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CHICAGO Ė International columnist Michael Muth concludes his Q&A with Bob Okabe, a founder of Prairie Angels in Chicago and a veteran of the RPX Group, by delving into the truth of Japanese diction, a comparison between Chicago and New York in terms of internationalization and how to approach international markets.
Michael Muth: At what stage do you see companies crossing borders to get investment?
Bob Okabe: There are two thresholds: They look when theyíre doing business across borders (otherwise the transaction costs are too high) or there is a size limit. Once you can absorb the transaction costs, the fixed costs become a lower percent as costs go up.
MM: How do you recommend for companies to approach international markets?
BO: If youíre selling your product abroad, you need to find distributors and partners. While this might be more expensive to maintain over time, it has a low cost of entry. Your initial risk is less.
While the percent might end up being massive and the transition might be expensive, the risk reduction is often worth the cost. Itís not different in the pharmaceutical market where big companies wait until a technology reaches stage two or three clinical trials and then has to pay extravagant amounts to buy the winners.
Itís cheaper than managing the mistakes. Third-party distribution channels are ways to get into markets. While they may cost more over time, the entry cost is low.
MM commentary: Because local partners typically have customer relationships existing already, you can build a market quickly if you build a relationship with them. Those relationships will cost you between 20 percent and 30 percent in commissions. Those percentages rarely go down.
The trade off is time versus control. If the partner controls the customer relationships, the partner has the power. If you elect to build your own sales and marketing organization, you maintain control of your customer relationships but it takes a lot more time and money to build that up.
While your costs per customer may be higher at the start than the traditional commission rates, they can be reduced as you build up sales.
MM: Do you have any examples of local companies successfully selling to foreign markets or outsourcing?
BO: I worked with a start-up to sell a product made in Taiwan. They had to learn all the trade barriers, how long it takes to get through customs, how long things sit on the loading dock and all the other things people donít think about. Itís not necessarily cheapest to make everything in Taiwan.
While Dellís final assembly operations are all in the U.S., the company still has a reputation for being price competitive.
All the components are purchased overseas so theyíre still cheaper. It also depends on the value of the product (like a high-value automobile). The Japanese used to drive them off the boat. Now they build them in Ohio and Tennessee. When a market gets to a level of maturity, it becomes a hybrid model.
MM: How do you do due diligence on foreign opportunities and partners?
BO: You have to go there. I went to Taipei to meet the manufacturer and distributors. While people talk about a connected world, building relationships is still needed. How many market leaders avoid personal contact? Once you get to know somebody, that can work well for you.
MM commentary: One recurring theme of this column is becoming that itís all about the relationship. From Terry Howerton at FastRoot with his relationship with Ukrainian developers to Doug Cogswellís relationships with resellers in five vastly different markets, the one constant is building relationships with the right people and taking care of them.
MM: Whatís your family background? Did this help or hurt you in pursuing international business?
BO: Iím ethnically Japanese. Understanding two cultures has mostly been helpful. Ironically, the place where it has been the least helpful is in Japan.
Japan is a tightly bound culture, and while it is tolerant of foreigners, there is still a cultural separation. In rural Japan, you can still hear the phrase ďgaijin da,Ē which translates to ďitís a foreignerĒ. The expatriate community is much stronger there than many other places because of it.
Itís hard for many native Japanese to ďfitĒ Japanese-Americans in their sense of place. Japanese-Americans who achieve some celebrity level are a case in point.
There is a particular set of native characters for spelling my family name. If I won an Olympic medal or something else that the Japanese press would notice, itís an even-money bet that they would spell my name phonetically rather than using the traditional characters.
If youíre a foreigner, youíre not quite ďrealĒ. I was scolded on a subway train in Tokyo once by an older lady because I was with a Caucasian woman and she thought I was a local.
MM: Do you speak any foreign languages?
BO: I speak ďtouristĒ Japanese. I can get around and ask for directions. This can be very helpful in opening relationships. It shows a respect for the place and culture.
The presumption is that most Americans only know English. Even a limited understanding can be quite helpful. However, to conduct business, you have to have a much stronger command of the language.
If you listen to most native Japanese businessmen, their diction is not clear. As someone of Japanese descent, not only would I need to have a broader vocabulary but Iíd need to speak like I wasnít taught by a woman. Iím dead serious about that.
Their diction is much better. I understood every situation in the movie ďLost in TranslationĒ. It made perfect sense to me (including all the things that to Westerners seem like absurdities). Itís part of business there.
This is not just something that happens in Japan. The same thing happened to me in Beirut. The three languages of choice for business are French, Arabic and English. I understood enough French vocabulary to understand some of the things that were going on in meetings. Even that limited insight was helpful.
MM commentary: As much of a believer in learning languages as I am, I must admit that sometimes a little language-speaking ability can be a dangerous thing.
As much as Iím welcomed with open arms when addressing someone in their native tongue, I just as often get in trouble when natives start rambling quickly because they assume you can speak their language fluently when you actually canít.
MM: Given your experience in New York, how does it compare to Chicago as an international destination?
BO: I was born and raised in Chicago and then spent 20 years away from Chicago before returning in 1996. Chicago is a vibrant and much more cosmopolitan city than people realize. That said, New York is a significantly more international city.
While Chicagoans accept and receive other cultures, itís hard to experience them day to day in the business world.
In New York, you can do business with an Indian one day, an Arab the next and a European the following as your regular course of business. Thatís less likely in Chicago. Itís not that Chicagoans arenít receptive, interested or open. They just have less experience. In New York, that experience will hit you in the face.
MM commentary: While Iím not that great a fan of the Big Apple, I have to admit that many people there are more internationally aware than we are here. Part of the goal of this column is to change that. Though there are many Chicago companies that are successful internationally, my experience has found that Chicago prefers to look after its own.
Michael Muth is managing director of GATA, an international business development consultancy that helps technology companies build international partnerships. He can be reached at firstname.lastname@example.org.
Click here for Muthís full biography.
Q&A: Prairie Angels Founder Bob Okabe on International Adaptation (9/1/2004)
Q&A: Prairie Angels Founder Bob Okabe on Managing U.S. Subsidiaries (8/24/2004)
Q&A: Origin Ventures Founder Steven Miller on Investments, Angels (8/17/2004)
Q&A: Origin Ventures Founder Steven Miller on the Canadian Way (8/9/2004)
Q&A: CPCP Founder David Baeckelandt on Multilingual Importance, Mentoring (8/3/2004)
Q&A: CPCP Founder David Baeckelandt on Japanese Disclosure, Due Diligence (7/27/2004)
Q&A: Chicago Pacific Capital Founder David Baeckelandt on Overseas Funding (7/20/2004)
Q&A: ADVIZOR Solutions CEO Doug Cogswell on the Art of Partnering (7/13/2004)
Q&A: ADVIZOR Solutions CEO Doug Cogswell on BP, AstraZeneca Wins (7/6/2004)
Q&A: ADVIZOR Solutions CEO Doug Cogswell on Global Software (6/29/2004)
Q&A: CEO Terry Howerton on Why Chicago, Ukraine Made FastRoot (6/22/2004)
Q&A: FastRoot CEO Terry Howerton on Blended Chicago Approach (6/15/2004)
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