The US – a vastly rich country, seething with opportunity, built by a culture of thriving immigration – wants UK products, wants UK companies and wants to make UK businesses rich. How could it not? A population of about 298 million, all of them consuming, using, buying and needing. The home of capitalism, with an economy unencumbered by red tape. It shares a common language and history with the UK – an old friend and ally. How hard can it be to break into the US market?

Financial services, pest control, storm-water drainage, children’s stationery, sports agency, food retailer, shoemaker: there is a company name for each of these and for many more, all of which have the same thing in common – they all died in the US soon after arrival. Cause of death: ignorance, born of assumption. How many boards have sanctioned the end of their own existence, seduced by the visions of their share of the torrent of dollars that made up a gross domestic product of $12,000bn in the third quarter of 2005 alone?

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Know the market

The common factor in the vast majority of the sorry tales of UK companies failing to make it in the US is that they did not know enough about the market for their products. What they knew about was the market for their competitors’ products. They all undoubtedly had marvellous information about the general market for the products they were selling, but the actual market for their specific products, the very ones they themselves had made, was unknown at the time of relocation. They thought they knew but in reality their best efforts at determining demand were a guess based on other companies’ experiences. A product only has a market when it is being sold.

A recent fDi article (All the Right Moves, December 2005/January 2006) gave an excellent assessment of the role of intermediaries in relocating. It provided a sound checklist of issues to be understood and worked through – location choice and incentives, tax considerations, hiring and firing ease and restrictions, legal framework, banking and property – all preceded, quite rightly, by market opportunity.

Ready to go

All companies setting up in the US will have done their homework. They have sought out, or paid for, convincing figures on the market size. The competition has been identified and duly discounted. The right geographic area for initial entry has been agreed; the SWOT (strengths, weaknesses, opportunities, threats) analysis has been through four drafts, each inexorably more compelling. The business plan makes sense; it must, the printer is out of black ink.

Compared with other research areas though, has enough work been done into the market and is it worth anything? Compared with the tangible facts of appointing lawyers, hiring staff, leasing space, forming a company and investing in production equipment, all there is to show under the headings of ‘demand’ and ‘market’, as you open your doors and announce your presence, is likely to be expensive fantasy. The perverse truth is that the most crucial factor in a product’s success is the one that is the least grounded in reality. Without a top line there will be no bottom line, and many top-line plans are little more than a hazy mix of a competitor’s experience and a sales manager’s guestimation.

The next chapters in the demise of the hopeful new entrant are straightforward. The sales forecasts and reports differ in a crucial manner – the former consist of figures, the latter of words: there are no prospects in the area; the area is full of prospects that have no budget; they just bought the same thing last month; they love the quality but the price stinks; oops, we did not know it needed certification XYZ123.

The only way to conduct factual market research is to offer a product for sale. Yet without entering the territory and establishing expensive infrastructure, how can this be achieved?

The solution used by some companies is a reversal of the process described. Rather than risk millions of dollars setting up in what is effectively market darkness, they are seeking in-country help with the market/ demand portion first. These companies are then in a position to take a view informed by reality about whether the rest of the investment is worth the risk. Specialist market-entry agencies or consultants are used to approach likely customers, partners and licensees and to act as a board-level proxy in feeling out the potential for commercial success.

Negotiation by proxy

Such a role can be defined as narrowly as approaching a specific retail outlet. It also can, and perhaps should, be broad enough to encompass research into strategic commercial partners and advice on what type of partnership and channels would suit the clients’ products. Often, the role of a market-entry specialist develops to include strategic sales responsibility or straightforward account management. The proxy representative can quickly find themselves in the thick of licence negotiations or joint-venture development and thus this brief requires trust, commitment and the ability to communicate in an open and frank manner.

Is this something that requires hiring people in the US? Anyone who has tried to conduct business in the US from the UK knows what an extraordinary lengthening effect even a five-hour difference can have (eight on the west coast). There is a one to four-hour window to contact someone during business hours. Looked at another way, it can take three to five UK/US business days to achieve what could be done in one day solely in the UK or US.

Hard evidence

Read this list of questions and ask yourself if you would rather make US market-entry decisions and investments based on estimates culled from a business plan or on the back of real experience, direct feedback to yourself, local advice and hard proof.

Sell nationwide from the beginning or start in a small area? Which area? Manufacturer’s reps or direct sales? License or manufacture? License to whom? Who might be interested? Who else? What is the difference between a manufacturer’s rep and a distributor (a good example of two nations divided by a common language)? What do Wholesaler X, Retailer Y, Competitor Z and Consumer Q think of the product and price?

In business, Americans are every bit as forthright, open and straightforward as they are reputed to be. A huge cultural difference is that the CEO picks up the phone. Having picked it up, Americans tend not to mince their words. They will say if they want to see or hear more; and if they do not. In the US there is a huge advantage to being able to say you are American. ‘Proudly made in America’ and ‘Buy American’ are still phrases that are written and uttered without irony, unlike in the UK’s recent past and despite the ravages of Asian competition. An English accent does not matter but a US location does. For many Americans, there is no discernable difference between Guildford and Kabul. Vast sections of the US economy feed internally and there is no need for much of it to look overseas. A local voice is needed to get the meeting.

A quick response

Second chances are hard to come by, so once a product is in play, being seen, assessed and demonstrated, the company needs to be ready to respond. Having a dedicated or responsible person in charge of making sure the answers fly back quickly is a good idea. Keeping up with the information, questions, requests and information gathering will help to shed some light on how much more resource an eventual foreign outpost will consume. A board-level mouthpiece in the US will not relieve a UK company of all burdens. UK businesses are continually surprised at the size and speed of the demands that a US proxy presence will place on them. Most US industrial businesses turn around their quotations inside eight hours. In the UK, it can take a week, even two or three – even from businesses that profess to want to get into the US market. A company wanting to be successful in the US has to mean it.

Here are three recent examples that have saved time, money or both for UK companies that would have otherwise found out the hard way:

  • A company has discovered that even if a heater does not legally need Underwriters Laboratories (UL) approval because it runs on low voltages, the reality is that all buyers expect UL approval on electrical items.

 

  • A product requiring a good deal of industrial sewing has halved the projected sewing cost on the business plan after an introduction via a potential wholesaler.

 

  • A medical device previously approved by the Food and Drug Administration has been refined to cope with unwritten requirements in the operating room following demonstration to potential distributors and surgeons.

 

Exceptions to the rule

 

Not all businesses are suited to this ‘toe in the water’ approach. Persuading prospective partners to attend to relatively straightforward, innovative products and services is one thing, handing over strategic contact responsibility for a new cancer-curing molecule or a mind-blowing software algorithm is another. Clearly, highly specialised scientific and technology clients are in a different world.

Paradoxically, the more ‘difficult’ the subject, the easier it should be to expand overseas with less risk – the pool is so small you should be able to see the bottom from the UK. Business is generally easy to understand. Most objectives can be achieved by people who get on with it and combine common sense, perseverance and effort.

That being so, how much sense does it make to base your company’s future on a guess and an unknown quantity such as the reception that a product will get in the US marketplace?

Before spending money on business plans, market research and trips to meet lawyers, and being feted by the North Western Alaska Chamber of Commerce, why not try the obvious?

Ask someone to do something blindingly simple, something that will undoubtedly save time and money and is likely to economise on heartache and frustration: put products in front of a customer and make a plan standing on solid ground. Who knows, you may even sell something along the way.

Hugo Williams is founder of TTI, a specialist market initiator consultancy based in Boston, Massachusetts.

(e-mail: hugowilliams@comcast.net)