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.
In Part Two of an interview with Ed Hamburg, the former chief financial officer of SPSS and is on the board of a number of high-tech companies, we discuss how and when companies can embark on the global stage. Hamburg also is a venture partner with Morgan Stanley Private Equity.
Muth: Perceptive Software has customers in 2,000 customers in 45 countries. How did they achieve that?
Ed Hamburg: They are pursuing international business the way many small companies do, opportunistically. Customers find you and buy your stuff. You become international whether you like it or not. ¦ [Less than] 10 percent of their customers are international. They are moving from opportunism to an international strategy. ¦
One of the roles I’ve played is to try to get these firms to adopt a strategic approach to international development as early as possible. There is no formula here. When your base business matures and you’ve stabilized ¦ you’re ready to move to the next stage of growth, perhaps in the $5 million to $15 million in revenue range. The larger you get, trying to rationalize processes that were built opportunistically can be difficult and expensive.
Muth: Sendmail has 4,500 customers in 33 countries. Interactive Intelligence has 3,000 customers in 80 countries. How d they do it? How do Sendmail international operations differ from that if SPSS?
Ed Hamburg: Sendmail does have a sizable international presence. They have a direct sales model. They target Fortune 1000 customers regardless of where they are in the world. They have headquarters in Emeryville, Calif., and international headquarters in the U.K.
I’m a fan of the Netherlands. The infrastructure is excellent. [Their] English-language skills are better than ours, they’re on the continent and they’re good marketers. The Dutch buy more software per capita than anyone else in the world. At SPSS, the Netherlands was off the charts in the consumption of our software. It highly commercial, with well-developed public sector and academic centers. They are also very adaptive to new technology.
Muth: Is it still a funding requirement to have offshore development?
Ed Hamburg: In my experience, it’s a really good thing to have development capabilities outside of the U.S. The talent pools in Europe, Asia and Latin America are much better than people realize, and in some cases better.
I became an advocate of follow-the-sun type of development to quickly replace current technology. If all your software development is done in one place, you get one turn per day to build software. On the other hand, being able to manage code, start in Chicago, pass on to the Chinese, who pass it on to Europeans, you get two to three turns in a given day. The software is better because you get better talent on it and you get more done in a 24-hour day. ¦ I don’t like the term offshore: it’s global development.
Muth: How does Morgan Stanley Private Equity recommend small firms approach global markets?
Ed Hamburg: There isn’t a standard plan at Morgan Stanley. Each [company] brings their own perspectives and experiences to the table. I try to get them to stop thinking opportunistically about international and develop a framework and adhere to that framework as a natural extension of their actual core business.
You don’t want to say no to opportunities when they knock on the door, but that’s not running your business; that’s your business running you.
Muth: How is going global different for IT services companies as opposed to those who offer IT products?
Ed Hamburg: I work with one service firm. They do high-level network services. ¦ For services companies, it is about replicating the human capital infrastructure everywhere in the world and maintaining the quality everywhere you go. If you can get your service delivery to a replicable model, that makes it easier
Muth: How did studying Middle Eastern politics help you in business?
Ed Hamburg: I started as a Middle East-area specialist. My academic mentor was the founder of SPSS. My Middle Eastern training took me back to your cultural question. You learn the importance of understanding and respecting culture ¦ You can’t relate to human beings outside the U.S. unless you take the time to learn about them and develop genuine respect for who they are. When I was in Cairo, you confront issues like language, religion. How they think of time is entirely different. If you can handle the cultural complexities of the Middle East, the rest of the world is easy.
Listen to the complete interview here.