Think Local to Act Global

Growth potential is the fundamental reason why organisations want to diversify into new markets. In most instances, as soon as a company decides to venture into new territory, the question every boardroom director asks is: how do we expand?

Most organizations with sufficient resources can expand and there are a number of ways to go about it. However, one underlying rule applies: before entering any new country, make sure you have in-depth knowledge of the local market.

In the late 1990s, Scientific Atlanta (S-A) identified the market potential that European TV had to offer, as it looked to increase its presence in the region. The European cable TV industry was only a few years behind the US in terms of systems development and the rollout of internet, video and telephony broadband services to customers.

By looking to expand in Europe, S-A was aiming not only to reach operators in the region, it also looked to reach the emerging Eastern European and Asian markets. Having seen the huge potential of digital TV, S-A was keen to ensure the company grew along with the markets it targeted.

PROFITABLE GROWTH IN EUROPE

One way of expanding into an international market is to acquire a well-established local player. In 2001, S-A completed its acquisition of BarcoNet, a company based outside Brussels, which specialised in the provision of end-to-end distribution solutions for broadband and broadcast application.

At the time, S-A's product portfolio, while strong, did not have enough products that were localised for the European market or produced in the region. The company needed to expand market share and establish its presence; therefore it needed to get more 'local', and regionalise fast. An acquisition was widely believed to be the most effective way of achieving this.

The key to a successful acquisition is finding the right company. BarcoNet was a natural fit as it targeted the three converging markets of the communications industry: cable, telecoms and broadcast. It was focused on broadband delivery and aimed to capitalise on the trends towards DTV and the use of cable networks to deliver data-based services. BarcoNet had around 1,000 staff spread over sales offices primarily in Europe, but also across the world in countries such as China, Brazil and Australia.

Crucially, BarcoNet's focus on R&D was also another perfect fit. S-A's corporate ethos of continuous innovation was bolstered by BarcoNet's R&D facilities, located in Belgium, Denmark, the UK and India, which helped S-A enhance its global reach.

ACQUIRING CLIENTS

BarcoNet's client base was also similar; that and the acquisition gave S-A access to a host of clients that were major operators in the region. These included Deutsche Telecom's T-Systems, NTL, Telewest, Liberty Global and other companies spread over the Middle East and Asia.

S-A was able to consolidate its position in the market, quickly maintaining a 'local' identity to continue with the same ethos that made BarcoNet such a success. BarcoNet's product portfolio, customer base and R&D expertise, coupled with its highly skilled labour force, made the acquisition a lucrative investment for S-A.

Acquiring a European company gave S-A the critical mass in Europe to consolidate European logistics, to reduce inventories and improve internal controls, as well as enabling a consolidation of product lines along customer markets.

BarcoNet's position in the market was another significant advantage. It was one of the market leaders, offering high-quality products, supported by with excellent customer service.

LOCAL KNOWLEDGE FOR GLOBAL SOLUTIONS

The acquisition raised some initial concerns for BarcoNet's customers. However, S-A was able to reassure them that the high standards they were accustomed to would continue. Similarly, S-A was able to put to rest any concerns that BarcoNet's staff had, by explaining the vital role they would play in S-A's expansion strategy and where they would fit within the overall corporate strategy.

In situations such as these, honest, open, two-way communication between key stakeholders plays a crucial role. It is important not to underestimate the importance of local staff when expanding into international markets.

Following the acquisition, S-A sent one of its senior executives to manage the business during the first year of transition at BarcoNet. His crucial task was to assess the operations in Europe and introduce US processes only where appropriate. He was also well placed to request resources from the US, if and when a requirement arose.

POST-ACQUISITION

As part of its expansion strategy S-A introduced multi / cross-cultural training. This focused not only on Europe and the US, but was localised to levels such as Belgium and Denmark, France and Germany and other key markets.

Cross-cultural awareness and an understanding of international management styles are critical to any business when dealing with global markets. S-A has a successful programme of 'cross-pollinating' staff between Europe and the US. Members of staff working on either side of the Atlantic are often given the opportunity to select an international location for either permanent or temporary assignments to enhance their exposure to international business and markets.

Although S-A's headquarters are in the US, the company was very keen to create and maintain a distinctively different business identity for the EMEA marketplace. The company established a senior management team comprising of both S-A and BarcoNet executives who were able to speak a range of languages beyond the native English and Dutch, including French and German. The team, which specialised in several disciplines, was able to provide wide range of expertise and deliver solutions to fit with 'local' needs and maintain the local identity.

DON'T IMPOSE FROM HEAD OFFICE

S-A also learned that its business model for European operations needed to be different to that used in the US. For example, in the US, S-A has around seven major customers.

On the other hand, in Europe the company has several hundred different clients, which means the level of customer service and assistance needed is different between the two regions, which also necessitates a new strategy to help deliver high-quality client support.

To this end, S-A focuses on customers in the market segments served - broadcasters, telecoms and cable operators - instead of a go-to-market strategy that does not differentiate between the various markets served.

S-A enhanced its European identity further with the creation of a centre of excellence in Denmark. Over in the US, the company has a number of centres of excellence for engineering. In Europe, S-A established one to showcase its expertise in encoding.

While most people tend to associate S-A with set-tops, the centre of excellence also helped to promote the company's strengths and expertise in other key technologies, such as encoding solutions. It also helped to reinforce the message that S-A was committed to Europe.

Another important consideration when expanding to new markets is the local labour unions. It is important to build a synergetic relationship that benefits both the organisation and the union.

Opening the lines of communications with local unions was one of the very first things S-A did when it took over BarcoNet. Sincere dialogue with officials will help minimise any disruption to operations and limit any potential damage to the bottom line.

MAKING YOUR EXPANSION A SUCCESS

Expansion is complex and requires both intensive and exhaustive business planning to ensure success. The method used for expanding the company needs to match with an organisation's growth and business strategy. Acquiring another company is just one of many ways of expanding.

With the acquisition of BarcoNet, S-A not only acquired a business but also a European identity, to keep in accordance with its growth strategy. For S-A's corporate objectives, an acquisition was the most cost-effective solution to gain a foothold in the region.

A company also needs to have a capable management team with the right level of expertise and business acumen to oversee and implement the expansion strategy. They must help the business embrace change and adapt to the new market.

Ultimately, the success or failure of the expansion will depend on their leadership. If an organisation feels that an acquisition is best suited to expand the business, there are three key areas that could ensure success.

ACQUISITION BASICS

Firstly, it is paramount that you retain as many customers of the acquired company as possible. Open two-way communications with clients could help to reassure them that service levels and quality will remain the same even after the acquisition.

Secondly, retain the acquired company's staff. If customers speak to 'familiar' faces, they may be less likely to use someone new. The staff will also help enhance your knowledge of the new market, while presenting the new organisation as 'local'.

Finally, ensure that the company being acquired is a good fit with the principal business from a product, customer-base and 'company culture' standpoint. Business leaders agree that an acquisition is much easier than the integration. To ensure the smooth transition of business, organisations need to ensure that the underlying style of doing business and communicating are both similar and flexible enough to ensure a successful integration.

NEW MARKETS NEED NEW THINKING

When expanding to a dynamic market such as Europe, it is important not to treat the entire region as one market, other than perhaps for distribution and logistics purposes. For sales and customer service, focus on each country separately. New markets need new thinking and the ability to adapt to changing market conditions will be the difference between success and failure.

S-A has found that expansion can have a positive impact not only on the bottom line but on the entire organisation, from the innovation of cutting-edge products to members of staff. Expansion takes considerable effort, smart business acumen and, crucially, in-depth local knowledge, to ensure success. Tapping into international markets can bring profits. Knowing just how to do it cost-effectively will considerably lower risk and, most importantly, increase ROI.

COMPANY PROFILE

Scientific-Atlanta, Inc is a leading supplier of digital content contribution and distribution systems, video backbones, transmission networks for broadband access to the home, digital interactive set-tops, modems and subscriber systems designed for video, high-speed internet and Voice Over IP (VoIP) networks, and worldwide customer service and support.