BtoB

Special Report: It is a small world after all

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Jim Andrew recently attended a meeting in Europe at which a U.S. b-to-b exchange was trying to establish a partnership with executives from a local company. It wasn't a pretty sight, according to Andrew. But it was a perfect case study on how not to bargain in b-to-b's global age.

Leaders of the American exchange offered the local officials a low-make that an offensively low-equity position, said Andrew, a senior VP for The Boston Consulting Group Inc. And they were subsequently laughed out of the room. It was a big mistake for the Americans to play low-ball, said Andrew, for without the help of the local company, the exchange would have no chance of being successful, and the company's officials knew it.

Indeed, finding a good, well-connected partner is the most critical factor for overseas success, say experienced global b-to-b marketers, consultants, technologists and lawyers. And equally important is leaving your hubris, and some of the strategies that made your b-to-b business successful stateside, back in America.

Their advice-some of which was gained the hard way-comes as a slew of companies inherent to the b-to-b revolution announce plans to open for business outside the U.S. VerticalNet Inc. executives are

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currently expanding their operations into Japan and Europe and are considering China. Internet Capital Group Inc. is doing the same. B2BWorks is embanking on a European expansion in early 2001. And other players, such as LivePerson Inc., AnywhereYouGo.com, Orsus Solutions Ltd. and Escrow.com, are also aggressively expanding outside the U.S.

Globalization is important to all manner of b-to-b companies, whether their executives have planned an overseas expansion yet or not. Most b-to-b exchanges, e-mail marketing agencies, consultancies and manufacturers have businesses that, by virtue of the Internet, are innately international. To think otherwise, when your next order or client could as easily come from Munich as Indianapolis, would be folly. But the path to doing business in Portugal, Pakistan or Peru is ridden with as many pitfalls as is the path to profitability.

Importance of being partnered

All those interviewed stressed the importance of going local, whether when finding a partner company or hiring staff. Gone are the days when U.S. companies filled international branches with star American employees. Most Fortune 500 companies now staff their overseas offices mostly with locals, many of whom were educated in the U.S., and hire local partner companies to cut through red tape. This approach has helped many big U.S. companies-for instance, Coca-Cola Co. and Texaco Inc.-become truly global players. And it is a method that marketers at some small to midsize b-to-b tech companies are finding works.

"Having local partners means having the connections and visibility locally that can get us in places," said Gwen Durrill, VP-business development at Orsus Solutions, a Mountain View, Calif.-based wireless Internet platform provider. The company works with local partners around the globe and has hired mostly local salespeople in the U.K., Singapore and Israel. Durrill said many U.S. executives fail to admit that their brands have scant recognition outside of the States, or that they can't succeed alone. "A lot of U.S. companies don't realize that. They're used to doing business themselves and don't realize that they have to work with a known entity," he said.

While some U.S. b-to-b companies have limited their partnerships to deals with smaller players, others have opted for bigger, name-brand ones. Such well-known, well-positioned partners can be a particularly big help to smaller U.S. dot-coms that have little recognition overseas.

Escrow.com, a Santa Ana, Calif.-based start-up that is currently introducing an international e-pay-ment platform, has entered overseas joint ventures with mammoth players such as Tokyo-based Softbank Corp. and Hong Kong-based Pacific Century CyberWorks Ltd. One key aspect of the Softbank deal has been the addition of Yoshitaka Katayo, the company's high-profile CFO, to Escrow.com's board, said Russell Stern, Escrow.com's CEO. "It's made all the difference in the world," Stern said of Katayo's appointment.

Strange bedfellows

Establishing relationships with local partners, while no doubt effective, often means giving up sole ownership of one's project. But the speed with which they can bring joint schemes to market can make it worthwhile. "You get a better time to market through partnering," said Boston Consulting's Andrew. "But you give up an element of control. It's like a marriage. You've got to be compatible, and the success of the partnership will drive the success of the business proposition."

Hiring local employees is something that Boston Consulting itself has done since opening its second office, in Tokyo, in 1966. "In our [overseas] offices almost everyone is local," said Hal Sirkin, senior VP. The blue-blooded firm has since morphed into one of the top b-to-b consultancies. "We don't have it, so Americans are leading," Sirkin said. "It doesn't work that way. The issue is who has the right skill sets to help the client."

LivePerson, a New York-based real-time sales application service provider that is currently expanding into Europe, has taken a similar approach, especially with its marketing and sales forces. The company is currently staffing its European headquarters, in Maidenhead, U.K., with German, Italian and French salespeople to deal with clients from those countries, said Larry Wasserman, VP-marketing. "You need to have people that understand local business," he said. "If you don't have people that are sensitive to that, culturally, you're going to have difficulty selling."

Legal issues

While b-to-b marketers have found that working with local partners and hiring local employees no doubt works, the strategy brings many crucial legal issues to the fore. Ignoring them can crush an overseas strategy before it really starts.

Foremost among b-to-b marketers' legal concerns should be protecting their companies' most valuable asset: intellectual property. This is especially vital when partnering, because working closely demands that valuable information be shared.

"You have an enormous responsibility [during partnerships] to protect your IP," said S. Alan Hamburger, managing partner with Morgan Lewis & Bockius L.L.P. The law firm provides international counsel to b-to-b companies including VerticalNet and FreeMarkets Inc. Companies should consider how they will protect all manner of intellectual property, such as, software, trademarks, brands, copyright, and domain names, said Hamburger, who has practiced law in Brussels since 1981.

Such issues are as important when partnering with a big local player as with a small one, said Marlee Myers, a Morgan Lewis & Bockius partner. "One pitfall I've seen people fall into overseas is jumping into a partnership with a big name without thinking through objectives," she said. "What can happen is that the U.S. company might give up rights to a future technology. And they can give up equity in a way that has terrible accounting ramifications for them."

One way to lessen the chance of messy legal problems overseas is to proceed slowly-something that is anathema to most b-to-b marketers. This is particularly important in Europe, where onerous hiring and taxation laws complicate tasks that would be routine in the U.S. "[In Europe] you have much less flexibility than in the U.S.," Hamburger said. "You should start off there as thin as possible. HR and taxes and corporate housekeeping are much more burdensome. You can hire someone for six months, and firing them can cost you three to six more."

While the overseas marketing landscape is not as ridden with landmines as is the legal one, it is no less complex.

B-to-b marketers said face-to-face marketing works best overseas. Many Asian and European clients are often not as up to date on Internet technologies as their U.S. counterparts, making education crucial to any sale.

Executives at Dallas-based AnywhereYouGo.com, a provider of wireless Internet platforms, have found that conferences are their most effective overseas marketing tool. "We'll come away from our humble 10-by-20-foot booth with 200 people who are interested in what we're doing," said President Lee Wright. Over the past year, the company, which has offices in London and Stockholm, has attended some two dozen conferences in cities such as Paris, Monte Carlo and Rome.

Making sure that key employees attend and speak at conferences is important for the company because its technology, which tests wireless systems before they are used, is complex and requires much explaining, Wright said. "It typically involves a discussion," he said.

Wasserman said making sure that all marketing communications are available in local languages is important-especially with e-mail and real-time messaging marketing, where most clients would sooner ignore a message they cannot understand than try to translate it. The start-up has helped companies build customer service chat rooms in languages including Chinese, Japanese, French, Portuguese and Korean.

Perhaps the biggest challenge for U.S. b-to-b companies, however, is finding the right mix of aggressiveness and humility that is crucial to overseas success. "There's a real land grab going on now. There are opportunities available that won't be six months from now," said Boston Consulting's Andrew. "But you need finely tuned antennae, not coming over and being the ugly American."

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