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July 10, 2007 

 Q&A: Madison Capital Partners CEO Larry W. Gies on Specific Country Issues 7/10/2007
The mission of Going Global, which appears on MidwestBusiness.com on most Tuesdays, is to educate and inform Midwest technology companies on what local technology companies are doing internationally so other firms can learn from the successes of like-minded peers.

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 three of a three-part Q&A, Gies sat down with Michael Muth to discuss international reporting, compensation and specific country issues.

Michael Muth: How does financial and operational reporting differ outside the U.S.?
Larry W. Gies Jr.: Standards are becoming remarkably similar across the globe. This will continue. The biggest difference I see in timing is that certain countries arenít as accustomed to delivering financial statements or operational metrics in a timely fashion. The key is to measure often and report accurately and timely.

I have worked with businesses that report 90 days after a reporting period. This is a measurement tool youíre getting 90 days late. If we get the information quicker, we can solve problems quicker. You just make it simple. Humans see where youíre going, want to be successful and want to be on the winning team.

If you put up charts (regardless of where you are), people are going to want to be on the top of those charts. The key is having the right charts and metrics and making sure everyone understands the drivers to success.

MM commentary: While the rest of the world is eventually adopting Financial Accounting Standards Board (FASB) doctrines, how different cultures value time still varies. Motivations vary as well, but if you hire achievers wherever you are, they will want to top the charts.

MM: How do you structure compensation differently abroad?
LG: We donít.

MM commentary: A very basic premise of Madison Capital Partners is to give owners and managers an equity interest in the company. That doesnít change. According to law, compensation for others has to differ.

MM: How sensitive should executives be to local culture?
LG: A problem with Americans running a German business is theyíre either not sensitive at all and lose the group or they are concerned about being sensitive, go overboard and get nothing accomplished. I do this all the time.

You get a German to run a German business and an Italian to run an Italian business. Even the regional levels of certain countries are different.

MM commentary: Someone still has to look from country to country, and for someone in that role, itís still a challenge.

MM: Where do you find intercultural rock-star leaders?
LG: When hiring someone, you never really know what youíre getting.

Empirical data shows that the typical hiring and interview process is only 25 percent effective. If you put all the procedures in place with testing and team interviewing, you can hit 33 percent. The key is working closely with people in order to see how they adapt and react.

MM commentary: In other words, itís not easy to find rock-star leaders.

Specific Country Issues

MM: What kinds of facilities do you have in Europe?
LG: Numerous manufacturing plants, technical and research centers and service depots

MM: How do you protect intellectual property in China?
LG: You donít. You will lose it. Itís not the laws or the judges. Itís the lack of effective enforcement. We donít do joint ventures. We have one of our ex-patriates setting up the right processes.

We then get a very good Chinese manager who knows the people and will be a manager of that facility. We try to keep our special sauce in countries with better protection. While this helps, it still doesnít solve the problem.

MM commentary: Even manufacturing companies (not just software companies or other knowledge-based companies) are wary of intellectual property protection in China.

MM: Why so little in South America?
LG: Thatís due to current market size and the fact that I know so little about the region.

MM commentary: There are opportunities down south.

MM: Do you see any hope in Africa?
LG: I was in South Africa in 2006. Given the history, itís phenomenal what theyíve done politically.

Most of our businesses have sales offices and outposts in South Africa. Though weíve never purchased a company there, we have purchased companies that do have operations there. In North America, Europe, Japan and China, you hit 80 percent to 90 percent of the market.

MM commentary: Though a lot of the attention these days goes to the BRIC (Brazil, Russia, India and China) countries, the developed world still accounts for the vast majority of the world economy. South Africa is setting a great example for the rest of the countries of Africa to follow.

MM: How much international business did you study before you jumped in?
LG: None. I was against traveling. The first time I went to Europe was when I was 26 and working with the Treuhand in East Germany. I had to learn all this on the fly. Iíve made a lot of mistakes and learned the hard way.

MM commentary: I lived in Germany for more than two years and still didnít understand the east Germans. Going over there cold could have been even more challenging.

MM: Do you speak any foreign languages?
LG: I suggest that everyone learns at least one because it makes all the others easier. We were in a train when the Berlin Wall fell. There were two salesmen from the former eastern Germany. We wanted to talk with them and none of us spoke German. One of our guys was from Houston and spoke Spanish.

The two Germans were allowed to go to South America on business in the 1980s and they spoke Spanish. We spoke in Spanish to find out what they thought about the wall falling down. The U.S. will have 33 percent of its population with Spanish as their first language in seven years. We all need to be open to adapt.

MM commentary: I agree that everyone should learn at least one language. My German is still strong.

Iíve personally found it difficult to learn others because my predispositions from learning German have created obstacles in learning Polish when I was in Poland and French when I was working with the Canadians. Iíve used this language triangulation many times. Iíve even included body language.

MM: Is the Gies Foundation involved in any international endeavors?
LG: We focus on inner-city education in Chicago. While I wish we could do more, there is so much to do here in Chicago.

Internationally, we are working on a cure for a disease. There are teams all over the globe working on solving this disease. Itís very satisfying to watch the teams working on this seamlessly across the world.

MM commentary: The international philanthropic interests can be the most satisfying of all.

Michael Muth is managing director of GATA, an international business development consultancy that helps technology companies build international partnerships. He can be reached at muth@midwestbusiness.com.
Click here for Muthís full biography.

Previous Columns in 2007:
Q&A: Madison Capital Partners CEO Larry W. Gies Jr. on Cultural Differences (6/26/2007)
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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