Are you just starting to consider operating abroad or do you already have a project in mind? Ten tips to lend force to your cross-border ambitions.
1. Plan your strategy as early as possible
Sooner or later, a company that wants to continue to expand will have to seek opportunities abroad. However, foreign trade is beset with risks, and funding foreign trade transactions can be a major challenge. That's why it is important to draw up a step-by-step growth strategy as early as possible, so that you can take account of these factors from the start.
2. Gather together the requisite expertise
If you enter a foreign market without knowing the local legislation, administration and culture, you could waste a lot of time and money. So you would be well advised to call upon a specialist – and preferably local – partner to help you on your way from the outset.
It is especially important to obtain legal advice in order to opt for the most appropriate type of company, comply with all the relevant regulations, conclude watertight contracts or qualify for any tax breaks.
3. Get to know the market
Tapping a new market shouldn't be a leap in the dark, so always start with a thorough (external) market study. How exactly does it differ from your home market? How is the market developing and what will be the impact of demographic trends? Who are the major operators in your sector and what is their strategy? Are the necessary infrastructure and logistics in place?
And probably the most important question of all – will your products and services actually fill a gap in the market? Don't ever assume that your chosen target market is just waiting for your product or service. You can't take it for granted that something will do well just because it is 'exotic', new and/or of better quality.
4. Consider the best way to approach the market
Are you starting up an independent entity, looking for a partner or taking over an existing establishment? Each of these has its specific pros and cons, so consider them carefully. You should definitely not throw yourself into something before having a clear idea of the financial implications, but should rather take a cautious approach with an assessment of the costs and benefits at regular intervals.
5. Respect the local customs and practice
Whether you visit in person or arrange a video conference, it is always a good idea to find out about local business etiquette and act accordingly. Different cultures may have very different ideas of what is appropriate, for instance when it comes to the right greeting, dress code, way of conducting meetings, eating habits or use of time.
6. Recruit the right people
Recruiting the right people is a significant factor in the success of your activities abroad. Finding the right sales representatives is of primary importance. First and foremost, they must be totally familiar with the local market; you can always provide them with the product knowledge at a later stage.
And when you are recruiting, remember that the local legislation, wage policy and union customs may be very different from Belgium.
7. Keep an eye on things
Stay in touch with your contacts on the spot. This is partly a way of staying in control, but it is also a very good way of proving your commitment. This does not necessarily mean you have to make a visit. Skype, WebEx and other forms of video conferencing are cheap and easy alternatives when it comes to matters that cannot easily be arranged by phone or e-mail.
8. Protect your intellectual property
Piracy or cheap copies could be a death-blow for your business, especially if you provide unique or high-tech products. Always be sure to protect your intellectual property adequately. The legislation in this respect may differ widely from one country to another. So choose a partner with the appropriate legal expertise to apply for and/or protect your patents and trademarks.
9. How universal is your logo and business or product name?
Remember how the Fiat Uno never got off the ground in Finland in 2006? The manufacturer was puzzled, because the new model was a great success in other countries. Until it turned out that 'uno' is Finnish for 'idiot'.
So be sure to check beforehand that your brand or product name doesn't have any negative connotations in the market where you want to set up. The same applies to your logo: a picture, symbol or even colour may be interpreted very differently by different cultures.
10. Use subsidies and incentives
The different governments in Belgium, and often also in your target market, have introduced many initiatives to encourage international business, from consultancy services to subsidies. You can obtain further information from Chambers of Commerce, embassies, industrial organisations or the following government departments:
Belgian SMEs abroad: first China, then the rest of the world for Punch Powertrain
In 2006, Punch Powertrain was on its last legs. Ten years later, the Sint-Truiden based company is a world player in automatic gearboxes. Their success story started in China.
European drivers are still holding on to their manual transmissions, but automatic is standard in the rest of the world. The arrival of hybrid and electrical cars has meant that European car manufacturers are increasingly taking the same route. Punch Powertrain is loving it. This company, based in Sint-Truiden, designs and manufactures automatic transmission systems – today for the Asian market, tomorrow for the rest of the world.
We are astounded when we park our car in front of Punch Powertrain. To the left and right, new buildings are appearing at Chinese speed. CFO Bart Delaere:
"Things are going well. Last year we doubled in size. Automatic transmissions were already being produced here between 1972 and 2008 by various owners, and near the end of that period for BMW's Minis. In a top year, they would send out 35,000 transmission systems. By the end of this year we will produce 50,000 systems... per month. Worldwide we have 1,200 employees, some 300 of whom work in R&D. By 2020, the R&D department will be employing 740 people, of which 600 in Belgium."
However, the start was not at all rosy. When BMW decided in 2006 to change supplier, Sint-Truiden did not know what to do. The contract with the German manufacturer ended in 2008, and no other customers were to be seen on the horizon. Despite this, a number of Belgian investors saw the company had potential. Not in Europe (a saturated market with little demand for automatic systems) or the US (a market in crisis with cars too heavy for the Belgian systems), but in the Asia-Pacific region. The first task for Punch Powertrain was to conquer China. Bart Delaere:
"Our CEO, Cor van Otterloo, used to work for Philips and knew China well. We developed a triple strategy of which we are still proud today. One: we need more customers. Two: we need more products. Three: we need greater geographic distribution."
The search for customers began in China. Punch Powertrain visited every Chinese car manufacturer, which is quite a task as there are 150 of them. Today, 15 are customers, including Volvo owner Geely. Proton in Malaysia is also a major customer. How did the Belgians manage that? Bart Delaere:
"Unlike the large Japanese players, we were also interested in producing smaller series. We also offered the Chinese to take control of the entire development process: software changes, adaptation to the engine, etc. We also consciously use the strategy of a local production for local customers. The R&D and production of core components is and remains here, but assembly is carried out at the customer. Our Chinese customers consider Punch Powertrain a Chinese supplier.
Even before we had one customer, we arranged a share deal with an existing company in Nanjing and converted it into a transmission factory. The management team we brought together at that time is still there, which is something special in China. The team consisted of people we had already worked with and we could trust. That is very valuable."
The second step of the strategy was aimed at an increased variety of products. Currently Punch Powertrain only produces CVTs, continuously variable transmission systems. The R&D department is working on a cheaper automatic system, a CVT which can also power heavier cars, and systems for hybrid and electrical cars. Bart Delaere:
"When we are able to cover the entire range we can start the third step in our strategic plan and contact the bigger players worldwide. Whether it will work or not, only time will tell. In 2006 we were virtually gone, and in 2016 we are back on the radar. We work in a flexible and cheap manner, are prepared to do small series and are able to quickly respond to demands. We want to keep it that way. We are growing well, but with regard to our working methods we want to remain a small, horizontal organisation with short lines. This flexibility is proving to be beneficial."
How Chinese is Punch Powertrain?
"In China they consider us a Chinese supplier with Chinese management. That doesn't mean that we do everything the Chinese way. Before, many workers lived far away from the factory and slept on site, sometimes with their family. We didn't like that. So we immediately flattened the sleeping quarters and moved our employees to the city. We also installed heating and air-conditioning, as people were sitting with a heavy coat in the office in winter and in summer it was often unbearably hot. Out there we look after our employees, as we do in Belgium. We use a single status for employees and make no distinction between white-collar and blue-collar workers. The incentive programmes apply to everyone. We get a lot in return. Last year we had so much work that we almost had to cancel all leave, but we had enough employees who volunteered to come to work."
What is the role of the bank in this expansion?
In 2009, BNP Paribas Fortis and two other banks were involved in the restructuring of Punch Powertrain, says Jo Peeters (Relationship Manager at BNP Paribas Fortis):
"We provided the financing together with ING in Belgium and KBC financed in China. The restructuring wasn't all that easy as they needed new customers, but we trusted the shareholders and management team, and their business plan. They demonstrated that it could be done and have proven it. In their first year the turnover went from zero to €50 million. That was amazing. It is also great to see that their strategy of ten years ago is still going strong now."
At the start of 2015 the financing structure changed. Upon request of the customer, the Bank of Nanjing, a BNP Paribas subsidiary, took over the financing package in China. BNP Paribas Fortis became the mandated lead arranger for a new investment plan amounting to €270 million. Jo Peeters:
"BNP Paribas Fortis has taken on the majority of the financing and the balance is shared between KBC, ING and Belfius. This amount of €270 million is invested in phases in buildings and production machines in Belgium and China. We are also setting up a representative branch in India. Punch Powertrain proves that Belgian companies are also able to innovate and conquer foreign countries. The company is quick and flexible. As a financing bank we have to be quick in our responses and anticipate situations. We will be glad to continue to support them in their global plans."
Shortly after this interview, Punch Powertrain announced that its shareholders have entered into an exclusive purchase and sales agreement with the Chinese group Yinyi to purchase 100% of the shares of Punch Powertrain in Limburg.
Belgian SMEs abroad: AMOS technology spreads to the 4 corners of the world
Based in the Liège Science Park in Angleur, AMOS is scoring high with its professional telescopes and aerospace systems. 95% of its turnover is made abroad.
The Cerro Paranal mountain in the Chilean Atacama desert is more than 2,600 metres high. The sky is clear nearly every night, there is hardly any pollution and the atmosphere is also causing little disturbance: ideal circumstances for the Very Large Telescope. This European astronomical observatory consists of four large and four smaller telescopes, with a diameter of 8.2 and 1.8 metres respectively. Is there a lack of chauvinism? The fact is that few are aware of the amount of Belgian expertise that has gone into this advanced observatory. The telescopes of 1.8 metres in diameter are, for instance, built entirely by AMOS in Luik, says CEO Philippe Gilson:
"In Chile they are mounted on top of a tunnel system so that they can work together as one enormous telescope with a diameter of 100 metres. We also supplied various components for the four larger telescopes."
AMOS was founded in 1983 and combined the mechanical expertise of the engineering company Ateliers de la Meuse with the optical knowledge of the Institute for Astrophysics of the University in Liège. AMOS currently operates in three sectors. They develop professional telescopes and components for the largest observatories around the world, and produce on-board telescopes and instruments for satellites. Philippe Gilson:
"Another focus is the space simulators in which satellite components are tested. Space is a vacuum and the temperature is -270°C, but in the sun this can increase to several hundred degrees above zero. In this type of simulator it is tested whether or not everything continues to operate under these extreme circumstances. In our discipline precision is the keyword. Our technicians polish mirrors with a diameter of almost 3 metres. The surface is exact to a few dozen nanometers – and a nanometer is a millionth of a millimetre."
Some other companies in this niche sector specialise in one or more products, but AMOS' strategy is to diversify. Philippe Gilson:
"The astronomy and space sectors are cyclical markets. When economies are flagging, research budgets are often the first to be cancelled. The more we diversify, the better our chances for a stable workflow. This strategy is proving successful. Last year we grew by 25% and our order book is full for the next three years. We want to keep it that way. It would be a real waste to let people go after such careful training."
AMOS has no off-the-shelf products – all work is tailored to specific projects. The expertise of this company based in Liège is known worldwide and 95% of its turnover is derived from export. With a share of 44%, the European Space Agency is its biggest customer. Most European observation satellites contain telescopes or other components made by AMOS. The company is also working in the USA, Russia, Turkey and Vietnam, and currently China is a strong grower. Philippe Gilson:
"A third of our turnover is currently realised in India. We have collaborated on the construction of two astronomical observatories, the largest of which is situated in the Himalayas. India is a country on which we have had a specific focus for a number of years. It is an emerging economy with a well-trained elite wanting to play an international role in the scientific field."
Our Belgian engineers and technicians happily go on trips to the Himalayas. The basic comfort level is largely compensated for by the adventurous nature of the job. Philippe Gilson:
"In large companies people are sometimes prepared for foreign missions, but for an SME with 90 employees things are a little different. Our employees have learned to adapt over the years. As Belgians it's not a big jump: we are a country with different languages and Belgium is so small that we have to be open to the rest of the world."
Belgian SMEs abroad: for Sofico, going international was not a choice
Sofico, based in Ghent, sells its software solutions for car finance, leasing, and fleet and mobility management on a worldwide scale. Their target group is exclusive: large players on mature markets.
Quotations, contracts, insurance, fuel cards, maintenance, winter tyres, repairs, fines, and more – lease contracts are rather complicated. Not in the least because of the large variety in local legislation and commercial customs. Wim Bauwens (Marketing and Communications at Sofico):
"Our software package Miles covers the entire lifecycle of such contracts. It is a global solution but with a local implementation, adapted to the market and the company."
Sofico was founded in 1988. The company has 190 employees, of whom 45 are in Australia, 25 in Japan and 20 in France. Its target group is large leasing companies with 5,000 vehicles or more. The substantial investment is just not feasible for smaller companies. Going international was not simply a choice, but essential. Wim Bauwens :
"In Belgium, we had a dozen potential customers. The Netherlands seemed a logical first international step. Shortly afterwards, in the middle of the 1990s, an Australian leasing company asked us if we wanted to work for them. We started by sending people to the other side of the world for a few months, but after a few years we set up a branch."
The next international step – looking at Japan – was on Sofico's own initiative. Handling that market from Australia was not an option. In 2012, the company started to explore the market with a prospecting branch and three Japanese employees. That took about two years. Changing the core software package is an expensive and major decision for the customer, with a long decision-making process. Only when we had customers did we start working on the other functions. Sofico always worked together with local recruitment companies. Wim Bauwens:
"Japan is a mature market, like Western Europe. It has large leasing companies with up to 100,000 vehicles. Many services are also linked to the leasing contract, which makes product management rather complicated. Japan also has a complex, fragmented market with regard to legislation as each province has its own tax rules. It is an ideal environment for a flexible software package like ours."
Two years of prospecting without customers costs a lot of money, but the shareholders, who are also working for the company, were happy to try it. Wim Bauwens:
"Sofico has a healthy cash reserve on its balance sheet and is also able to make decisions without external shareholders breathing down their neck. This has paid off as we managed to get a customer from the Japanese top five rather quickly. The fact that management is able to decide independently on investments bore fruit again in 2014. At that time we made our first acquisition: Car Systems, a French company specialising in the leasing and short-term letting of trucks. It was an unforeseen opportunity which suits our strategy: we are not only looking at new countries but also at broadening our scope. Our next priority is the American market. There has been some interest but our potential customers do not recognise their product in our European set-up. We have to work on 'Americanising' it a little."
Adapting to local laws and customs is in Sofico's DNA. Its IT consultants work in 19 different countries, and they have enough cultural sensitivity and flexibility to understand that each culture has its own view on things.
"The Japanese are proud of their culture and Japanese companies are clearly preferred above foreign companies. For our Japanese customers we are a Japanese company, despite its Belgian origin. When the Belgians are in town, our Japanese colleagues love showing them a bit of Japanese culture. That's going well. IT people are the same the world over."