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CHICAGO Ė Under the leadership of Larry W. Gies Jr., Madison Capital Partners has acquired 20 companies. Most have significant overseas operations and are based in Europe. Madison Capital Partners provides management capital and strategic resources to underperforming businesses.
In part two of a three-part Q&A, Gies sat down with Michael Muth to discuss cultural differences.
Michael Muth: How do views on property differ internationally?
Larry W. Gies Jr.: While there are significant differences, these are disappearing slowly but surely. You canít own property in China. All property is considered the property of the people. You can only get a long-term land lease. That will change over time.
In Germany, there are many people beginning to do sale leasebacks. As the value of the land is worth more than the business, you sell the land and reinvest in the core business. There is an old tradition that selling your property is a negative signal. It says youíre in trouble. In the U.S., a sale leaseback is considered normal.
MM commentary: Commonly accepted business practices in America are not necessarily commonly accepted in other places especially when they are impacted by the local business culture.
MM: How do different cultures view debt?
LG: Legally and culturally, debt is treated differently across the globe. You have to be careful of financial-assistance laws in Europe. In 2001, it was technically illegal to do a leveraged buyout in Italy. You had to do it in steps.
Thatís no longer the case. In many countries, a company canít pledge its assets in order to do a leveraged buyout. In Germany, you canít upstream cash for the purchase price.
MM commentary: In the U.S., we look at debt as just another financial tool. In other places, itís encumbered with more laws, social mores and taboos.
MM: How do definitions of equity and private equity differ internationally?
LG: It gets back to knowing your audience. I was giving a presentation on ownership a few years ago in Germany to a group of managers. A managing director asked: ďWhat is equity?Ē The word itself was an issue.
If you look at ownership, the Japanese are the most negative to entrepreneurship and ownership. On the other hand, Italy is big on entrepreneurship. A typical German would rather say he inherited his wealth than to have created it himself.
MM commentary: In Germany, the Mittelstand (or mid-sized business) is known as the backbone of the German economy. In the U.S., we revere angel and venture capitalists along with the self-made person. Elsewhere, those people are not as respected.
MM: What languages do you encourage in your far-flung operations?
LG: We donít staff our overseas operations with Americans. We staff them with locals who know the culture. The local language is encouraged.
MM commentary: However, when Madison Capital Partners sends its executives abroad (itís rare that they speak the local language), they do require their partners to speak English. Iíd be surprised if there arenít a few people who have responsibilities outside the country in which they work where theyíd have to know another language.
MM: How are board meetings different in Europe and Italy than in the U.S.?
LG: Though you can find differences in the U.S. from board to board, I do notice distinct differences overseas.
In Italy, you deal with the issues before the meeting. People donít want to lose their pride in a board meeting. In Italy, we have statutory accountants at board meetings. Iím still not sure what they do. A board meeting is not the time to challenge something. Every time I do, people get very upset.
In Germany, the issues are addressed in the board meeting and itís much more formal. Half the supervisory board is comprised of union or workerís councils. They keep meetings very open.
We want the council to be involved. We can solve our problems together. Itís really fascinating. We get to the heart of problems right away. We get great, immediate feedback. The communication barriers are broken down very quickly. You immediately have a formal process where you have to talk to solve problems.
The informal ties donít always work. The input comes in right away and you solve it together early on. Nothing is secret. Iíd consider doing it in the U.S. Itís not the structure but those six guys who represent the council. They are excellent. While they have a different constituency than we do, we all have the same goal: the long-term viability of the business.
MM commentary: Even meetings with highly powerful people from different countries are necessarily as direct and to the point as Iíd expect them to be. Itís also interesting to note that the relationship with labor can be conciliatory rather than confrontational.
MM: Weíre patriotic. Why do we object when others are?
LG: I donít object.
MM: How do you know when you know enough about cultural differences?
LG: You never do. Iím always learning. That is what makes it challenging and fascinating.
MM commentary: There are superficial cultural differences and then there are those that are deeply rooted in values. Those take more time to decipher.
MM: Do you see continents as single markets or many different markets?
LG: To be successful, you need to look at each country and in many cases each region of a country. For example, Europe is very heterogeneous. The European Union has been wonderful (especially with a common currency).
In the U.S., youíll typically have one or two plants and a sales group that can go anywhere. In Europe, youíll have a separate sales office in every country. Some of that is history with different currencies and languages. While the European Union is becoming more seamless, the barriers between countries and certain regions will always be there.
I worked in Germany with the Treuhand in the early 1990s when the wall came down. It was a wonderful experience. You learn youíre never going to break down the cultural barriers completely. In many ways, this is good.
MM commentary: Those who lump all of Europe, Asia and Latin America into neat stereotypes are missing a lot of the detail. Theyíre all quite different Ė even within each country Ė because they often have a lot more history than we do and have developed differently over time.
MM: Can you manage your operations from the U.S.?
LG: No. You must have rock star managers locally.
MM commentary: Finding such managers is difficult enough for domestic companies. I imagine foreign firms finding them is even tougher.
MM: How do you balance local interests with global goals?
LG: While we donít think alike, we do have the same goals if you build the business for the long term. Thereís no way to satisfy every interest. Consequently, youíre not going to win over every heart. However, if all parties have the pertinent facts, consensus is easier to reach.
MM commentary: This is a constant juggle and struggle. Unlike in the U.S., bottom-line profitability is not always the only or at least main goal.
Michael Muth is managing director of GATA, an international business development consultancy that helps technology companies build international partnerships. He can be reached at email@example.com.
Click here for Muthís full biography.
Previous Columns in 2007:E-Mail This Article to a Friend or Colleague
Q&A: Madison Capital Partners CEO Larry Gies on International Private Equity (6/11/2007)
Q&A: Scott H. Lang of S.H. Lang & Co. in Chicago on Foreign Deal Making (5/15/2007)
Q&A: Scott H. Lang of S.H. Lang & Co. in Chicago on Middle-Market M&A (5/8/2007)
Q&A: Scott H. Lang of S.H. Lang & Co. in Chicago on Middle-Market Firms (4/24/2007)
Q&A: George Filley of NAVTEQ in Chicago on Data Localization, Reach (3/27/2007)
Q&A: George Filley of NAVTEQ in Chicago on Partners, Personal Privacy (3/20/2007)
Q&A: George Filley of NAVTEQ in Chicago on Digital Mapping (3/7/2007)
Click for 2006 column archive.
Click for 2005 column archive.
Click for 2004 column archive.
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