Situation: A CEO is evaluating a potential deal with an Asian company that is synergistic with the strategy of the CEO’s company. The structure would include a US entity, run by the CEO, and an Asian entity that would provide essential technology. How do you structure an international deal?
Advice from the CEOs:
Before you agree to a deal, raise your own level of trust with the key players of the Asian company so that you are comfortable with the investment of time and money that you will make.
Assure that you will have the focus and attention of talent that you will need within the Asian company. This is better done through mutual understanding and agreement than through contract. In Asia, relationships are personal, not contractual, though for legal reasons personal understandings must be backed by a good written contract. This will likely mean that you will have to travel to Asia to spend time with the key personnel upon whom you will rely.
Make sure that there is agreement on a clear road map for both the US and Asian entities.
You will need a solid bridge person who can speak both the language and culture of your Asian counterpart – not just someone who says that they can, but who can deliver. Test this relationship before agreeing to the deal.
Structure the deal so that the US entity owns exclusive rights to the technology world-wide with the exception of the home country of the Asian firm. Assure that you own an acceptable piece of the US entity.
Don’t complicate the exercise by creating additional shell companies in Asia. Shell companies can make it difficult to maintain accountability and assure that you gain the value that you seek.
Situation: A company has been approached by an international business development specialist who wants to help them expand into Asian markets. The company would need to hire local resources to support business that was generated. Most of this would be cookie cutter as opposed to creative work. How do you work with an international business development person?
Advice from the CEOs:
Research the country markets where the specialist can help you and focus on the more developed and promising markets first.
If the specialist that has approached you has a local presence in the markets in which you are interested, lean on this person for help getting you started – office space, staff support, and so on.
One company started a subsidiary in Canada. The CEO believes that you must have a highly trusted person to own the project. Success is all about the relationship with this individual and their knowledge of both local and American culture.
Another company hired very promising business development person for a large Asian market. As the relationship progressed, they found that this individual was double dipping – working for them and their competition at the same time. Apparently this is acceptable in that culture.
Many cultures are relationship based. Local contracts are critical. Does your specialist possess these, and are they premier companies or also-rans.
Talk to individuals in your industry who have experience in the region.
Have your eyes open and recognize that this is will not be a quick process.
Situation: A company wants to reduce their cost of engineering. They are considering outsource options, both domestic and overseas, as well as remote offices in lower cost regions domestically. How can you best reduce costs?
Advice from the CEOs:
An emphasis on cost may be misplaced. Consider instead of where you can offer the best value to your customers or clients. Focus on and compete in best part of your market – the place where you possess the strongest advantage; then worry about cost.
Outsource companies can be dangerous partners. Assume you only profit from the first job that you give them and that they may be your competitor the next time around.
We’ve learned from the last decade of experience in Asia that cost advantages are often temporary. Salaries for top talent in India and China now approach those in the US. This experience is likely to be repeated in Southeast Asia.
Focus on high dollar services and opportunities.
There are limitations to offshore talent – especially in complex, multi-step development projects. Keep high dollar projects in-house because they justify higher prices and margins.
When you outsource, negotiate retainer contracts with additional charges for work above and beyond the scope specified in the retainer.
What do you want to be? Consider your options:
Become a project management company and outsource development.
Be a development company and just look for cost effective sources of labor.
Start your own outsource company – a split-off staffed by your own employees – and feed them work.
Before you invest substantial time or money, do a test.