I said,"yes, I’ll do it" with pleasure. Then I thought: what am I going to tell the audience? That’s always the problem, you know... You are in Venice enjoying a drink in the most beautiful scenery in the world and feel capable of anything.

Then 2 days later, while I was in Zagreb, Croatia, my client in Kansas called me. His name is Jim; he owns a machinery business of 400 employees.

We are helping his firm in becoming a global company on their market. Thanks to the work we did together since ’98, his firm now has a sales subsidiary in China, made an acquisition in New Zealand, and just last fall incorporated a British subsidiary, and concluded a strategic alliance with a British colleague. The Managing Director in the UK is British, his name is Greg. He is handling European sales, customer service and also doing some manufacturing in Birmingham.

"Jim, what’s up?" I ask.

"Andre, he says, I am on my cellular, my CFO just interrupted my golf game to tell me that Greg is losing money in England. Are you aware of that?"

I said, "I am, uh, not in my office, I didn’t see the latest figures. How much?"

"Looks like 270,000 Pounds."

"Well, I say, what does Greg’s business plan say?"

"Who cares about the business plan? He is losing money, we don’t like that..."

I said"Jim, according to his plan he was supposed to run a loss in the first 6 months, a profit afterwards, and break even at the end of this fiscal year. Right now we expected him to lose money. I have my copy of the business plan; it says that as of April 01 he should have lost 250,000 Pounds. What exact figure did you get?"

"What I heard was 268,000. So it’s not so bad."

"It depends, I say. Did he lose more because he sold less, or because he spent more than what we planned?"

"Actually I know he sold much more, and so he must have spent even more."

"Jim, I said, do you remember that in November he made that big sale with Corus Steel, which was urgent? We couldn’t manufacture on time in Kansas, so you gave him the OK to find a local subcontractor. So he gave some of the work to our Italian competitor, who accepted but charged Greg through the nose. That’s where your April bottom line comes from."

"Yes, Jim said; and he was right to do that."

"He was also right to be in good terms with our competitor. Remember that it is the firm we are targeting as a possible acquisition..."

"That’s right, he said, so everything is fine after all."

"Yes, and you should tell your CFO not to spread panic in the firm when, in fact, our strategy is proven right."

"Well", Jim said, "you know how CFOs are, the moment they see a loss they have to hammer it on the head."

"So, I said, at the end of the day he is passing a negative message around. When Greg needs quick help, he is already perceived as a loser, and engineering begins to look elsewhere at something more urgent to do on the domestic market. Greg is far away and has limited resources to get their attention. A new venture needs more attention than simply the bottom line, and needs your own help before your middle management kills it in the egg with another ‘I told you so’..."

I tell you this story today because I saw it happening again and again between the new European subsidiary and its US parent, or the new US subsidiary and its European parent.

It doesn’t matter whether the subsidiary is a new venture, or a joint venture, or a straight acquisition.

It doesn’t matter if you took all possible advantages of the depreciation of the Euro, of new tax laws, of new European standards, of deregulation in Central Europe, and of European prosperity as a whole. You certainly hear a lot of good advice today on all that.

Between 1972 and 1983, I was in Europe, retained by European firms who wanted to invest in the US. At the time, the US market was the world reference. Investing in the US was the biggest possible risk, precisely because the market was so big, so sophisticated and so crucial from a strategic point of view.

Now the new European market is becoming in its turn that kind of strategic market at an even bigger scale. And it remains more complex by many aspects, because all the deregulation and standardization in the world will not eliminate European diversity.

What matters in the end is success on a new market, after some risk taking and some investments.

As long as we are, today, doing only market research, or strategic analysis, or business plans, it doesn’t cost much to design an ambitious strategy.

We find a possible acquisition, we negotiate a deal, ask for an Audit and Due Diligence, we plan for a building extension, some turn around efforts, some productivity investments, some one-time marketing and sales promotion expenses, some new recruits. We make a few trips to Europe, which is always pleasant… All this preliminary work goes under the Corporate Planning Account and doesn’t mean big money yet.

And then we close by signing on the dotted line, and we invest.

The European venture becomes a reality.

Its financial controls come in line with corporate policy.

It has a CEO who starts doing his own corporate lobbying.

We begin to see the new venture through the usual reporting system as any other subsidiary or division.

Will it be a success or a failure?

My experience is: too often, neither. It will become a non-success, which is not a failure but misses the strategic goals.

We will forget the initial strategic intent. We face short-term problems, we cut costs as a precaution, we delay the ambitious moves such as expansions, major marketing efforts and the like. We postpone the productivity investments. We save money on the new recruits. We take expedient measures. Anything that improves the bottom-line.

And the new venture goes on, surviving enough not to raise questions, but on the whole, unconvincing.

Meanwhile the parent company meets new priorities, new challenges: perhaps China, or the Asia-Pacific Rim.

And one day an offer comes to acquire the European subsidiary. "What an excellent idea!" says the CFO, who is new in the company...

In my experience, US ventures in Europe, same as European ventures in the US, become clear successes only in 10% of cases. They turn out to be total failures in 30% of cases. The remaining 60% are what I call non-successes.

Now let me tell you what I have learned out of real success stories:

In the new Europe, it will be easy to break into the market if you are already competitive on the US market and if you know why, and very difficult otherwise. Knowing why you are competitive means having done a very clear strategic analysis of your own firm on its own present market and having clearly assessed your present competitive advantages. It means you also know where these competitive advantages come from.

Your goals in Europe must be strategic: be a market leader, control a niche, penetrate the blue chips customers, innovate through distribution tools… Never let the bottom line judgement lead against the strategic judgement. See that they both speak the same language.

When my friend Jim lets the absolute loss figure prevail on the loss figure relative to a forecast, he lets the bottom line prevail on the strategy. This is a widespread attitude in the world, but especially in the American business culture.

Most often you will enter the European market through an acquisition because it saves time and is credible with the banks. In my 30 year experience I have noted that 70% of entries into a new market are made through an acquisition, 5% through a greenfield creation “ab nihilo” of a new subsidiary (new plant, new recruits, new sales office, etc.) and the rest through what we agree to call strategic alliances: preferential marketing agreements, or subcontracting agreements, or licensing agreements with some kind of existing partner in the industry.

The ideal acquisition is a business already restructured at the European scale. What does that means?

When I was a young engineer in France in the 60’s, the French industry and agriculture were producing about everything, but weren’t competitive in a majority of products. A French cow couldn’t compete with a New Zealand cow. A French machine tool, with a German machine tool. A French drug, with an American drug. A French olive, with a Greek olive. French paper, with Finland paper. And so on. No wonder we French had to drink a lot of wine to drown our sorrow...

Today, in the new Europe, the French industry is world competitive in cosmetics, in wine, in cement and construction materials, in ball pens, in business jets, in steel coil, in plastic bottling machinery, or in automobile tires, and the French economy is open to import the rest. German cars are highly competitive, but 50% of the added value in their cars is made in France, Italy, Spain or Poland, and they are assembled by Turkish labor. And so on in other countries.

This means in your case today that your ideal acquisition candidate has already specialized in its core products, has created sales presence and made acquisitions elsewhere in Europe, and is ahead of the game in its own industry. Larger European firms and US firms already in Europe began that game in the 70’s. Since the 80’s it is the turn of the midsize firms, and the trend is accelerating with further deregulation and with new European regulations and standards.

Remember that your best possible acquisition is not for sale: you must use your own strategic intent to convince the owners. This is why you need to know your own strategic intent and your competitive advantages to the tip of your fingers. By the way, my job as a consultant is to quickly assimilate and summarize your strategy to help you convince the ideal candidate who is not for sale...

For the location of your European venture, follow your acquisition. According to the industry you are in, It will lead you either near the market (case of consumers’ products), or near the skills (case of the aerospace industry), or near the raw materials sources (case of the food industry).

When you negotiate a deal in Europe: Don’t try to speak German or French unless you are really fluent, speak good English and slowly, don’t speak colloquial American. Make sure you are understood.

Learn the European GAAPs. It will help you understand faster your acquisition’s financials, and it will teach you new tricks to analyze your own business. Anglo-Saxon GAAPs are better at protecting the stockholders’ interests; but Continental GAAPs, which allow to pin point competitiveness ratios and productivity ratios, are better for analysis of the firm’s competitive situation. When comparing the values of two respective businesses, one in the US and one in Europe, use valuation formulas based on net assets and multiple of EBITDA, which are computed the same way in both GAAPs.

Before each meeting, set some realistic goals for the meeting itself, and think ahead of time of what should be the next step: Drafting a Memo of Understanding, or already a Letter of Intent, or simply inviting them to visit you in the US?

Be patient. Take care of your jet lag before beginning serious work. Don’t plan for an extra-short visit leaving Atlanta tonight for a meeting in London tomorrow, and then a hop to Brussels. Lots of Europeans use a long business lunch or dinner to talk about serious or confidential matters when they are seriously interested. Americans with a recent jet lag find them a real ordeal. Remember that your physical resistance is always lower when you are far from home, with a jet lag, facing an unfamiliar culture and eating a different kind of food. And you need to be in your best shape to convince complete strangers. Organize to rest and take naps.

When you socialize with top level executives or with the private entrepreneur don’t neglect their wives, especially when they act like innocent listeners. Often their opinion count.

As in the US, never let the lawyers negotiate. You stay on top of negotiating; they come in later to handle the legalities. On the Continent, businessmen are expected to know what they want to do without legal counsel; and lawyers are far more specialized than in Anglo-Saxon countries.

Get rid of prejudices; forget the legends about the flippant Frenchmen, the miserly Dutchmen, the tricky Italians or the lazy Englishmen. You will deal with English speaking, mature businessmen who have decades of international exposure. A lot of midsize firms in Germany, France, Netherlands, Italy are world competitive and highly sophisticated. Labor unions in Europe play a major role and have become far more synergistic and cooperative than in the US. Be prepared to negotiate with them, which takes special skills but pays a lot. Be prepared to negotiate with local governments to your benefit, regarding subsidies for job creation, special soft loans covering new buildings, even R&D budgets in France and some other countries… I am right now lobbying for a one million dollar R&D subsidy for a joint French-American project in steel machinery. But you are welcome to join us as investor if you have some money to spare...

Your first goal should always be to learn about your own market in Europe. The best source of information is your European competitors. Visit them under the pretext of a partner search or an acquisition search and exchange market information with them. You will learn more than you expect, and it will be far more reliable than any desk research. But of course you can always call me, and we will organize it for you!

Think about your future European team: It will depend a lot on the industry you are in. American businesses are amazingly amateurish in the way they recruit Europeans. In 30 years I have seen European executives hired for the most unprofessional reasons: because they played golf, because they understood baseball, because they were sitting next to my client in first class on the plane, because they spoke better English than a far more experienced candidate. Remember that a motivated individual can learn English in 3 months today… Your typical European CEO today should be trilingual, not to manage, but to lobby with government agencies and to negotiate with labor unions.

Don’t smile, except when shaking hands or if you have a good reason. Don’t boast. Stick to facts. Don’t say:"We have the best product", but "Our product was tested by TNO according to the ISO-41334 Standard and demonstrated fire retardant properties complying with Class 1 of the standard."

If you want to make an audiovisual presentation of your firm don’t bring fancy videotapes. Bring a PowerPoint presentation from your laptop and give the speech yourself. And update it regularly, it costs nothing.

And finally if you consider a business investment in Central Europe, forget what you heard here today because you are facing a totally different game. This is another story.

Thank you for your attention. And I of course I will welcome any questions. I am available for a courtesy visit anywhere in the US to present our credentials, and to hold a first workshop with your management team about your present strategic situation, and whether it is right time for your firm today to consider entering the new European market.

Dr. Eng. André R. Teissier-duCros
President
Gean Overseas, Inc.
Atlanta, GA
geanoseas@aol.com