Updated: Sep 25
For middle market looking to grow, there are a lot of factors to examine when considering strategic global expansion. Gregory Newell is the Chairman of the International Commerce Development Corporation and the former U.S. Ambassador to Sweden.
The purpose of my remarks today is to address particularly strategic international expansion.
And specifically amongst the mid-range or the middle market companies in the United States. We take from our background largely the data the information from organizations such as the National Center for Middle Markets, which is founded as you probably know at the University in Ohio, Ohio State University and the hub company. Chub company has particular interest in this they have operations in 54 countries globally, and they largely fund the program University of Ohio State.
In fact, said by John Butters and all this quite recent information as of November 19th, 2019 Addressing the U.S. Mid-market dimensions and metrics, it’s interesting to note that among the mid-market companies, which are characterized basically by their revenue which range from 10 million to 1 billion dollars annually. They represent some 200,000 U.S. companies. Interestingly a third of those total 10 trillion dollars of the US economy of which the full market share of all companies is a private sector companies is 30 trillion dollars. The mid-market has some 30 million jobs; 77 percent of the market companies had exceedingly good productivity revenue generation across the country in 2019. Also interesting to note, amongst the mid markets that in the fourth quarter 2019, the growth rate amongst these mid-market companies with 7.5 percent the total or the aggregate across the country of all private sector companies was four percent so they are well above fifty three percent higher than the The mid-range of all companies so they clearly speak to the strength of mid-market companies. It is those that we International Commerce Development Corporation founded in 1993 where we’ve represented some hundred and ten companies, most of them US companies, conducting business as we have presence in over 100 companies that they are great strength to the US.
So our sweet spot if you will in terms of assisting companies to go abroad is in this mid Market range from the perspective of international Commerce development corporations government and private sector experience over the past 31 years is I’ve mentioned we’ve expanded with companies into over a hundred countries. Together with the 18 years of experience both And Washington and abroad is a diplomat. We have seen the annual revenues of the mid-market companies expand exponentially briefly here. The company’s International rationale for going abroad strategically is based on what we would characterize or captures 6 clear advantages for a company strategic consideration and execution of its International expansion.
The rationale for because of potential In generating new Revenue channels
Of note here, we note that 45% of mid-market companies currently report that fifty percent of their income is derived from foreign markets in ICDC International Commerce development corporation’s experience. We would note here is an example of that a fast-moving consumer Products Company matched its 1.75 million dollars investment to go abroad in a strategically selected Market recovered that 1.75 within 90 days, in an Asian market. From there within six months the second Market was open for them in the region and Asia and shortly after that a third and then a fourth and within the year the companies abroad were contributing 70% of the revenue of that then 200 million dollar company to their bottom line. Within three or four years seventy percent worldwide of all revenues came off shore to the company.
Is the consideration is increasing the company’s competitive advantage and broadening their goods and services. Give an access globally our experience with a travel hospitality company by strategically entering we took the route to China. A few years later having dinner in Washington with that chairman of the company, he said within those short years, they were leaving the next day to open their 51st. In China today, they have 44 additional markets which bring them to a total of a hundred units of operating activity in China in just a few years. So the benefit here of having competitive advantage not only domestically against their fellows peers in the industry, but also internationally.
Global economies of scale and local Development content reducing production and fulfillment costs. Here doing work in Japan or we been some 200 times, the value of the Japanese market and the expertise that those Executives bring brought us expanded opportunities throughout Asia, such that a good deal of the activity of going abroad was occurring from Japan from the U.S. To Japan. then to to South Korea.
Access to International Talent pools, talent resources for cross training such as we’ve just mentioned from Japan to South Korea, Taiwan to Singapore to Malaysia. ETC
Access to U.S. and international country government resources. In here is an area that is largely overlooked by us companies when they’re considering to go abroad. We would mention here the access that we take for a client immediately upon engagement with them with the U.S. Department of State depending on the Strategic approach and the regions that were going into for them or with them.
The Department of Commerce. Department of Commerce has enormous resources that are available to all us businesses. They’re the foreign commercial service has is in scores of countries across the globe. They have intelligence. They Of institutional memory they have relationships and they have financial resources that can accelerate ones market entry. The US Department of Commerce has reach is in about a hundred and twenty, a hundred and thirty different countries where they have people personnel both the US diplomats who are assisting from the US Commerce department is well as Foreign Service Nationals who are golden. To those markets because they will be in their positions for 25 30 even 40 years. So they’ve got the relationships. They have knowledge. They have the experience to expedite international market entry into those markets.
The US agricultural department. They have foreign assignments from the department and to many, many countries around the world were agriculture as a premier importance to those various markets. U.S. Aid as a 22 billion dollar budget across the world have resources have access and have priority issues that very often will be in harmony with the US businesses for their goods and services. XM Bank give loans on favorable terms. the former OPEC, which is now the FDI give Insurance up to 90 percent protection to companies that take the risk of going abroad. State grants across the land in all 50 states we have grants that are available for International Development International expansion for U.S. interests particularly in their states. Then we have the multilateral side has enormous resources that are available certainly beginning with the United Nations specialized in technical agencies, where in my judgment the real work of International Development International Harmony of be security have their most significant contribution to the development across the world. The World Bank, the five Regional development bank’s, all have multi billion dollar resources that are available to those who can bring value to the markets in development across all sectors. Food and agriculture organization the World Food program, International fund for Agricultural Development again, all linking back to our agricultural priorities. And finally and not the least important rationale is that of diversifying a company’s portfolio. All countries historically will have high points and low points and Good Seasons and challenging Seasons. If one is Diversified in your portfolio, not only do you do then find yourselves able to be protected in one market when another market is down or seasonally for example again on the agricultural side. We do a fair amount of work in 22 countries in Africa, as we have historically here back to 1993. And that is that the growing seasons in the northern hemisphere are different than this. So one can spread again by diversification, revenue flows geographically.
So with those six we have to look at the process, the fundamental underpinnings by which a company can rationally strategically consider going abroad, expanding abroad or if they are abroad to expand their market share in those markets are go to secondary or tertiary markets. Most important is for a company to have a vision of a global enterprise. Without Vision you’re really dealing just opportunistically as opposed to strategically. Next to vision is to have a strategy based on your mission to realize the vision. Vision is what you see in a mission is what you do to achieve a realize the vision first and most importantly is to have deep market research. We look for every company that we deal with in terms of considering what they do for their strategic approach to International markets we look at the following factors to consider: population, culture, language, GDP, GDP growth rate, purchasing power parity, ease of doing business, legal environment, rule of law and respect for contract, transparency (particularly Transparency International Where we look at corruption indexes that are evaluated annually in about a hundred and sixty five countries across the world for company consideration for risk mitigation), political stability, company infrastructure to support international expansion, pricing parallel import considerations, taxation, repatriation of funds, risk capital, and the requirement for extraordinary patience.
Every market has nuances that differentiate them even from their neighbors. A good example of that which most international business people will quickly admit is between the U.S. And Canada. How often us companies have failed going to Canada because they think of it totally and accurately is a 51st Market in the United States as opposed to a country whose companies have their own regulations, whose governments have their own policies, and procedures here. So the overriding point in our judgment from our experience since 1993, is to form based on deep research the rationale to enter markets, which makes sense for your goods and services abroad and a focus on strategic development is opposed to opportunistic events that occur. For example a client called we were preparing to enter into the Japanese market at the time, the second largest market in the world. Japan is a very challenging market. We have great appreciation for the market. They have cultural characteristics that have to be adjusted for it in terms of execution in that marketplace. It has a market 226 million consumers. A colleague from that company calls and says, but we should also consider going to Peru. Why would we go to Peru? Well because my brother’s best friend is Minister of Commerce and we can access that market so quickly. The response initially was but to access the market of Peru would take about his much time and effort concentration, focus as Japan does. It would take a few less dollars, but if we were wildly successful in Peru with your goods, your products, we may have a market reach of 7 to 10 million dollars annually. Whereas in Japan, if we’re successful at entering that market, same time same focusing efforts excetera, we could well reach above five six hundred million dollars. Which Market you going into, don’t get diverted. If we for example are in Japan, then we can go to the rest of northern China down into Southeast Asia. Whereas in Peru, you might go up to Mexico over to Jamaica, but to be able to keep the lines open of flowing goods and services. It makes so much more sense to go in strategically and not with the opportunity. We don’t deny that Peru maybe a third or fourth tier market entrance once we’ve explored, executed, and done well in other markets of the world.
So with that I thank you again for the opportunity of being here honored by the invitation sharing the platform with many other speakers. Probably much more qualified experienced the I, but I’m grateful to be here. We welcome any questions or comments.
What effect will Covid-19 have on the international market short and long term?
International disruptions, such as the current situation here in January, February, March, April of 2020, have some parallels, not all parallels with some with 9/11, where for a shorter period of time in terms of the extraordinary responses required at that time were much more shorter lived. There are consequences we’re still dealing with with 911: TSA other such. This is much less controllable, unknown, but we can’t stop serving one another We can’t stop improving as we can the quality of life for individuals and families across the globe and we must continue as we are today in this interview and this visit and this keynote expression here going forward with what’s in the future, not what is in the past or only the struggles focused on today sensitive to those realities. We’ve had these in other places but they’ve been more isolated regionally and been dramatically painful and we’ve participated as Americans in bringing care, aid, resources to those regional issues that to them are is a is great as the world all suffering today.
What is the biggest challenge faced by companies attempting to go international?
in my judgment, the greatest impediment to successful international growth expansion and growth is at home in the decision-makers offices and that is not having a clearly articulated vision, mission, and strategy. That has nothing to do with our consumer friends around the globe that has to do with us.
What sets America apart in the international market?
I assume we have a bit of an international audience here.
And respectful there of our international trading partners and friends across the globe, I must still say that the great value of American enterprise is freedom to think, freedom to innovate, freedom to take the risk and freedom to fail and freedom to succeed. Almost everywhere we have been. U.S. goods and services have great value:
It’s typically state-of-the-art
It’s generally speaking high quality performance
Often times it’s been our observation that people will choose a relationship or a good or a service from the United States because it is aspirational. They’re buying it. We believe we’ve observed because of the notion of unleashed creativity. Which they hope and we hope that they have. Others come along and take technology legitimately and improve upon our technology. But there’s there’s a bedrock based on we’re not perfect,We have many flaws. There’s a there’s no country that’s perfect. No individual that’s perfect. But there’s something about the American experience that brings to for the opportunity for men and women, boys and girls to find a path to their able best.
Let me give an example while serving as the United States ambassador to Sweden. Every December 10th, we would host for the Nobel Laureate celebrations in Stockholm, Sweden for the five prizes were awarded their V was peace, which is awarded in Norway in Oslo. And as you know, many of those prizes are often shared by four five or six people. The last year we hosted that event, in preparation for it, we were aware that every prize was assigned to an American citizen.
Concerned about the Swedish view of that and expecting some comment, if not criticism, as to whether the decks were stacked, I studied the profiles of each of those, I believe at the time there must have been fourteen or fifteen awardees because they were sharing across the physics and Medicine Etc.
They were all American citizens who were studied and trained in the United States culture, system, environment. One was born in Russia, another born in France, another in China, they came here to our shores for education. They stayed for innovation and performance. So the country, this is a long answer, my mind and experience is not only in it, but also my heart. This is and we need, we need not gloat, neither should we apologize. We are a nation of Nations. All of us are immigrants, except our native brothers and sisters and if one goes back far enough they are too.
What is the problem with most companies’ vision?
Then it’s not Broad and deep enough that it tends to be situational, wanting to have the next quarter of the next year or in a short period of time results that are tied with money only, with revenue. It goes back to the strategy and goes back to a vision again what you see and the vision and my judgment is not that we all in our organization. Maybe we American or French or Mexican or Japanese or Chinese or Russian that we not all come together with the vision that’s unilateral.
But the vision from the founders of the vision is not a straight line or a straight channel It opens the vista for all others to contribute. So the vision with contributors across the company broad and then deepen. One also in my judgment has to have in the mission much more than the bottom line of the company in Peoria or Los Angeles or Chicago or Knoxville. It has to be sustainable, it has to be the purpose of improving the quality of life.