By Michael Muth, GlobalBiz columnist
Increasingly, small businesses are targeting a global market. To be successful, it helps to learn from other, experienced firms how to launch an international business, what types of business structures work best for global expansion and how to adapt to local cultures. In GlobalBiz, contributing columnist Michael Muth will shed light on these issues through interviews with seasoned international executives willing to share the lessons they’ve learned.
SPSS Inc., a publicly held software company headquartered in Chicago that specializes in data mining, customer relationship management, business intelligence and data analysis, was acquired by IBM in 2009. I recently sat down with Ed Hamburg, the former chief financial officer of SPSS and a consultant to high-tech companies, to talk with him about the global progression of SPSS.
Muth: When did SPSS go global?
Ed Hamburg: Very early on in the process. The roots of statistical software analysis were deeper in the U.K. and Germany, so it was appropriate we found fertile soil internationally. By the time I became an executive at SPSS in 1986, one-third of our revenues came from international sources.
Muth: When did SPSS revenues outside the United States exceed U.S revenues?
Hamburg: It began to tip to more international in the 1990s. We already had a senior vice president of international operations by then.
Muth: How did SPSS expand into other countries?
Hamburg: We established international offices out of our original international headquarters in the Netherlands. We expanded with direct offices in London, Munich and in Australia.
We also got involved with partners with a traditional partner distribution model and later developed a SPSS franchise. The partners had already distributed SPSS products along with other products. We evolved to where they flew just the SPSS flag.
They got the exclusive rights to sell SPSS and only SPSS in that country. There was also a formula that was built into the SPSS franchise contracts that enabled SPSS to buy out the franchise. The formula made it worthwhile for them to build the business. Each year we would look at the different franchise operations and decide if we wanted to buy them out or continue on as they were.
Muth: Did SPSS charge a franchise fee?
Hamburg: No, it was not required. As CFO, I was less than impressed with the fact we didn’t.
Muth: What was the SPSS formula for valuation?
Hamburg: We received 50 percent of revenues overall from franchisees and a little more from distributors. They would get more of the new license revenue while we would get more of the maintenance stream. The buyout figure was a percentage of the preceding year’s royalties to us. They could calculate what that buyout price was and see their investment come back to them. I very much appreciated the straightforwardness of the model. It was fair to us and to the partner
Muth: How important was the branding?
Hamburg: By the time we started this framework, the SPSS brand was known and had value with our constituencies, i.e, academics and government, especially in Europe.
Muth: Was there anything you had to do to adapt to local cultures?
Hamburg: Managing an international sales support and administrative network necessarily means you’re going to confront cultural diversity. It’s particularly difficult for firms based in the United States because most are accustomed to how we do business here. In key areas, you have to bring in people who are respectful of cultural differences and comfortable living in more complicated arrangements. We had to find a different type of employee — more sophisticated.
Muth: How did/does SPSS localize its websites?
Hamburg: It almost always required a combination of insiders and outsiders. Even when we contracted out, we had to do the quality assurance. It’s hard for any contractor to judge if it market-worthy, and be true to the value proposition and brand. As time went on, it became more automated.
It was an economic call (as to) which countries to localize. You’re in it for every update of the software, which is a long-term commitment. You do it where there must be a substantial audience with a broad base. There was no threshold. The costs weren’t always equal. ¦Some languages are more difficult, like double-byte character sets. There wasn’t a formula, but it was definitely ROI-based.
Muth: How did SPSS resolve channel conflicts?
Hamburg: It is done carefully and with pain. You can’t avoid the pain. With acquisitions and partnerships, we were buying capabilities we did not have. We began as a statistical software company. When we started to buy artificial intelligence companies, our partners didn’t know how to sell and support and represent it. It naturally sorted itself out in the workplace. In the end, it’s about the customer. What services could we integrate for the customer seamlessly and most effectively? That makes the pain worthwhile.
Muth: How will IBM acquisition of SPSS affect SPSS worldwide reach?
Hamburg: My assumption is they’ll keep it intact for a period of time. IBM is defacto global in a way we could have only dreamt. The long-term goal will be to make the SPSS partnering network consistent with their model. Again, looking at it from the customer’s standpoint, what is it that we want to do with the technology to pursue our target customers?
Listen to the full interview here.
Contributing columnist Mike Muth is managing director of gata, an international business development consultancy that helps technology companies grow globally. He has more than 18 years of experience building international relationships and 16 years working for technology companies. He also has served on the boards of four nonprofits. Contact Mike at http://www.intlalliances.com