Don’t partner with someone’s mother’s sister’s brother
So many companies have been burned by their joint-venture partners that they prefer to go it alone. But for those who could benefit from the local know-how and resources that a partner can bring to the table, it’s imperative, say veteran businesspeople, to make the right match. Howard Balloch, who runs his own investment boutique in Beijing, recommends looking at every potential partner and then shortlisting eight or ten, of which four may make the cut. “Too many people go into China and say, ‘Anybody know someone I can partner with?’” he says. “And you get some guy saying his mother’s sister’s brother knows somebody. It becomes a real crapshoot.”
When assessing partners, do as exhaustive a due diligence as possible. Check for any history of bribing or litigation and whether their guanxi, or personal connections, are as good as they say they are — but not so good as to get you into trouble. In China, companies often keep two sets of books, so make sure they show you the real books and that they are in compliance with the law. Ensure that your value systems and goals are aligned. Ultimately, you need to rely on a sharp gut instinct that can distinguish pretenders from the real deal. A strong personal relationship based on trust is often your best defence in countries where contracts are not worth the paper they are written on. “When you’ve got that close relationship, people don’t want to let you down,” explains Toon Boom’s Joan Vogelsang. “Nobody wants to steal from a brother.”
But even brotherly love is no guarantee. If you want a little more reassurance, look for leverage, and keep the balance of power in your court. Observers recommend retaining at least a 51 per cent majority control of any venture in order to ensure that your business plans are executed. When tiw went into Romania, it conducted thousands of interviews and, as the first foreign investor to arrive in the country to scope out the telecommunications sector, had its pick of potential partners. Its ultimate choice of partner helped the venture (MobiFon) survive three changes of government, but it was tiw’s iron-clad control that ensured its success. tiw not only held the financial reins, but ensured that Westerners and Canadians occupied the top two layers of management. “If we hadn’t had control, it could have really jeopardized the operation because the Romanian partners didn’t care at all. They were just looking for any way to make a fast buck; they told us so,” says a former tiw executive. In 2005 tiw wrapped up its short-lived international jaunt by selling MobiFon, together with its Czech cellular operations, to Vodafone for us$3.5 billion.
Get the best people, not the B-team
Some say it’s so obvious it shouldn’t be included as a recommendation, but since so many companies seem to commit the same mistake, it has to be said: don’t plunk someone in to run your new overseas venture who doesn’t have any international work experience. Technical expertise does not make up for a global mindset, nor does it necessarily transfer to another country. And, whatever you do, don’t send that individual into a harsh new environment all alone, without any back-up. In perhaps the most extreme case I came across, Roger Belair was sent to head up Transcontinental’s new printing acquisition in Mexico. He had to single-handedly manage 1,100 Mexican employees and go without a salary for seven months because the company had neglected to come up with a system for paying him. “We should have had six to ten people on the ground,” he says. “We should have come stronger.”
Once you’ve established your operation and set the wheels in motion, you are best served by having well-trained local management in place. Try to hire the top managers the market has to offer — people you can trust, with local standing, who understand the rules and regulations. If they have international experience, that’s a bonus. “The most important thing you can do is hire local managers and train them to take over,” explains Aly Nazerali, a Vancouver-based entrepreneur who has an ownership stake in Bolivia’s largest cable company. “It gives them pride of ownership, and all the cultural problems disappear.”
That does not mean that you should leave your local team unsupervised. Senior management or board members should check in regularly and spend a few days with employees to get a sense of what’s really going on. “Spend time with the people in the company— eat with them, sleep in their city. They will start to open up to you and tell you their concerns,” explains a former tiw executive. “After the board meeting, stay one or two days more, see what management does, how it digests decisions and brings support. When you see them for only twenty-four hours, everybody is nice; they put on a great show, wave goodbye and know they have another month left to their own devices.”
Get good advice
Set aside a pool of seed money to retain fiscal and legal advisers. There are fifty-seven different taxes in Brazil, notes Eduardo Klurfan, Scotiabank’s former rep in São Paulo, and you can’t be compliant with all of them. These consultants can also advise you on how to hedge against currency fluctuations and structure your investment so as to exploit preferential tax and tariff treaties. India, for example, has treaties with Mauritius and Cyprus that allow offshore investors to avoid paying capital gains tax. Barbados also promotes itself as a base from which to conduct international business and is the favoured jumping-off spot for Canadian companies. They represent the “vast majority” of some five thousand foreign firms to register for the island’s favourable tax and treaty benefits, including zero capital-gains tax and a maximum corporate tax of 2.5 per cent. The real lure, however, is Barbados’s double-taxation treaties with countries including the United States and China, which, when combined with provisions in the Canadian tax code, exempt companies generating active income in those treaty countries from paying Canadian corporate tax. (This explains in part why Canadian investment in Barbados is so surprisingly high.)
In some countries, particularly those with heavy state involvement in the economy, it is also worthwhile retaining a political adviser to run interference on touchy matters involving government licences and unions. Westcoast Energy, for example, retained the former Mexican head of Monsanto, the U.S. agricultural-products company. He was key in helping Westcoast choose a union to build and operate its nitrogen-injection plant, says former executive Michael Stewart. “He was well respected in the business community and could transcend political lines,” Stewart explains. “That respect allowed access and provided standing. Someone with a political affiliation, on the other hand, may help you get in one day but not the next.”
You pay peanuts, you get monkeys
One of the most common complaints about Canadian companies is that they are cheap. They are simply not willing to pay the cost of entry, and invariably try to cut corners — only to find that they have to pay the price of admission twice over. Don’t, as one Saskatchewan company did, get a homemaker to translate your documentation, and don’t think you can save money by not hiring a professional translator in China. And you’re definitely not going to make a go of it “with two men and a dog, or just the dog,” says Simon Gwatkin, vice-president of strategic marketing for Mitel, an Ottawa telecommunications company. You not only have to keep cash in reserve in order to maintain a presence in the market and pay for professional services, but you must also be prepared to lose money for a significant amount of time. Whether you’re thinking of doing business in China or Ecuador, you should prepare for at least three to five years of negative cash flow. “People don’t understand how much money it takes, so they give up halfway through,” says Schulich’s Lorna Wright. “If you aren’t prepared for the negative cash flow, don’t go.”
Expand your Rolodex
For Mitel’s British-born Gwatkin, the most important tool for doing business abroad is his Rolodex. As the saying goes, it’s who you know. Canadians, however, don’t invest nearly enough in networking, preferring to remain in their comfort zone, limiting themselves to the small circle of contacts they already have. “If you look at Europeans and Americans, they have their own clients plus they develop new clients out in the market,” says Omer
Ozden, a lawyer with Hodgson Russ in Toronto. “The Canadian model generally has been to go out with one or two of their Canadian clients and, when those deals are finished, close up shop because they haven’t developed anything new.” It’s the main reason Canadians haven’t been as successful in China, adds Ken Kwan. Well-connected wheeler-dealers eschew the limelight, he says, and Canadians don’t even know who they are. There are plenty of ways to network, but one easy way to start is by responding to overseas inquiries instead of ignoring them. That doesn’t mean you have to jump into bed with every middleman that comes your way, but you never know when that contact might come in handy.
Don’t be a sucker
Canadians are trusting folk, and they and tend to assume the best about people — which makes them particularly easy to take advantage of. Stand your ground, be skeptical and, when someone is ripping you off, don’t assume it’s the cost of doing business. “We are very nice, well-meaning, good partners, and we tend to be a little too malleable and manageable,” says Ian Mallory, the Calgary-based venture capitalist. “You have to be able to blow the whistle.” James Klotz, a lawyer with Davis & Co. in Toronto, recalls how one of his clients discovered that his Chinese partner was double-invoicing and cheating the company by 15 per cent. The client was unperturbed, however, because he’d planned on 20 per cent. “That’s not smart,” says Klotz. “What if the Chinese partner had been stealing 40 per cent? It should have been zero per cent, and it could have been zero. That’s just unwise.”
Think in 3D
Once you’ve spent time and money coming up with a well-defined business plan, be prepared to change it. Your ability to adapt to change, improvise and think outside the box could very well mark the difference between success and failure. In dynamic markets like China and Brazil, conditions never remain static. They are constantly shifting: hyperinflation, currency devaluations and political instability can radically alter the business calculation from one day to the next, and what might be an attractive proposition to your business partners today may not appeal to them a year from now.
“It’s totally unpredictable, and you need a disposition and an ability to respond with a positive attitude,” explains Gary Comerford, Sun Life’s vice-president, international. “If you think this is the plan, my experience in developing markets tells me, ‘Not a chance,’ because things change daily. The deal you negotiate is not the deal you have. You have to realize it’s about relationships, it’s about seeing it through, it’s about continuity. Things elsewhere are much more fluid than in the Canadian environment, and it can be terribly hard.”
For Roger Heng, BMO’s managing director for China, the key is being able to wrest opportunity from the continual churn of events. The possibilities present themselves much like the patches of blue sky that emerge between clouds on a windy day. “When I’m looking at China I see a horizon of gaps. In time they change in magnitude — some get narrower, some get bigger and some are eliminated,” Heng says. “What you need to do is identify the gaps, appreciate them and profit from them.”
Hone your above-ground skills
The oil might be underground, but you have to make the real investment on the surface, says Nexen’s Charlie Fischer. Wherever it operates, Nexen invests in the community, buying books and desks for schoolchildren or providing access to potable water. When a flood contaminated oil wells and destroyed infrastructure, the company hired local Yemenis to rebuild rather than mobilizing expat oilmen to do the job. They not only got paid, they felt they were part of the process. As a result, unlike the experience of other foreign oil companies, Nexen’s Yemen facilities have never been sabotaged and its employees have never been kidnapped by Muslim radicals or tribespeople. “They don’t think we’re exploiting their country or taking their wealth. Rather, they think we’re creating jobs and helping with infrastructure,” explains Fischer, who feels as comfortable walking the dusty streets of Yemeni villages as he does strolling in downtown Calgary.
Arrogance is ignorance
Eduardo Klurfan describes it as “the Achilles heel of Canadians.” The fact that a country is poor doesn’t mean that its businesspeople and government officials are not sophisticated. As a general rule, the elite in developing countries are wealthier, better educated and much more worldly than the average Canadian businessperson. “You cannot overestimate your skills and come in with a patronizing attitude,” says Klurfan. “Brazilian businesspeople are very smart, very intelligent. They survived hyperinflation, manoeuvring in difficult economic situations that would drown most Canadians.”
Adds Charlie Fischer: “The people who horrify me are the ones who think we’re better, think people from developing countries are not educated and come from the backwoods. Actually, they are very global and very well educated. We need to give them the respect they are due. Face is a huge issue around the world. If you treat them fairly, people reciprocate. If you take advantage, you get your comeuppance.”
THE CULTURE OF DOING BUSINESS
In addition to these general tips for conducting business abroad, two issues that are particularly thorny for Canadians require special attention. They are the twin sisters of culture and corruption. Many people tend to underplay the importance of the culture of doing business. It can’t be quantified on a spreadsheet or calculated into a business plan; it’s elusive and difficult to grasp, with no measurable impact on your bottom line. Yet it’s the basic building block on which business is structured, influencing everything from management styles and contractual obligations to decision-making. But doing business globally, wherever it occurs, involves more similarities than differences, and most business around the world is predicated on a few fundamental tenets: trust, respect and mutual understanding. Would you do business with someone in Canada or the United States with whom you did not share these three principles? The difference is that other parts of the world, especially those where the rule of law is not as entrenched, have different modes and methods for ensuring that foundation exists.
While you may think you are being an honest, straightforward Canadian, to others your behaviour may be an encrypted code they cannot decipher. The key to cracking the code and making the connection is what Methanex’s Pierre Choquette refers to as “cultural fluency.” You may never be hermanos with your Mexican colleagues or more than a gweilo to the Chinese, but you need to be able to identify certain cultural signposts and respond accordingly. “If somebody from Sierra Leone or Pakistan came to Canada and tried to apply their business methods, you can imagine how successful they would be,” explains Omer Ozden. “So why would Canadians think their approach would be successful in China? You have to wipe the slate clean and learn how things are done.”
It goes beyond merely versing yourself in the strictures of protocol and etiquette. It comes down to an openness of mind and an ability to accept what is different and to work with it. If you can do that, you will amass immeasurable goodwill, not to mention a huge competitive advantage.
Learn a little r-e-s-p-e-c-t
Language is the starting point for all communication, so learning the language of the country where you are doing business is an immense advantage. “You never have the whole picture unless somebody in your company speaks the language. Otherwise you’re only hearing half the story,” says John Powles, managing partner with Pacific Bizlinks Trade Consultants in Vancouver. Learning the language also earns you a lot of goodwill. “They always appreciate it, they always remark on it,” says Chris Lindal of his Japanese customers. The fluent Japanese-speaker is able to go out to dinner with his clients without worrying about the disruption of a translator. “It allows for a higher level of sophistication and mutual understanding between us and our customer.”
But although linguistic fluency is important, language is only window dressing without a solid understanding of a country’s culture and history. The Chinese have a long memory, the saying goes, and every decision has a historical context. Learn as much about the local civilization as you
can. Become familiar with its underlying worldview, which may be based on concepts like face and hierarchy. It’s also always a good idea to brush up on local protocols, ranging from how to handle a business card in Japan to the intricacies of banquet seating arrangements in China. Never, for example, hold your glass higher than your hosts during a toast or start eating before your host, advises Ken Kwan, who, before every trip to China, reads The Art of War by military tactician Sun Tzu. Written around 500 bc and a favourite of Chairman Mao, the treatise explains how to get what you want without conflict and how to win should a dispute arise.
Of course, gaffes are inevitable, but ultimately what matters are your intentions. Respecting differences instead of judging them will pave the way to an understanding that goes beyond linguistic fluency. “It’s important to learn the protocols, but that’s just hygiene,” says Sun Life’s Gary Comerford. “Very quickly you will find yourself in a situation where you are over your head and you don’t understand the cultural nuances. Admitting it or being respectful lets you get away with a ton of stuff. When you try to dictate your values, that’s when you get in trouble.”
The Mexican lunch
Outside the English-speaking world, relationships are significantly more important and the lines between business and personal life are often blurred. In the absence of enforceable laws, personal relationships are a proxy for trust and the best guarantee against getting ripped off. Which is why, in many cultures, people want to get to know you and assess your value as a person before discussing business. Latin Americans, in particular, are keen to establish a personal rapport; Mexicans have turned it into an art form, with four-hour lunches and copious tequila shots. If they invite you back to their home, you know you are in business.
“They want to meet, have a meal and, if they like you, they will take you to their house. And all that time they are doing business, the Mexican way,” explains Loewen’s Roberto Amaya. “If they invite you and you say no because you want to relax in your hotel and call home, to them you are refusing to do a deal. You refused to get to know them, therefore you are not interested. In your mind it’s ‘Let’s meet at nine tomorrow morning,’ but the Mexicans want to date before they do anything else. They want to know how many kids you have, if you’re married, if you go to church. The cultural ideas Mexicans have are part of their business. It’s not a separate function and it includes their social life.”
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