In this series, we will focus on the issues related to foreign mid-market companies entering the United States (US) market for the first time. We’ll cover the real-life experiences of many Chinese companies, as well as several companies from Canada, Europe, and Latin America.

Still the land of opportunity? Foreign investments remain strong in the United States

For centuries the United States (US) has been the land of opportunity. People of all walks of life have ventured to the new world with the hope of tapping the many opportunities available to them and their businesses. But what keeps these companies knocking on the door are five key factors with one common thread: access.

  • Market share – The US provides excellent access to the customer and one of the largest markets in the world.
  • Technology – The US leads the market in innovation in technology (artificial intelligence, virtual reality, machine learning, etc.) and provides access to companies ripe for acquisition. As a result, there is access to experienced local talent, and investments in R&D centers where technology can be developed in the US and licensed to other parts of the world.
  • Risk diversification – To diversify the country risk, some organizations establish global operations to allocate its country risks.
  • Raw material – With an abundance of natural resources, the US is a critical element to the supply chain. Being close to the resources is a common global supply chain management strategy; in addition to buying large volumes from suppliers, organizations often acquire the entire company or set up a joint venture assure access.
  • Talent – Companies have access to top talent across all industries.
  • Capital – Raising capital in the US has become very attractive for foreign companies that also have the option of an IPO.

With this access companies approach the lucrative US market via one of three ways:

  • Build an office from scratch and grow the organization organically.
  • Acquire a company with existing infrastructure and talent, saving many years. For example, the acquisition of a petrochemical plant would avoid the permitting, building, and start-up costs which can be a lengthy and timely process.
  • Establish a joint venture and rely on the experience and local connections of partners.

As each approach has its pros and cons, an organization’s approach should be based on its short-term and long-term goals.

When entering a foreign country, it is key to have a strategy and do your research. The number of companies with no strategy, or who enter a market without the proper due diligence/research is surprising. Foreign business owners visit the US and decide to invest big, simply based on what they see – big markets with endless opportunities, especially those in the energy and resource sector. Others decide to invest after reading business and trade publications and concluding the US is leading in their sector, that there will be many multi-billion-dollar projects in the next few years and assume there is money to be made.

However, an organization can have too much research and leverage studies which are often based on assumptions that can differ from reality. The key is having the right mix of research that can confirm the reality.

When approaching the US market, what we call the ‘sprint method’ tends to be most effective. An organization creates an overall vision for US expansion followed by a high-level study and visits to the cities of interest. As in other countries, each market/city is different and what works in one may not work in another. It is best to start small and test the assumptions of your due diligence, adjusting the plan until a clear road map emerges. It is a process with an ongoing learning curve.

Of course, tapping the experience of local resources via a partnership, employment of subject matter experts or consulting engagements can save significant time and results. At International M&A, we specialize in helping foreign companies define strategy, execute at a micro phase, and working with clients closely until the business is on the right track with clear road map. We plan, test, and adjust, until the company is on the right track. Our unique business model teams us with our foreign clients to grow the US business faster and more solid, resulting in a success rate much higher than that when clients do it themselves.

Speed bumps on the road to America

The due diligence of a Canadian company expanding to Texas found local employees completely different than those in Calgary and the machinery required higher maintenance cost due to Texas heat and nonstop operation (Canada only operates half of the time of the year due to weather and road condition.)

An Asian equipment company delivered products to companies in the Texas petroleum market, yet the operation and maintenance manuals are in a foreign language and the equipment matrix and specs are in the British style- not the American standards per the American Petroleum Institute (API). In many cases, US the standards are higher, making the implementation of product sales and integration with another US equipment company very difficult.

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We believe in building businesses with a proven system. If you’re ready to grow your business in the US and achieve global success, we can help. We do not take chances when it comes to your business.

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Disclaimer: Like humans, business has its own set of issues and corresponding solutions at each stage. All articles are based on mid-market foreign companies and their initial entry in the US market. Typically, these foreign companies have an annual revenue of $10 million to $100 million, have been established in their home countries for over 10 years, and have enough capital to fund an initial market entrance. Our articles are specifically related to this market and the unique issues these companies face during international expansion. If you plan to apply some of these concepts, please adjust them to your own business operation and business growth stage.

We are not lawyers or tax experts. As we often act as general business consultants and step in as interim CEO or project managers, we manage lawyers and CPA firm partners around the world. Our suggestions on legal and tax issues are solely from a practical management standpoint, and should not be considered technical, legal, or tax advice.

My background is in finance and accounting. I’ve worked in many Fortune 500 companies and Big 4 firms, as well as my family’s business. I’ve built my business from scratch, helping others build their businesses in a new country. I am a licensed CPA in the State of Texas.

Many of the ideas and strategies are based on real-life experiences from our clients as well as the books I’ve personally read – the two most influential: Scale by Jeff Hoffman, and Scaling Up by Verne Harnish.

 

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