How could you do that??!!
How smart companies can avoid easy mistakes
when entering the U.S. market
A mysterious malady is afflicting the best and the brightest European companies. Even those that shine in their home markets succumb to disabling mistakes when establishing a subsidiary in the United States. Why? The answer lies in a highly prevalent strain of corporate amnesia…
“The good business sense that European companies demonstrate in their home markets seems to go out of the window when they come across the water,” says Richard Danoff, Chief Executive Officer of New World Management Inc. “Suddenly these companies manage by improvisation – something they would never do at home.”
Danoff cites ten common mistakes European companies make and suggests ways to “cure” them.
Mistake #1: Selecting Your Subsidiary Location Based on Cost or Recreational Factors
How would you like to buy a building for one dollar? One European company did – and paid dearly for the deal of a lifetime.
“The government was closing an air base in a northern state,” recalls Danoff, “and wanted to attract employment to the town. A European parts manufacturer seized the opportunity. Unfortunately, the location was so remote that the company couldn’t attract management talent. Secondly, customers were far away, and the facility was not near a major air hub. Employees actually had to fly into Canada to get anywhere in the State.”
Danoff cites a Swiss art supply company as another example. “Because the president likes to ski, they located their subsidiary in Vermont, resulting in same problems. The company had to pay a premium to attract management to a remote location, and it was difficult to see customers.”
The cure: Select your location based on relevant business factors, such as proximity to customers, major airports, access to labor, cost of labor, and state taxes.
“Ask yourself: ‘Am I applying the same discipline in determining my business location in the States that I would in Europe?’ advises Danoff. Would you want to be located in a remote, unconnected location in Europe? How close is the U.S. location to customers? How easy will it be to attract the right type of labor? At what cost? If it’s a small town environment, what will happen if labor becomes tight? If the location is dependent on one airline, what will happen if that airline goes out of business or increases rates? Rigorously examine your motives for putting a subsidiary in a particular location. Start out with a profile of the ideal location for your company.”
Mistake #2: Choosing Someone to Run Your Subsidiary Based on Appearance
“It happens again and again,” says Danoff. “Someone will attend an industry trade show or function. The person is very complimentary of your European company and its products. Your European president or sales manager thinks this person is a wonderful find and offers him or her the opportunity to run the U.S. subsidiary – without knowing a single thing about them.”
According to Danoff, the best possible person is rarely found “on the street” – or at a trade show. “That person is almost always wrong for the job,“ he says. “The subsidiary plateaus very quickly. He or she may get the company off the ground, but it never really develops the way it could.”
The problem is compounded because once a person is in place, it is difficult to get rid of him or her. “You’re new to the market, and you now have someone who represents you and your products,” explains Danoff. “That person becomes your company. Your U.S. customer base equates your product with that individual. In addition, there is a valid fear factor – if that person leaves, will I be able to hold onto my customers. And legal complications may arise as well.”
The cure: Conduct a thorough executive search.
“There is no substitute for a good executive search,” says Danoff. “Make sure in advance that the person you are hiring can develop the company. Growing a company requires special skills and abilities. The person you meet at a trade show might be good at sales, but not at administration, and you need a person with both skills to run your U.S. business. Pick your U.S. manager from as broad a field as possible considering many different factors. Ask yourself: How does the person I met at the trade show compare to 7 or 8 other candidates? A thorough professional search may involve examining the qualifications of 50 to 100 candidates.”
Mistake #3: Avoiding the Potential of the U.S. Market Because You Don’t Understand It
“Many European companies smell the flowers, but refuse to pick them,” says Danoff. “They come to the U.S. with excellent products, a strong base in Europe, and then sit on the sidelines because they don’t know how to jump in. Some sit for 10 years, watching and waiting because everything is not perfect. The fact is: Everything will never be perfect. And if you sit on the sidelines, you’ll never be in the game.”
This had happened to one of NWM’s clients. “They had a superb product,” says Danoff. “They had done analysis of the U.S. market, knew the opportunity was here, but couldn’t make the commitment. They said: “We’re a technical company, not a marketing company. We don’t understand how marketing is done in the States.”
The cure: Hire specialized expertise.
“The U.S. has an absolute flood of experts who are available in a multitude of disciplines,” says Danoff. “You can hire marketing, sales, legal, accounting advice and more. In this particular case, we found a marketing consultant who helped the company develop and implement a U.S. marketing plan. To get specialized expertise, rely on someone who knows the industry and the U.S. market. A generalist can answer many of your questions and get you the specific help you need.”
The bottom line? “Spend some money on advisors, step into the market and go for it,” says Danoff.
Mistake #4: Tolerating Ineffective, Unprofessional U.S. Partners
A European distiller wants to become a 10,000-case-a-year company in the U.S. The distiller has relied on a U.S. importer, who sold 1,000 cases a year five years ago and 2,000 cases last year. Despite this poor growth rate, the distiller resists changing importers because they don’t know anyone else.
According to Danoff, many European companies partner with an importer or distributor who is unable or unwilling to do the job. “These companies resist changing because they don’t know anyone else,” said Danoff. “Their attitude is: They may not be perfect, but they’re whom I have.”
The cure: Select the best partners.
“Insist on the same level of professionalism in the U.S. as you do in your home market,” advises Danoff. “You’d change a supplier who was providing substandard service or materials in Europe and should do the same in the U.S. Even if you are a small, specialized company, look for and evaluate options. There is no excuse for poor service.”
One NWM client turned a bad situation around with spectacular results. A European company in the faucet industry was utilizing a U.S. distributor who considered theirs a niche product. The distributor restricted distribution and priced the product out of the market. Based on the advice of NWM Inc., the manufacturer discontinued the relationship with the distributor and developed its own distribution organization.
“After recruiting one of the industry’s best executives, sales are skyrocketing,” reports Danoff. “The subsidiary is far ahead of previous expectations, and the company is a key player in the U.S. market now.”
Mistake #5: Refusing to Make Cosmetic Changes in Sales Literature Because of Cost
“Our brochure is in English.”
Yes. But the brochure is written in British English, which is different in spelling and style from U.S. English … it is European size, not eight-and-a-half by eleven (Letter size vs. A4), which screams: “off-shore supplier!” … and the psychology or sales logic is European, which is distinctly different from that in the U.S.
“Europeans sell differently compared to Americans,” says Danoff, “and it shows in their sales literature. In Europe, it is customary to present information in an inverted pyramid sequence, with many substantiating, less important points leading to the main point. In the United States, selling is based on up-front benefits. We make the strongest point immediately, because customers in the States are impatient. They won’t wade through a company history or product background before seeing the primary benefit to the user. And in Europe, companies often can’t make direct comparisons to the competition. United States companies can and do engage in comparative advertising.”
The cure: Produce literature tailored to the U.S. audience.
“A commitment must be made when coming to the U.S.,” says Danoff, “and appropriate sales literature is a minimum requirement. The U.S. market is worthy of a tailor-made solution. After all, it is almost as big as the European market. Get rid of the ‘Briticisms.’ Avoid so-called ‘world’ pieces for multiple countries. Use language and style that are appropriate. Follow U.S. psychology in approach. Start off with one sentence that tells the reader why your product is better than anything else is. Consider hiring a U.S. marketing communications professional to create the piece or, at the very least, to rewrite your text.”
Mistake #6: Sending Someone from the Home Office to Run the U.S. Subsidiary
“Often a European company tries to save money and to exercise control by sending someone from the home office,” says Danoff. “This is usually a mistake. Unless that person has lived in the U.S. and has been involved in the U.S. industry, you run the risk of being disconnected from the market for years longer than necessary. You may have a technician who knows your product in and out. But he doesn’t have contacts in the U.S. In many industries the fact that who you know is crucial. On top of that, the European manager must get used to the life in a new country, the language and habits which is no easy task.”
The cure: Hire a U.S. manager.
“Hiring a well-qualified manager in the U.S. will exponentially accelerate the speed with which your products are accepted,” vows Danoff. “Often a U.S. manager will come into the job with a ‘black book’ of contacts. Those contacts can leapfrog a company into achieving player status in a short time.”
“If you want to maintain extra control or have someone who knows your products inside out,” adds Danoff, “send a financial or technical manager to support your U.S. chief executive.”
Mistake #7: Using a “What-Works-at-Home” Mentality
Despite a global business culture, national characteristics often determine the effectiveness of certain solutions.
“The Internet is a prime example,” says Danoff. “Some European companies still refuse to put pricing on the Internet for fear that competitors will access it. This is completely contrary to the U.S., where customers expect to see products and services online with pricing.
The cure: Adapt to U.S. customs.
“Be aware of cultural differences,” advises Danoff. “Otherwise, you may look awkward, and you will lose revenue.”
Mistake #8: Paying U.S. Salaries Based on What European Managers are Paid
A major European company decides to reduce the salaries of their management team in the States because the European managers are paid less. „I‘m the president, and I don’t even make that much,” is something you hear from the Chief Executive at the European headquarters. The result is an open revolt as U.S. managers jump ship to a competitor because they can make thousands more immediately.
“The European company is making a deadly mistake,” says Danoff, “and it will cost the company in many ways. First, they will lose money because the employees are not working for the company anymore. Second, it may take four to eight months to find senior-level people to replace the lost employees. Third, there is the cost of lost revenues because substandard salaries will buy substandard performers.”
The cure: Base salaries on what U.S. companies in the same industry pay.
“Pay what the market dictates,” says Danoff.
Mistake #9: Ignoring Laws and Rules
“This mistake manifests itself in a myriad of ways,” says Danoff. “Examples include trying to cheat the IRS (U.S. government agency responsible for tax collection and tax law enforcement)… having a consultant run the subsidiary, then paying a management fee out of the European headquarters and neglecting to file a W-2 or 1099 form with U.S. tax authorities… ignoring customs laws for product markings… and engaging in a joint venture with a U.S. partner without a legal document.”
“Companies that do these things say that the laws are stupid. But that doesn’t solve the problem. Breaking these laws can keep you from doing business in the United States.”
The cure: Behave according to the rules and laws of the U.S.
“Avoid playing at the margins because it can have devastating consequences for your business,” says Danoff. “Your product can be impounded, you can make bad business deals, you can even lose the use of your name if it is used by someone without specifying how and why in a contract. Take the time and effort to do things right.”
Mistake #10: Lack of strategy - Doing business on coincidences
“By failing to prepare you are preparing to fail.“ - Benjamin Franklin
“We see a lot of companies coming to the U.S. market, without a determined strategy. The U.S. market is simply too big to approach it without clarifying and setting strategic aspects such as: pricing structure, geographic concentration, sales channels, proper positioning, etc.
Start running your business without a strategic approach and without taking the time to think about what will work best for your company, it can be extremely difficult to change it once a certain image sticks to your products and your customers are used to pay a certain price.
The cure: Do not improvise your business, set up a strategy!
It is highly recommended to conduct market research first in order to get a good understanding of the market. It is essential to be aware of your main competitors, the potential of your product, regulations and compliance rules which may apply in your industry. Think about how to position your product and to which markets you are planning to sell.
Make sure you have a firm strategy covering the timing, budget, oversight of staff and business model.
Take the Vaccine for Vertigo in the U.S.
“It’s palatable and it works,” says Danoff. “Simply ask yourself this question: Would I do this in my home market? If the answer is no, then stop and think about what you are doing. A little thought makes a lot of dollars and sense.
To summarize the points above:
