FINANCIAL 10 MANAGEMENT July/August 2005

I s there an ideal time for a business to expand abroad?The financial equation needed to entice companies into foreignterritory can be complicated: currencies fluctuate, interest ratesvary, politics change and economies shift accordingly. The eco-nomic forecast for western Europe may be cloudy at present,but there are exciting opportunities in China, Russia and thecountries of the new Mediterranean free-trade alliance. Ofcourse all such opportunities carry a risk, whether this is highlevels of crime and corruption, or, as in the US, an enticinglyrich and established market that can prove infuriatingly com-plex, bureaucratic and expensive for outsiders who are poorlyprepared or ill-informed. There may be gold in them there hills,but you need the tools and the know-how to extract it.

Sometimes the barriers of language, culture, laws, taxes andlogistics seem overwhelming. But you don’t have to do it alone.Regional and national agencies exist in most countries, offeringanything from advice and networking events to cash incentivesand tax breaks. It’s also worth checking what support your owngovernment offers. UK firms, for example, can tap into a wealthof expertise in embassies, and regional development agenciesoffer seminars and networking events for those looking toexpand overseas (see panel). Wherever your firm is based, it’sworth considering how it reaches the rest of the world – whetherit sells finished products, R&D or services. There is enormouspotential to be tapped if you know where to look. If you’ve gotthick skin and nerves of steel, now is as good a time as any.

GOWITHTHETERRITORY

Where on Earth is the best place for your company to set up a new branch?Camilla Berens and Ruth Prickett compare regions around the world thatare trying to attract foreign business and find out what they have to offer.

A FIRST PORT OF CALLUK companies wanting to move into a foreign market are advised to contactthe government-funded agency UK Trade & Investment. This combines thenational resources of the Department of Trade and Industry with the Foreignand Commonwealth Office’s global network of trade development officers,who provide valuable country-specific knowledge and contacts to helpbusinesses expand overseas. For more details, visit the website atwww.uktradeinvest.gov.uk or call 020 7215 8000.

The eight regional development agencies (RDAs) in the UK provide locationadvice and events for those planning to open in a new region, as well as helpingto find UK partners for overseas companies. All RDAs have websites:� Advantage West Midlands: www.advantagewm.co.uk� East of England Development Agency: www.eeda.org.uk� East Midlands Development Agency: www.emda.org.uk� London Development Agency: www.lda.gov.uk� Northwest Development Agency: www.nwda.co.uk� One North East: www.onenortheast.co.uk� South East England Development Agency: www.seeda.co.uk� South West of England Regional Development Agency:

www.southwestrda.org.uk� Yorkshire Forward, www.yorkshire-forward.com

For more information about UK regional development agencies, visitwww.consumer.gov.uk/rda/info.

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FINANCIAL July/August 2005 MANAGEMENT 11

SINO THE TIMESWhen the UK chancellor, Gordon Brown, visited China recently, he urgedcompanies to view the Asian super-state’s growth not as an economic threatbut as a “huge market with huge opportunities”. Setting up a business in Chinahas become easier since restrictions on foreign businesses were lifted fouryears ago. In the past foreign companies were obliged to form joint ventureswith Chinese investors. Today wholly foreign-owned enterprises account formore than 60 per cent of foreign direct investment in China.

The standard business tax is 30 per cent, but special economic zones havebeen created to attract new investment, often with generous incentivesattached. Some zones are offering substantial concessions, including a fullexemption from corporate income tax for the first two years of profitableoperation, followed by a 50 per cent reduction for the following three years.

CASE STUDYChris Parr, commercial partner at KSB Law, has assisted western firms movinginto the Korean, Japanese and Chinese marketplaces. One of his most recentassignments has been to help a US company set up a water-purification project in Shanghai. He advises western firms considering a move into China toplan a realistic timetable, because it can take as long as two years to get thingsup and running.

“Finding the right business partners and location takes time. It’s 60 per centpreparation and 40 per cent execution,” he says. “Obviously, China has theextra element of being far away from western Europe and having a verydifferent language and culture.”

Parr recommends that new arrivals tread lightly.“We had a somewhat arrogant US corporateapproach and assumed that we knew best how to do everything,” he recalls. “We soon found that we got further when we let our partners take the initiative when it came to negotiations on the ground.”

It’s also important to keep in regular contactwith your business partners. “It’s like a marriage,”Parr says. “You need to keep working on therelationship. If you don’t visit your partnersregularly, the project will almost certainly fail.”

A business partner may well be looking for areciprocal agreement, according to Parr. “If youwant to move into their market, they may wantyou to help them move into the west in return,” heexplains. “You need to be prepared for that and toensure that you honour your end of the deal.”

Parr says his experiences in China compare favourably with those elsewherein East Asia. “I went to Japan expecting it to be really slick and efficient, but itwas like walking through treacle, while the Koreans were aggressive in theirapproach to business and very hard-nosed,” he says. “The Chinese genuinelywanted to do the deal with us and approached it with a very open hand.”

CONTACTSThe China-Britain BusinessCouncilTel: 020 7828 5176 Web: www.cbbc.org

The 48 Group Club(a support network for UKbusinesses in China)Tel: 0161 975 2945Web: www.48groupclub.org

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FINANCIAL 12 MANAGEMENT July/August 2005

OUT OF THE REDThere are encouraging signs that President Putin’s reforms are starting tocreate the right conditions for long-term growth in Russia. At the beginning of2004 Standard & Poor’s reflected a higher confidence in the country’s financialmanagement by upgrading its credit rating to BB+. Not long afterwards,the UK’s former trade and industry secretary, Patricia Hewitt, urged businesses to “grasp the opportunities of a more prosperous, stable andoutward-looking Russia”.

The city of Ekaterinburg, 500 miles south-east of Moscow, is rapidlybecoming a focal point for foreign businesses. Regional authorities are trying topromote the city as the gateway between eastern Europe and Asia. The city’swealth traditionally came from iron and oil, but more recently westernbusinesses such as Ikea, PepsiCo, Philip Morris, Gillette and Citibank havemoved in and the city is enjoying something of a boom.

The number of small firms in Ekaterinburg has expanded rapidly and severallarge redevelopment projects are expected to provide more up-to-date offices,shopping facilities and housing in the next 12 months. There are currently nospecial incentives to attract foreign business to Russia, but labour iscomparatively cheap and well educated and taxes are still relatively low.

CONTACTSRusso-British Chamber ofCommerceTel: 020 7403 1706Website: www.rbcc.co.uk

Russian Trade DelegationTel: 020 8340 1907Website: www.rustradeuk.org

City of Ekaterinburghttp://ekburg.ru/admeng

The Ernst & Young report DoingBusiness in the Russian Federationand updates on Russian tax andregulations can be found atwww.ey.com/global/content.nsf/Russia_E/Issues_Perspectives_-_Overview

CASE STUDYJohn Apps, who has been helping toset up companies in Russia for thepast 12 years, is managing directorof a group of Caterpillardealerships supplying constructionmachinery in the Ural region. Hebelieves it’s a good time for foreigncompanies to move intoEkaterinburg. “You have to be surethat there is a market here for you,but there is a big demand for good-quality western products,” he says.

One of Apps’s initial problemswas recruitment. “Finding peoplewith technical ability outsideMoscow who also speak English can be a real problem,”he says. “A new company would probably have to bringin some English expertise for the first few years.”

He warns foreign companies to be prepared forcultural differences in the workplace. “Many employeesstill work under the old Soviet collective approach. Thiscan be negative if they are hiding inefficiencies or thedeficiencies of an individual,” Apps says, but he adds thatthe younger generation of Russian workers seems to bemore ambitious and results-driven.

Another hurdle that new companies have toovercome is bureaucracy. “There are contracts for

everything,” Apps says. “I probably sign around 100 taxdeclarations a month.”

On the positive side, Ekaterinburg offers very goodlegal and audit services that are much cheaper thanthose based in Moscow.

When it comes to corruption, Apps believes the stateclampdown on fraud and tax evasion exemplified by therecent Yukos case has made a marked difference. “Mostcompanies get fairly regular visits from inspectors,” hesays. “Russia isn’t for the faint-hearted, but there’s a lotof potential here. You know things are looking up whenyou see Porsches in Ekaterinburg.”

Ildar Ziganshin

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FINANCIAL July/August 2005 MANAGEMENT 13

WHO’S AFRAID OF VIRGINIA?There are no prizes for knowing that the US is a vast market – its governmentalone is the biggest buyer in the world. Add to that the regional, state, countyand city administrations and, before you even consider the private sector,you’re talking about vast business potential. Transport systems are good,English is the first language, well-educated employees are plentiful and expatmanagers will have access to some of the best colleges and hospitals in theworld. If, of course, they can obtain a green card – nothing this good comeswithout caveats. Overseas firms can face a chilly reception from US buyerswho favour familiar, homegrown brands. Establishing a new brand in thisgeographically and socially varied market can be prohibitively expensive andoffice and labour costs are high, particularly in hot spots such as New York orSilicon Valley. Then you must factor in extra costs – private medical insurancefor staff for example. Many overseas firmsfind the complex laws, regulations andtaxes depending on state, county and cityconfusing. The US believes in rules: fail tomeet only one requirement and yourbusiness could never get past first base.

Fairfax County Economic DevelopmentAgency is a free service set up to helpforeign companies tackle some of theseproblems. It aims to encourage firms –particularly those involved inbiotechnology and other high-tech R&Dprojects – to locate in a part ofVirginia that has a long track recordin high-tech development. Theinternet was first developed there– 65 per cent of all web traffic stillpasses through Fairfax County,which is home to AOL. “Virginiainvested hugely in undergroundfibreoptics a few years ago. Ifyou hit the ground with apickaxe, a shower of zeros andones comes up,” laughsMichael Ryan, director of theagency’s London office.

Fairfax is the only one of 16,500 counties and cities in the US to haveoverseas offices (in Seoul, Tel Aviv, Frankfurt, Bangalore and London). It is closeto Washington DC, but without the city rents, and has the fourth-largest supplyof IT office space after New York, Los Angeles and Chicago. Dulles is thefastest-growing international airport in the world and there are over 100 flightsto New York every day from Ronald Reagan national airport. Two-thirds of theUS and the Canadian populations are within a day’s drive.

Fairfax County EDA can offer firms advice about obtaining green cards,setting up bank accounts and finding lawyers. It also runs an incubator schemefor biotech firms that allows them to set up a small presence with support andadvice on, for example, public relations and funding.

CONTACTFairfax County EconomicDevelopment AgencyTel: +1 703 790 0600 (US office)or 0800 085 0969 (UK office)E-mail: internationalmarketing@fceda.orgor fairfaxuk@dial.pipex.com (UK)Web: www.fairfaxcountyeda.org

CASE STUDYThere are different ways to break into the US market.You can set up an office in that country and staff it withexpats or local managers. You can enter a partnershipwith a firm already well known in the US – for example,UK company Augusta-Westland recently worked withLockheed Martin to win the contract to build a newpresidential helicopter – or you can take over a US

company and operate through its brands. Thiswas the option chosen by VT Group, a UK firmthat now operates a series of public-sectoroperations management contracts across the US.

The company first bought US firm GriffinServices in 2001. Griffin held contracts for baseoperations for the US military – “coveringeverything from technical maintenance to grass-cutting”, explains Philip Rood, head of publicrelations for the VT Group.

VT Group changed the firm’s name to VT Griffinand then bought two more companies withcompatible operations that it combined under the

same title. “It is vitally important to retain the US brandname – and the people who run our company in the USare Americans,” Rood says. The firm now employs 3,500people in the US and has an annual US turnover of over$300m. Although it’s based in Atlanta, its three largestsites are geographically scattered: King’s Bay, Georgia(US navy); Fort McCoy, Wisconsin (US army); andWallops Island, Virginia (Nasa). Senior UK managers nowregularly visit the US and hold two meetings a monthwith senior US managers by video link.

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FINANCIAL 14 MANAGEMENT July/August 2005

TEN YEARS IN PROVENCEMarseilles may once have had a reputation as a shabby shipping port with asomewhat shady underbelly, but France’s second-largest city is currently in themiddle of a major facelift. A growing number of foreign companies includingTelecom Italia, AOL, DHL and Haribo are enjoying the benefits of a locationthat’s being touted as the new business gateway to southern Europe.

The state-owned Euroméditerranée Urban Development Agency is halfwaythrough a decade-long project to rejuvenate 300 hectares of Marseilles runningfrom the city centre to the dockside. The €3bn project is one of the largesturban development schemes in Europe and a package of incentives has beendeveloped to attract both French and foreign firms to the city.

For businesses looking to expand into Europe and southern Europe inparticular, Marseilles presents itself as a cheaper – and sunnier – alternative toParis. The business district in the heart of Marseilles has been made moreaccessible by the moderntransport infrastructure whichincludes a metro system andinternational airport. The capital isthree hours away by train.

One of the main aims of thisredevelopment is to build traderelations among the countriessurrounding the Mediterranean.It’s hoped that a recent free-tradeagreement will catalyse a marketexpansion. The combined GNPs ofthe EU states and the 10 northAfrican and Middle Easterncountries that signed the deal iseight times bigger than China’s.

To attract new businesses tothe area, the EuroméditerranéeUrban Development Agency hasput together a one-stop package.From the outset, an agent isassigned to help new firmsthrough the relocation process. Services include meetings with similarbusinesses already operating in the area and a programme to give relocatedemployees a preview of the city and its amenities.

The redeveloped area of Marseilles covers pockets of high unemploymentand special incentives are offered to new businesses in these areas. Prospectivecandidates for administrative and middle-management jobs can be provided by the agency free of charge and subsidies are also available for employeetraining programmes.

The city is particularly keen to attract larger businesses. Three new officedevelopments have been completed recently: Espace Gaymard, Grand Largeand Les Docks. The agency aims to add 1,900sq m of office space every yearuntil the project ends in 2008. Facilities for smaller businesses have beenprovided at Les Docks. Exemption from business tax is also available for thefirst five years for companies setting up a head office in the city.

CONTACTSEuroméditerranée UrbanDevelopment AgencyTel: +33 491 144 521Web: www.euromediterranee.fr

CASE STUDYThe French branch of DHL’s international courier serviceis a new enterprise comprising 15 smaller firms broughttogether under the DHL umbrella. DHL Express had twoexisting customer service centres in Paris and Lyons, buta third was needed to cater for the expanding businessrequirements. Ten cities were considered, but Marseilles’new business district, La Joliette, was chosen and thenew call centre was officially opened in May.

One of the city’s major attractions is its ready laboursupply, according to Anne-Celine Martel, DHL’sspokeswoman for the French operation. “Marseilles isnot yet saturated with call centres, so it’s relatively easy to find and retain employees of the right calibre,”she says.

Martel also points out that the company benefitedfrom the incentives being offered to new businesses.“The municipality was very keen to have a big name likeDHL expanding in the region and the financialinducements were good. These included tax reductionsfor each of the 200 jobs created.”

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FINANCIAL July/August 2005 MANAGEMENT 15

A TONIC FOR GAIJINSTwo years ago Japan’s prime minister, Junichiro Koizumi, announced that one ofhis government’s main aims was to double inward foreign investment withinfive years. Deregulation, legal reforms and a tightening of accounting practicesare gradually making the country more attractive to foreign businesses –particularly those in the high-tech sector. Reductions in land prices, labourcosts, tax and interest rates are also helping to smooth the way.

The region of Kanagawa is being promoted as a new business hub forscience and IT. With its futuristic skyline, business parks and research centres,Kanagawa’s capital, Yokohama, offers one of the most efficient workingenvironments and some of the most generous incentives in the country forincoming businesses.

The government-funded Japanese External Trade Organisation (Jetro)provides a one-stop service for foreign firms. The agency’s support includesinitial fact-finding visits, free temporary office space, a range of businessadvisers, reference libraries, exhibition spaces and auditoria.

Kanagawa’s local authorities also provide a range of incentives forbusinesses entering the region. These include 15-year loans and planning aidand tax relief on real-estate acquisitions. In certain zones, tax relief andbusinesses subsidies are generous.

CONTACTSJapanese External TradeOrganisationTel: 020 7421 8300Web: www.jetro.go.jp/u

City of YokohamaWeb: www.city.yokohama.jp/en

CASE STUDYCeloxica, an electronic automation design business, hashad a small team in Japan for nearly four years. One ofits first steps was to enlist the help of the British IndustryCentre (BIC) in central Yokohama. A collaborationbetween the British Chambers of Commerce, the city ofYokohama and Japanese businesses, the BIC aims to helpUK firms enter the market as smoothly as possible.

The company’s Japanese business is growing by morethan 30 per cent a year. Sandeep Ram, sales vice-president, says Celoxica was attracted by the region’sreceptiveness to innovative new technologies, its goodtransport links, sound IT provision and solid support fromexperienced engineers. “The economic climate for ourparticular technology is better than anywhere else in theworld,” he says.

Ram is full of praise for Yokohama, but notes that newcompanies should ensure that they have soundemployment contracts in place for key members of theteam. “As with any specialist area, well-qualified peopleare always in demand and you have to plan for the rightkind of salary packages to ensure the integrity of theoperation,” he explains.

On the downside, Colin Mason, general manager atCeloxica Japan, says that English-speaking supportservices in Yokohama – including IT, legal, finance andspecialist recruitment – are thin on the ground and

usually have to be brought in from Tokyo. Translationservices should also be chosen carefully.

“Services need to be checked for both technical andlinguistic quality,” he says. “And, like anywhere else, someservices paint a more complex picture of the Japanesemarket to encourage you to spend more than necessary.”

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