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Opportunities for international market development
CHARLES A . H A M I L T O N
Opportunities for International Market Development 23
business overseas should be a A merican living example of the American experiment-all aspects of i t - i f opportunities in foreign markets are not to be forfeited. Our world business leadership as well as our domestic markets are at stake. In addition, the activities of Ameriean business are intertwined with our nation's foreign policy. For example, the businessman has the challenge of filling in-from the private sectorthe gap in foreign aid created by recent cuts. What can the businessman do to help ensure his own success? He must adopt a Mr. Hamilton is a consultant with Charles A. Hamilton Associates, a new firm in Washington, D.C.
SUMMER, 1965
market development program that integrates a wide range of relationships both at home and abroad. Those at home involve his own government and its international agencies. Few American businessmen realize the potential for exploiting marketing opportunities inherent in a wide range of relationships with federal agencies and international lending institutions dealing with economic development and international trade. Success also depends on how much homework was done on relations abroad with the government, the public, the local community, the employees, and educational institutions. Over the years, this groundwork could have a profound effect on export regulations, trade restrictions, public attitudes,
CrY.aLES A. HAMILTON
labor peace, and the pool of skilled workers and experienced management. Success comes with the skillful blending of the enterprise into the economic landscape of the host country as a profitable and thriving corporate citizen.
RANGE OF RELATIONSHIPS
24
At home, the relationships that influence business projects in a foreign country may involve Congress, the executive branch, lending institutions (many located in the nation's capital), foreign embassies in Washington, the large number of associations and committees that deal with overseas development and trade, and the United Nations. Abroad, the businessman may deal with the U.S. embassy in a particular country, the foreign government and its agencies, foreign and American businessmen, and the foreign lending interests or economic blocs. Another factor is the international labor movement. No one group dominates: all are part of the total picture. Few realize the number of contacts necessary on a single project. The sale of the Tarapur Nuclear Power Plant recently to India is a good example. The seller was the American manufacturer, the General Electric Company, and the purchaser was the Indian Atomic Energy Commission. In between were contacts and negotiations with the Indian Prime Minister, American architect engineers, Indian engineers, the Agency for International Development, the State Department, the U.S. Atomic Energy Commission, Congress, and the International Atomic Energy Agency in Vienna, an arm of the United Nations. All will play a major role in making the project a reality, not to mention local industry that produced portions of the plant, the native nuclear engineers who will operate it, and the American subcontractors furnishing equipment for export. It is obvious that, in addition, to being affected by pricing, performance, and serv-
ice, foreign projects are also influenced by the frm's reputation, the personal relationships of its people, and the factors of timing and politics. Continued attention to these relationships from a Washington base of operation will develop in time an intelligence network that will give a businessman early and useful knowledge-the most important edge possible in market development activities. In discussions on overseas development, one soon learns the various shortcomings in government and industry. For example, industry often lacks aggressiveness and fails to develop government contacts and utilize them effectively. More attention is given to the short-range job of financing specific projects than the long-range effort on market development. One corporate planner actually stated, "I'm not interested in five years from now. I'm interested in a buck today." Improper planning in the business world of today could mean no business tomorrow, a situation also of interest to share owners. On the part of the government, there is a lack of information on the breadth and scope of industry's overseas activities, and a feeling that much of business is either unenlightened or naive. The new field that has emerged is not totally financial, legal, marketing, or public relations oriented. In its broad scope, the job to be done is one of international business development. What can our policy makers do to improve the situation at home and assist the private sector? What steps must they take to strengthen the efforts of American businessmen abroad and to improve or maintain a climate for future business operations?
RELATIONSHIPS AT HOME
THE GOVERNMENT In a thoroughly integrated program for international market development, the U.S.
BUSINESS HORIZONS
INTERNATIONAL MARKET DEVELOPMENT
government should be recognized as a major factor. Many agencies in the executive branch have interests abroad. Through foreign aid operations, government over the last five years has developed a real awareness of the problems involving private industry and the realization that private enterprise plays a key role in the economic development of emerging nations. Certain U.S. companies have been outstandingly progressive in working at this key role. Examples in Latin America are W. R. Grace and Company, Pan American Airways, Standard Oil of New Jersey, Sears, Roebuck & Co., and Kaiser Industries. Competitive European leaders south of the border are Fiat, Daimler-Benz, Phillips, AEC, Siemens, Telefunken, Lever, Nestle, and Royal Dutch Shell. Recently an electrical equipment manufacturer announced a program to establish an electrical industry in the Central American Common Market; technical assistance would come through Latin American engineers trained in the firm's Mexican plants. This is an ambitious but important step in the right direction. Firms tend to think in terms of specific contracts and specific projects instead of considering a total market area or even a whole geographic region in formulating a plan. As a result, little is known of future planning in a foreign country and the possible business potential until it is too late. At home businessmen know it is often difficult to upset market patterns onee they have been established. Few industries have development plans or a eentral service organization designed to fill this need, and even some of the most suecessful ones do not have a formal, integrated program organized to meet and eapitalize on long-term market development or shortterm opportunities. In December, 1962, President Kennedy established a Committee to Strengthen the Seeurity of the Free World, with General Lucius D. Clay as chairman. In reporting on its examination of our foreign aid program, the committee commented,
S U M M E R , 1965
"It is the private sector, operating with the cooperation of a vital and democratic labor movement and enlightened management on the basis of government services and sensible policies, which will make the greatest contribution to rapid economic growth and overall development." The Administration had already cut its requested foreign aid budget in line with recommendations of the Clay report. Congress cut it further. The Agency for International Development, more than ever, is willing to admit that the gap in effective foreign aid m u s t be met by private enterprise. Many members of the Am staff are working to encourage industry to take a more aggressive role in market development and in foreign investment. As the government's chief agency for foreign assistance and development programs, Am is willing to learn more of the businessman's problems and modify procedures if necessary. The federal government's change in philosophy is to the good, but will take time before its full impact is felt, and, to be entirely effective, a working partnership between government and industry is necessary. In addition, there is a "new look" in the Department of Commerce. The role of the State Department in commercial policy has been diminished, and the foreign commercial service has been upgraded through a concordance between the Departments of State and Commerce. To assist the businessman in his efforts overseas, the Department of Commerce has a variety of programs designed to stimulate export trade. The Trade Mission is probably the best known. Selected representatives from industry present specific business proposals to businessmen of a selected foreign country on a mission trip established and planned through coordination between the Department of Commerce and the Department of State or set up at the request of the businessmen themselves. The Department of Commerce also does a workman-like job of collecting and re-
25
CHARLES A. HA~nLTON
porting data through a wide range of publications dealing with export trade. It often is the sole source of such information, and the United Nations uses the data to supplement its reports. It arranges special briefings or industry meetings to assist the business eommunity; industry-by-industry meetings, for example, have sought businesses' views on what they want from the conferences on General Agreements on Tariffs and Trade (GATT). Trade fairs show a wide range of American goods at centers currently located in Bangkok, Frankfurt, London, Tokyo, and Milan. Trade opportunities are listed in magazines, and many of these have paid off.
INTERNATIONAL AGENCIES
26
Liaison with the Agency for International Development will be a key to successful overseas development work in the years to come in terms of prospective business and support to business. Therefore, it is important that businessmen know the potential customers of AID through continuous contaet with the staff offlees and various desks representing geographic regions. These eustomers as organizations, companies, or individuals who come to AID for grants and loans. They may or may not have a history of long or close relationships with the government, but they may offer the greatest potential for assistance programs. It is important that the businessman learn of these projects and opportunities early. He must communieate such information to the sales organization of his firm, perhaps before specifications are written and the basie planning is initiated. Ideally, Americans should be in on the "ground floor" and able to assist in planning, which would not only further the proper development, but enhance opportunities of bidding on specifications favorable to our industry. For example, a country in Central America is ripe for eeonomie development, and is studying ways in which it ean improve and expand its electrical grid system to serve a growing industrial load demand. The
country is small, but what better opportunity is there for a firm to sell plants, cable, controls, transformers, switchgear, and meters than to help on system planning? Technical assistance today could mean a market tomorrow, not only for heavy electrical goods but for the consumer items that a modern society will demand. As the American businessman learns more about relevant trends and developments in a foreign country, his value to the business community and his country increases. Commenting on the role of the businessman, the late Edward R. Murrow said, "His conversations, without parroting the government line, ean be a very helpful influenee on his foreign friends, frequently people of considerable import and influence. Frequently, too, these assoeiations are quite different from those of the oNeial American diplomatic community." In furthering relationships with agencies of the federal government, the businessman must be willing to assist in the planning and implementation of programs. This will inelude sharing overseas intelligence and assisting wherever possible in the coordination of all aspects of a project. Knowledge of activities in the foreign country is of value to government offleials who plan developments, assess trends, and assemble the quantitative knowledge necessary to decide policy questions. The businessman who pursues the international market should establish liaison with the international lending institutions, many of which are located in Washington. Here again, it is important to know the customers and their relations with lending agencies, and, where possible, learn of projects and opportunities in their early stages. A variety of these lending institutions assist overseas business, for example, the Export-Import Bank, the International Monetary Fund, the World Bank, and the Inter-American Development Bank. Business leaders should be acquainted with the President's special advisors and with Congress to make sure their views are made known on a continuing basis. Finally, relations in Washington with the
BUSINESS HORIZONS
INTERNATIONAL MARKET DEVELOPMENT
foreign embassies and their diplomatic staffs, while not of immediate necessity, are of increasing importance, particularly after several visits have been made to a particular country. Liaison with the embassies in Washington takes on a new dimension as contacts abroad are made and established.
RELATIONS ABROAD
Industry should plan thoroughly for promotion of the business and for capital growth in specific areas where a capital investment has been or may be made. It should recognize that a social improvement effort properly conceived will further relations, promote economic stability in the host country and, in addition, extend and preserve overseas markets. Technical and professional assistance programs to foreign firms and nations further a firm's program. For example, industrysponsored symposiums for power system planning in conjunction with a country or region can further orderly planning to meet growing electrical demand. Such planning, on an industry-to-industry or industry-togovernment basis, demonstrates the type of knowledge and experience available in this country to solve a nation's needs. In addition, it helps our businessmen learn what the problems are and how they might be solved. It helps them discover what the customer really needs-which may be different from what he thinks he should have! Participation in technical seminars on subjects such as power, water purification, sanitation, irrigation, housing, and transportation will be of immediate value and can define possible business opportunities for the future. Where possible, participation should be in the language of the country. Training programs in schools for employees and customer employees can increase the quality of maintenance of American equipment. This means improved ability to install and maintain our products and, at the same time, preserve a reputation of service, reliability, and added value. For many years General Electric in Brazil
SUMMER,
1965
has made it a practice to bring nationals into the company's subsidiary and promote them. Some have been sent back to the States to attend schools run by the domestic parent company. The president of the subsidiary until 1958 was a Brazilian who had come up through the ranks, and a high percentage of the business is under local direction. In addition, the growth of General Electric in Brazil since the late 1890's has contributed to the development of local supplier industries and credit institutions. All of this has enhanced its local relations and the national quality of the firm. Educational assistance in the form of student tours, technical courses led by American trained men in the language of the country, or grants of equipment for training purposes helps ensure familiarity with American equipment and products. Students learning on American equipment are more apt to specify it later because of their familiarity with it. Another form of educational assistance was mentioned by AID Administrator David Bell at the World Marketing and Development Conference in Chicago over a year ago. Bell encouraged the support and encouragement by business abroad of business schools and courses to promote and further local management techniques to handle economic development. The spirit of the idea has been summed up by a Venezuelan businessman. Dr. Gustavo J. Vollmer, at the Thirteenth Annual Conference on the Caribbean. He described the role of the private investor as part capitalist, part social worker, part crusader, and part educator: "The investor must never forget that his basic function in making capital grow is inseparably tied to the social improvement of the nation. He must always be aware of his obligation to raise the living standards of his workers, to employ his capital for the maximum good of the greatest nmnber of his fellow citizens, to think in terms of more equal distribution of wealth. To accomplish these objectives the Venezuelan investor must do everything in his power to increase the capital available for development, foster the extension of education and take a leading part in awakening the people to the obligations of the individual in a democracy."
27
CHARLES A, HAMILTON
28
American industry should encourage market development by other firms-American and foreign-offering assistance to potential newcomers abroad. Imaginative leadership will help the host country to promote itself in other parts of the globe as a good place to establish a business. Industry could sponsor trips by American investors to U.S. plants abroad or informal education regarding local customs. It could find ways to speed up the break-in period for successfully establishing firms in the foreign country, for, if the program is sound, other firms will be encouraged to follow. New businesses and new jobs will result, and competition, on a long-range basis, will stimulate the economy and ultimately mean more business for all. The Action Committee for International Development (ACID) was established by a group of American businessmen to marshall the resources of private investments from the U.S. economy to assist in the development of emerging nations. Recently, ACID set up a survey trip for American and Venezuelan businessmen seriously interested in establishing operations in Venezuela. A similar survey trip to the Philippine Islands, India, and Pakistan was most successful. At home, businessmen have been concerned with creating a better business climate; some have become active in domestic politics. This experience could be put to work overseas on joint programs with local businessmen that will improve their business climate, not only for the foreign businessmen, but for themselves as well. This would require careful study of the country and its political system, so that in establishing a firm abroad they became more hostcountry oriented and less Americanized in their thinking. Ideas on assistance with interesting potential include programs where a firm invests its profits locally in industry or considers the prospects for public ownership of subsidiary operations by foreign investors. In an attempt to contribute long-term strength to countries in which large investments are at stake, two affiliates of Standard Oil Company of New Jersey have established investment companies, the Creole
Investment Company in Venezuela with an initial capital of $10 million and Inversiones Esso de Colombia, S.A., with an initial capital of $5 million. These companies offer to provide not more than 49 per cent of the equity finances required by promising new or expanding private ventures. No effort is made by these companies to run the show, but projects are studied carefully and company representatives are placed on the boards of the companies to assist them and to establish good management principles. The results so far have been encouraging from the standpoint of both profits and successful management. While affiliates of Standard Oil of New Jersey invest in diverse business operations, a manufacturer by investing in subcontracting firms could also accomplish several objectives at once. This method would offer increased capital, added know-how if requested, and better products and methods by subcontractors, and would spur the economy. Sears, Roebuck and Co. ventures into Brazil, Colombia, Costa Rica, E1 Salvador, Mexico, Panama, Peru, and Venezuela have been equally successful. The most important single factor in Sears' growth south of the border is its policy of buying everything it can on the national market. That market doesn't grow overnight, but Sears believesand proves by its own experience-that that foreign investment can help the rate of speed with which it grows. An example of public ownership is Kaiser Industries, which has sold stock in its Brazilian operation. Brazilians have enthusiastically endorsed the idea that Willis Overland in Brazil is a Brazilian firm and that its products are Brazilian automobiles, although they may look distinctly like American jeeps. International market intelligence and communications can be of value to company and country. The International Division of Charles Pfizer is organized so that the domestic parent has up-to-date firsthand knowledge from all parts of the world through an efficient, well-organized communications network. Secretary of State Dean Rusk rec-
BUSINESS HORIZONS
INTERNATIONAL MARICET DEVELOPMENT
ognized the importance of such information and cooperation between business and the U.S. government when he wrote in a letter to American ambassadors several years ago: "It is apparent to me, as I know it is to you, that there is a direct correlation between the level of our exports and our ability to accomplish many of our foreign poliey objectives. . . . I am eonfident that such eooperation can not help but work to our mutual benefit." From a strict business viewpoint such eooperation can provide accurate, firsthand knowledge to sales organizations and operating components. Duplication and time lags could be eliminated or cut down, and the smaller firm could have a greater depth of knowledge promptly from various parts of the world.
PLANNING FOR DEVELOPMENT
The breadth scope of an international market development operation is tremendous. A large organization is not necessary, but the firm must test the best areas for international development, carefully lay its longterm plans, move ahead on a schedule, and evaluate its progress and results as it goes. Crucial to the operation is the executive whose horizons are also international in scope, who thinks of the world as his market and is unencumbered with preconceptions that limit his vision. Starting the program as an economic study and expanding it on the basis of business potential, not only minimizes expense, but provides for appropriate reviews to enable further study of the type of permanent organization considered best, and how it should be structured. After surveying those nations with potential for investment, a field survey to ascertain the opportunities for market development and possible private investment will indicate the likelihood of funding assistance for the country on the part of an international or U.S. lending agency. Such a plan has produced tangible results for several American firms abroad. Raytheon is an example. A survey over several months
SUMMER, 1965
with a small team indicated further areas of business development in Iran. Raytheon's experience proved that one or two initial objectives usually will yield several more that spell the beginning of potential business. In addition to studying the market for potential exports, the company may wish to consider licensing arrangements with a possible eye to future joint operations. A firm might consider its own foreign operation or the purchase of an existing firm with potential suitable for injection of American knowhow and techniques. In deciding on whether to build a plant overseas, Union Carbide has had an interesting philosophy. Kenneth Rush, Executive Vice-President, says: "Our idea is to build a plant whenever it can be justified, regardless of what it means to exports. If the country is ready for a plant and we don't build one, someone else will and the export market will disappear anyway. If, on the other hand, we can get in early and become established, we will have a local sales force that can help us establish an export market for new products as they are introduced in the U.S." On a smaller scale, firms with imagination and innovation ability could investigate means by which an industry-financed, international corporation might be formed to underwrite the sale of American goods abroad-particularly where the ExportImport Bank might be ultraconservative. Such a group could enter into joint projects with the bank and add another incentive to developing projects overseas. Common pools of funds established by business to meet deposit requirements in Latin American Free Trade Area (LAFTA) countries might be another approach. Or a whole industry might investigate further the provisions of the Webb-Pomrene Act and how they might apply as a means of mutually sharing costs and risks. Here the planning becomes quite detailed. Other factors involved include political climate, foreign policy, native customs, transportation, communications, and housing and financing, as well as staffing and training foreign nationals to make up the bulk of an operation's work force.
29
CHARLES A. HAMILTON
Once under way, natural adjustments are to be expected. Communication and coordination problems with the parent organization m a y arise; defined authority and responsibility could be a critical factor. Much will d e p e n d on whether the foreign subsidiary is merely an a p p e n d a g e to a domestic firm or an integral part of a world enterprise.
Success will not come as a matter of course simply by following the ideas presented. E a c h firm will have to develop its own program to fit its own needs. T e a m w o r k b e t w e e n government and industry will be important if America is going to play in a winning world-wide game. T h e federal government can and should make the road easier.
30
1 The Agency for International Development (Am) must continue to foster liaison with business and seek to simplify the contacts with private enterprise on loans, grants, guarantees, and other procedures. 2 The government must continue to strengthen the corps of commercial attaches so they are more business oriented and able to cope effectively with coordinating market development and intelligence efforts. 3 The Department of Commerce can improve its information and market intelligence functions. It should package its intelligence in a more attractive and meaningful fashion that will stir interest and bring results. 4 Commerce should also assume a greater promotional role than it has in the past, pointing out potential to businessmen and advising them on actions necessary to make the American entrepreneur more effective in the market place. 5 Closer cooperation between government and business otl development and tariffs will help Americans present a united, aggressive, and highly competitive front. Business, for its part, should ask itself if it is p r e p a r e d to work with the federal government.
1 Business must be prepared to grasp and exercise leadership in its contacts with government and its broad scope of activities abroad. 2 Representative trade associations should be more alert to international problems and should adequately inform their membership on developments and actions necessary to get positive results. 8 Promotion of successes abroad will foster more enthusiasm for foreign development. Experience has shown that those who are truly interested in overseas markets and want to succeed abroad have a better chance of succeeding and usually do. 4 Business should be willing to work with more emphasis on the long range and a belief in the future of the host countries involved. Short-term activity based on one project or sale tends to make us vulnerable as exploiters or disinterested "outsiders." Sound motives and top performance will build an unbeatable image. 5 The government's key role in overseas development must be recognized; patient work with federal agencies will improve the "team effort." Ideas of business should be made known fully and with candor. The businessman should not merely chafe under conditions of too much control, but act so that positive industrial effort convinces the civil servant, the public, and their representatives in the government that the nation has more to gain by supporting the private sector than it does by government-to-government action under government control. Successful business abroad can accomplish m u c h for America. Aggressive trade expansion can increase exports to offset the balance of payments problem, broaden our economy, and make friends around the world. It can provide first-hand examples of that great American experiment, the corporation. It can contribute to the stabilization of world affairs through development of foreign economies and a productive, vigorous, and articulate business middle class. Finally, having done all these things, business success a b r o a d can turn in a reasonable return on investment to share owners.
BUSINESS HORIZONS
Opportunities for International Market Development 23
business overseas should be a A merican living example of the American experiment-all aspects of i t - i f opportunities in foreign markets are not to be forfeited. Our world business leadership as well as our domestic markets are at stake. In addition, the activities of Ameriean business are intertwined with our nation's foreign policy. For example, the businessman has the challenge of filling in-from the private sectorthe gap in foreign aid created by recent cuts. What can the businessman do to help ensure his own success? He must adopt a Mr. Hamilton is a consultant with Charles A. Hamilton Associates, a new firm in Washington, D.C.
SUMMER, 1965
market development program that integrates a wide range of relationships both at home and abroad. Those at home involve his own government and its international agencies. Few American businessmen realize the potential for exploiting marketing opportunities inherent in a wide range of relationships with federal agencies and international lending institutions dealing with economic development and international trade. Success also depends on how much homework was done on relations abroad with the government, the public, the local community, the employees, and educational institutions. Over the years, this groundwork could have a profound effect on export regulations, trade restrictions, public attitudes,
CrY.aLES A. HAMILTON
labor peace, and the pool of skilled workers and experienced management. Success comes with the skillful blending of the enterprise into the economic landscape of the host country as a profitable and thriving corporate citizen.
RANGE OF RELATIONSHIPS
24
At home, the relationships that influence business projects in a foreign country may involve Congress, the executive branch, lending institutions (many located in the nation's capital), foreign embassies in Washington, the large number of associations and committees that deal with overseas development and trade, and the United Nations. Abroad, the businessman may deal with the U.S. embassy in a particular country, the foreign government and its agencies, foreign and American businessmen, and the foreign lending interests or economic blocs. Another factor is the international labor movement. No one group dominates: all are part of the total picture. Few realize the number of contacts necessary on a single project. The sale of the Tarapur Nuclear Power Plant recently to India is a good example. The seller was the American manufacturer, the General Electric Company, and the purchaser was the Indian Atomic Energy Commission. In between were contacts and negotiations with the Indian Prime Minister, American architect engineers, Indian engineers, the Agency for International Development, the State Department, the U.S. Atomic Energy Commission, Congress, and the International Atomic Energy Agency in Vienna, an arm of the United Nations. All will play a major role in making the project a reality, not to mention local industry that produced portions of the plant, the native nuclear engineers who will operate it, and the American subcontractors furnishing equipment for export. It is obvious that, in addition, to being affected by pricing, performance, and serv-
ice, foreign projects are also influenced by the frm's reputation, the personal relationships of its people, and the factors of timing and politics. Continued attention to these relationships from a Washington base of operation will develop in time an intelligence network that will give a businessman early and useful knowledge-the most important edge possible in market development activities. In discussions on overseas development, one soon learns the various shortcomings in government and industry. For example, industry often lacks aggressiveness and fails to develop government contacts and utilize them effectively. More attention is given to the short-range job of financing specific projects than the long-range effort on market development. One corporate planner actually stated, "I'm not interested in five years from now. I'm interested in a buck today." Improper planning in the business world of today could mean no business tomorrow, a situation also of interest to share owners. On the part of the government, there is a lack of information on the breadth and scope of industry's overseas activities, and a feeling that much of business is either unenlightened or naive. The new field that has emerged is not totally financial, legal, marketing, or public relations oriented. In its broad scope, the job to be done is one of international business development. What can our policy makers do to improve the situation at home and assist the private sector? What steps must they take to strengthen the efforts of American businessmen abroad and to improve or maintain a climate for future business operations?
RELATIONSHIPS AT HOME
THE GOVERNMENT In a thoroughly integrated program for international market development, the U.S.
BUSINESS HORIZONS
INTERNATIONAL MARKET DEVELOPMENT
government should be recognized as a major factor. Many agencies in the executive branch have interests abroad. Through foreign aid operations, government over the last five years has developed a real awareness of the problems involving private industry and the realization that private enterprise plays a key role in the economic development of emerging nations. Certain U.S. companies have been outstandingly progressive in working at this key role. Examples in Latin America are W. R. Grace and Company, Pan American Airways, Standard Oil of New Jersey, Sears, Roebuck & Co., and Kaiser Industries. Competitive European leaders south of the border are Fiat, Daimler-Benz, Phillips, AEC, Siemens, Telefunken, Lever, Nestle, and Royal Dutch Shell. Recently an electrical equipment manufacturer announced a program to establish an electrical industry in the Central American Common Market; technical assistance would come through Latin American engineers trained in the firm's Mexican plants. This is an ambitious but important step in the right direction. Firms tend to think in terms of specific contracts and specific projects instead of considering a total market area or even a whole geographic region in formulating a plan. As a result, little is known of future planning in a foreign country and the possible business potential until it is too late. At home businessmen know it is often difficult to upset market patterns onee they have been established. Few industries have development plans or a eentral service organization designed to fill this need, and even some of the most suecessful ones do not have a formal, integrated program organized to meet and eapitalize on long-term market development or shortterm opportunities. In December, 1962, President Kennedy established a Committee to Strengthen the Seeurity of the Free World, with General Lucius D. Clay as chairman. In reporting on its examination of our foreign aid program, the committee commented,
S U M M E R , 1965
"It is the private sector, operating with the cooperation of a vital and democratic labor movement and enlightened management on the basis of government services and sensible policies, which will make the greatest contribution to rapid economic growth and overall development." The Administration had already cut its requested foreign aid budget in line with recommendations of the Clay report. Congress cut it further. The Agency for International Development, more than ever, is willing to admit that the gap in effective foreign aid m u s t be met by private enterprise. Many members of the Am staff are working to encourage industry to take a more aggressive role in market development and in foreign investment. As the government's chief agency for foreign assistance and development programs, Am is willing to learn more of the businessman's problems and modify procedures if necessary. The federal government's change in philosophy is to the good, but will take time before its full impact is felt, and, to be entirely effective, a working partnership between government and industry is necessary. In addition, there is a "new look" in the Department of Commerce. The role of the State Department in commercial policy has been diminished, and the foreign commercial service has been upgraded through a concordance between the Departments of State and Commerce. To assist the businessman in his efforts overseas, the Department of Commerce has a variety of programs designed to stimulate export trade. The Trade Mission is probably the best known. Selected representatives from industry present specific business proposals to businessmen of a selected foreign country on a mission trip established and planned through coordination between the Department of Commerce and the Department of State or set up at the request of the businessmen themselves. The Department of Commerce also does a workman-like job of collecting and re-
25
CHARLES A. HA~nLTON
porting data through a wide range of publications dealing with export trade. It often is the sole source of such information, and the United Nations uses the data to supplement its reports. It arranges special briefings or industry meetings to assist the business eommunity; industry-by-industry meetings, for example, have sought businesses' views on what they want from the conferences on General Agreements on Tariffs and Trade (GATT). Trade fairs show a wide range of American goods at centers currently located in Bangkok, Frankfurt, London, Tokyo, and Milan. Trade opportunities are listed in magazines, and many of these have paid off.
INTERNATIONAL AGENCIES
26
Liaison with the Agency for International Development will be a key to successful overseas development work in the years to come in terms of prospective business and support to business. Therefore, it is important that businessmen know the potential customers of AID through continuous contaet with the staff offlees and various desks representing geographic regions. These eustomers as organizations, companies, or individuals who come to AID for grants and loans. They may or may not have a history of long or close relationships with the government, but they may offer the greatest potential for assistance programs. It is important that the businessman learn of these projects and opportunities early. He must communieate such information to the sales organization of his firm, perhaps before specifications are written and the basie planning is initiated. Ideally, Americans should be in on the "ground floor" and able to assist in planning, which would not only further the proper development, but enhance opportunities of bidding on specifications favorable to our industry. For example, a country in Central America is ripe for eeonomie development, and is studying ways in which it ean improve and expand its electrical grid system to serve a growing industrial load demand. The
country is small, but what better opportunity is there for a firm to sell plants, cable, controls, transformers, switchgear, and meters than to help on system planning? Technical assistance today could mean a market tomorrow, not only for heavy electrical goods but for the consumer items that a modern society will demand. As the American businessman learns more about relevant trends and developments in a foreign country, his value to the business community and his country increases. Commenting on the role of the businessman, the late Edward R. Murrow said, "His conversations, without parroting the government line, ean be a very helpful influenee on his foreign friends, frequently people of considerable import and influence. Frequently, too, these assoeiations are quite different from those of the oNeial American diplomatic community." In furthering relationships with agencies of the federal government, the businessman must be willing to assist in the planning and implementation of programs. This will inelude sharing overseas intelligence and assisting wherever possible in the coordination of all aspects of a project. Knowledge of activities in the foreign country is of value to government offleials who plan developments, assess trends, and assemble the quantitative knowledge necessary to decide policy questions. The businessman who pursues the international market should establish liaison with the international lending institutions, many of which are located in Washington. Here again, it is important to know the customers and their relations with lending agencies, and, where possible, learn of projects and opportunities in their early stages. A variety of these lending institutions assist overseas business, for example, the Export-Import Bank, the International Monetary Fund, the World Bank, and the Inter-American Development Bank. Business leaders should be acquainted with the President's special advisors and with Congress to make sure their views are made known on a continuing basis. Finally, relations in Washington with the
BUSINESS HORIZONS
INTERNATIONAL MARKET DEVELOPMENT
foreign embassies and their diplomatic staffs, while not of immediate necessity, are of increasing importance, particularly after several visits have been made to a particular country. Liaison with the embassies in Washington takes on a new dimension as contacts abroad are made and established.
RELATIONS ABROAD
Industry should plan thoroughly for promotion of the business and for capital growth in specific areas where a capital investment has been or may be made. It should recognize that a social improvement effort properly conceived will further relations, promote economic stability in the host country and, in addition, extend and preserve overseas markets. Technical and professional assistance programs to foreign firms and nations further a firm's program. For example, industrysponsored symposiums for power system planning in conjunction with a country or region can further orderly planning to meet growing electrical demand. Such planning, on an industry-to-industry or industry-togovernment basis, demonstrates the type of knowledge and experience available in this country to solve a nation's needs. In addition, it helps our businessmen learn what the problems are and how they might be solved. It helps them discover what the customer really needs-which may be different from what he thinks he should have! Participation in technical seminars on subjects such as power, water purification, sanitation, irrigation, housing, and transportation will be of immediate value and can define possible business opportunities for the future. Where possible, participation should be in the language of the country. Training programs in schools for employees and customer employees can increase the quality of maintenance of American equipment. This means improved ability to install and maintain our products and, at the same time, preserve a reputation of service, reliability, and added value. For many years General Electric in Brazil
SUMMER,
1965
has made it a practice to bring nationals into the company's subsidiary and promote them. Some have been sent back to the States to attend schools run by the domestic parent company. The president of the subsidiary until 1958 was a Brazilian who had come up through the ranks, and a high percentage of the business is under local direction. In addition, the growth of General Electric in Brazil since the late 1890's has contributed to the development of local supplier industries and credit institutions. All of this has enhanced its local relations and the national quality of the firm. Educational assistance in the form of student tours, technical courses led by American trained men in the language of the country, or grants of equipment for training purposes helps ensure familiarity with American equipment and products. Students learning on American equipment are more apt to specify it later because of their familiarity with it. Another form of educational assistance was mentioned by AID Administrator David Bell at the World Marketing and Development Conference in Chicago over a year ago. Bell encouraged the support and encouragement by business abroad of business schools and courses to promote and further local management techniques to handle economic development. The spirit of the idea has been summed up by a Venezuelan businessman. Dr. Gustavo J. Vollmer, at the Thirteenth Annual Conference on the Caribbean. He described the role of the private investor as part capitalist, part social worker, part crusader, and part educator: "The investor must never forget that his basic function in making capital grow is inseparably tied to the social improvement of the nation. He must always be aware of his obligation to raise the living standards of his workers, to employ his capital for the maximum good of the greatest nmnber of his fellow citizens, to think in terms of more equal distribution of wealth. To accomplish these objectives the Venezuelan investor must do everything in his power to increase the capital available for development, foster the extension of education and take a leading part in awakening the people to the obligations of the individual in a democracy."
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CHARLES A, HAMILTON
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American industry should encourage market development by other firms-American and foreign-offering assistance to potential newcomers abroad. Imaginative leadership will help the host country to promote itself in other parts of the globe as a good place to establish a business. Industry could sponsor trips by American investors to U.S. plants abroad or informal education regarding local customs. It could find ways to speed up the break-in period for successfully establishing firms in the foreign country, for, if the program is sound, other firms will be encouraged to follow. New businesses and new jobs will result, and competition, on a long-range basis, will stimulate the economy and ultimately mean more business for all. The Action Committee for International Development (ACID) was established by a group of American businessmen to marshall the resources of private investments from the U.S. economy to assist in the development of emerging nations. Recently, ACID set up a survey trip for American and Venezuelan businessmen seriously interested in establishing operations in Venezuela. A similar survey trip to the Philippine Islands, India, and Pakistan was most successful. At home, businessmen have been concerned with creating a better business climate; some have become active in domestic politics. This experience could be put to work overseas on joint programs with local businessmen that will improve their business climate, not only for the foreign businessmen, but for themselves as well. This would require careful study of the country and its political system, so that in establishing a firm abroad they became more hostcountry oriented and less Americanized in their thinking. Ideas on assistance with interesting potential include programs where a firm invests its profits locally in industry or considers the prospects for public ownership of subsidiary operations by foreign investors. In an attempt to contribute long-term strength to countries in which large investments are at stake, two affiliates of Standard Oil Company of New Jersey have established investment companies, the Creole
Investment Company in Venezuela with an initial capital of $10 million and Inversiones Esso de Colombia, S.A., with an initial capital of $5 million. These companies offer to provide not more than 49 per cent of the equity finances required by promising new or expanding private ventures. No effort is made by these companies to run the show, but projects are studied carefully and company representatives are placed on the boards of the companies to assist them and to establish good management principles. The results so far have been encouraging from the standpoint of both profits and successful management. While affiliates of Standard Oil of New Jersey invest in diverse business operations, a manufacturer by investing in subcontracting firms could also accomplish several objectives at once. This method would offer increased capital, added know-how if requested, and better products and methods by subcontractors, and would spur the economy. Sears, Roebuck and Co. ventures into Brazil, Colombia, Costa Rica, E1 Salvador, Mexico, Panama, Peru, and Venezuela have been equally successful. The most important single factor in Sears' growth south of the border is its policy of buying everything it can on the national market. That market doesn't grow overnight, but Sears believesand proves by its own experience-that that foreign investment can help the rate of speed with which it grows. An example of public ownership is Kaiser Industries, which has sold stock in its Brazilian operation. Brazilians have enthusiastically endorsed the idea that Willis Overland in Brazil is a Brazilian firm and that its products are Brazilian automobiles, although they may look distinctly like American jeeps. International market intelligence and communications can be of value to company and country. The International Division of Charles Pfizer is organized so that the domestic parent has up-to-date firsthand knowledge from all parts of the world through an efficient, well-organized communications network. Secretary of State Dean Rusk rec-
BUSINESS HORIZONS
INTERNATIONAL MARICET DEVELOPMENT
ognized the importance of such information and cooperation between business and the U.S. government when he wrote in a letter to American ambassadors several years ago: "It is apparent to me, as I know it is to you, that there is a direct correlation between the level of our exports and our ability to accomplish many of our foreign poliey objectives. . . . I am eonfident that such eooperation can not help but work to our mutual benefit." From a strict business viewpoint such eooperation can provide accurate, firsthand knowledge to sales organizations and operating components. Duplication and time lags could be eliminated or cut down, and the smaller firm could have a greater depth of knowledge promptly from various parts of the world.
PLANNING FOR DEVELOPMENT
The breadth scope of an international market development operation is tremendous. A large organization is not necessary, but the firm must test the best areas for international development, carefully lay its longterm plans, move ahead on a schedule, and evaluate its progress and results as it goes. Crucial to the operation is the executive whose horizons are also international in scope, who thinks of the world as his market and is unencumbered with preconceptions that limit his vision. Starting the program as an economic study and expanding it on the basis of business potential, not only minimizes expense, but provides for appropriate reviews to enable further study of the type of permanent organization considered best, and how it should be structured. After surveying those nations with potential for investment, a field survey to ascertain the opportunities for market development and possible private investment will indicate the likelihood of funding assistance for the country on the part of an international or U.S. lending agency. Such a plan has produced tangible results for several American firms abroad. Raytheon is an example. A survey over several months
SUMMER, 1965
with a small team indicated further areas of business development in Iran. Raytheon's experience proved that one or two initial objectives usually will yield several more that spell the beginning of potential business. In addition to studying the market for potential exports, the company may wish to consider licensing arrangements with a possible eye to future joint operations. A firm might consider its own foreign operation or the purchase of an existing firm with potential suitable for injection of American knowhow and techniques. In deciding on whether to build a plant overseas, Union Carbide has had an interesting philosophy. Kenneth Rush, Executive Vice-President, says: "Our idea is to build a plant whenever it can be justified, regardless of what it means to exports. If the country is ready for a plant and we don't build one, someone else will and the export market will disappear anyway. If, on the other hand, we can get in early and become established, we will have a local sales force that can help us establish an export market for new products as they are introduced in the U.S." On a smaller scale, firms with imagination and innovation ability could investigate means by which an industry-financed, international corporation might be formed to underwrite the sale of American goods abroad-particularly where the ExportImport Bank might be ultraconservative. Such a group could enter into joint projects with the bank and add another incentive to developing projects overseas. Common pools of funds established by business to meet deposit requirements in Latin American Free Trade Area (LAFTA) countries might be another approach. Or a whole industry might investigate further the provisions of the Webb-Pomrene Act and how they might apply as a means of mutually sharing costs and risks. Here the planning becomes quite detailed. Other factors involved include political climate, foreign policy, native customs, transportation, communications, and housing and financing, as well as staffing and training foreign nationals to make up the bulk of an operation's work force.
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CHARLES A. HAMILTON
Once under way, natural adjustments are to be expected. Communication and coordination problems with the parent organization m a y arise; defined authority and responsibility could be a critical factor. Much will d e p e n d on whether the foreign subsidiary is merely an a p p e n d a g e to a domestic firm or an integral part of a world enterprise.
Success will not come as a matter of course simply by following the ideas presented. E a c h firm will have to develop its own program to fit its own needs. T e a m w o r k b e t w e e n government and industry will be important if America is going to play in a winning world-wide game. T h e federal government can and should make the road easier.
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1 The Agency for International Development (Am) must continue to foster liaison with business and seek to simplify the contacts with private enterprise on loans, grants, guarantees, and other procedures. 2 The government must continue to strengthen the corps of commercial attaches so they are more business oriented and able to cope effectively with coordinating market development and intelligence efforts. 3 The Department of Commerce can improve its information and market intelligence functions. It should package its intelligence in a more attractive and meaningful fashion that will stir interest and bring results. 4 Commerce should also assume a greater promotional role than it has in the past, pointing out potential to businessmen and advising them on actions necessary to make the American entrepreneur more effective in the market place. 5 Closer cooperation between government and business otl development and tariffs will help Americans present a united, aggressive, and highly competitive front. Business, for its part, should ask itself if it is p r e p a r e d to work with the federal government.
1 Business must be prepared to grasp and exercise leadership in its contacts with government and its broad scope of activities abroad. 2 Representative trade associations should be more alert to international problems and should adequately inform their membership on developments and actions necessary to get positive results. 8 Promotion of successes abroad will foster more enthusiasm for foreign development. Experience has shown that those who are truly interested in overseas markets and want to succeed abroad have a better chance of succeeding and usually do. 4 Business should be willing to work with more emphasis on the long range and a belief in the future of the host countries involved. Short-term activity based on one project or sale tends to make us vulnerable as exploiters or disinterested "outsiders." Sound motives and top performance will build an unbeatable image. 5 The government's key role in overseas development must be recognized; patient work with federal agencies will improve the "team effort." Ideas of business should be made known fully and with candor. The businessman should not merely chafe under conditions of too much control, but act so that positive industrial effort convinces the civil servant, the public, and their representatives in the government that the nation has more to gain by supporting the private sector than it does by government-to-government action under government control. Successful business abroad can accomplish m u c h for America. Aggressive trade expansion can increase exports to offset the balance of payments problem, broaden our economy, and make friends around the world. It can provide first-hand examples of that great American experiment, the corporation. It can contribute to the stabilization of world affairs through development of foreign economies and a productive, vigorous, and articulate business middle class. Finally, having done all these things, business success a b r o a d can turn in a reasonable return on investment to share owners.
BUSINESS HORIZONS