three-month immersion learning course.
- Use a qualified executive search firm to locate, evaluate, and present candidates for your approval.
- Don't let language skills dictate your decision. Remember, your manager is not going to be operating in Germany; his or her most important language is English.
- Don't hire relatives or friends, or friends of relatives, or relatives of friends, just because of the relationship.
These five steps--research, planning, funding, home office support, and good management--may seem self-evident. We can assure you they are frequently ignored, and the results are almost always bad. The U.S. market is large, and you can yield handsome profits for your company. Take the time to do it right.
Charles E. McCallum
Warner Norcross & Judd LLP
900 Fifth Third Center, 111 Lyon Street, N.W.
Grand Rapids, Michigan 49503-2487
Telephone (616) 752-2000; Facsimile (616) 752-2500
Hans-Andreas Fein & Associates, Management
Research, Marketing and Business Concepts for
D-70176 Stuttgart, Germany
Telephone 711-6 15 90 73; Facsimile 711-6 15 91 76
Copyright 1994, Charles E. McCallum and Hans-Andreas Fein