Assess the opportunity
Hill remembers reading news magazines that touted China as an
inevitable stop on the journey toward economic vitality.
“People were saying, ‘Everybody’s going to go over to China,’” he
says.
That was five years ago.
Today, while Hill says those predictions weren’t flat-out wrong,
he says they weren’t completely true either. The argument for
overseas expansion cannot be made based on generalities and
must instead be assessed on a case-by-case basis.
If your case in the debate rests solely on labor, for example, then
Hill says to save your breath.
“If you’re thinking about going into China as a business, and the
only reason you’re going over there is because you think it’s less
expensive labor, that’s a mistake,” he says.
While foreign labor is relatively inexpensive when compared
domestically, a number of logistical problems have arisen — lack
of shipping containers, bottlenecked seaports, to name a few —
that can more than offset the savings you’d reap from cheaper
wages.
Instead of focusing on labor, Hill points to a number of other
areas in which you and your team of advisers should concentrate assessment.
“First of all, part of it’s driven by your competition,” he says. “You
should say, ‘What is my competition doing?’”
Hill says that while strategic planning should never be confined
within the footprints of your competitors, the movement of that
executive down the street is typically a good indicator of the feasibility of expansion abroad.
Once you survey your neighbors, Hill says to look internally and
evaluate whether or not you can sell to the overseas market yourself.
“China’s a huge market,” he says. “With approximately 1.3 billion
consumers, there’s a lot of potential market share to go around if
you’re offering a product or service of value.”
In some cases, selling to the market simply means following your
existing customers into that market. The executive team at
Benesch, for example, didn’t establish an office in Shanghai just for
the sake of establishing a foreign office. It did so only after observing the expansion of a number of clients in the late ’80s and early
’90s.
Ignore such movement, and Hill says you’re going to be met with
an uncomfortable ultimatum from your customer base: “You’re
either going to come over here, or we’re going to use somebody
over here.”
Hill says the key to avoiding this quandary is communication.
Keep track of your clients and partners. If they’ve made plans to
expand abroad or if they’re simply talking about it, odds are you’re
going to want to explore the option, as well.
Ultimately, though, the decision to establish a presence overseas
may come down to dollars and cents.
“Can you drive down the cost?” Hill says. “You have to look at
your own needs to supply your customer, where your customer is
and how quickly you have to supply them. Can you do some manufacturing in China and ship it back here and assemble it? Is it
something you can ship on the water? Is it something that you’re
shipping air? All those things are a consideration.”