Fancy a sojourn to somewhere far-flung and hot? If you are confident with your core service or product at home, why not see what is on offer for your business in foreign climes?
Expansion abroad can help a firm learn new skills and get involved with a wider variety of projects. But how do you start?
First, consider who works for you and what contacts they have abroad, or speak to those who have previously worked overseas about opportunities.
Markets should be considered carefully.
Peter Kilby, chief executive of London-based Cornhill Construction Group says: “You have to have done your homework.If you know the market, you’ll know what’s available. It’s better to focus on a niche sector.”
Cornhill came fifth in Construction News’ league of the 100 fastest growing companies earlier this year. It has chosen to market its core business – project management of luxury hotel and residential interiors – in the Middle East.
It is also looking at projects in Barbados and Belize. The firm chose those markets because there was less of a language barrier and because its staff knew the areas very well from previous projects.
Pick your market
Mr Kilby says the key is to be quite careful about where you chose. “Don’t spend too much on set-up costs,” he says. “Be sensibly frugal. Get local construction advice.”
In Dubai the firm has a local sponsor, which gives the company kudos and provides an edge when getting work.
“There are still five to 10 years of heavy construction there,” says Mr Kilby. “And it appears that Abu Dhabi is hot on its heels in terms of expansion and development.”
Cornhill only offers construction management or project management in the United Arab Emirates because it feels it is less risky than contracting.
Lagan Construction was founded in Northern Ireland in 1960. It now works in Belize, Barbados, Jamaica and Puerto Rico. Colin Loughran, director of international operations at Lagan, says there are fewer opportunities for smaller contractors in the Middle East as it is dominated by the majors.
Lagan’s first foray overseas was to Hong Kong in 1995, working on runways at Chek Lap Kok airport. The firm took advantage of contacts within main contractor Alfred McAlpine and decided to go for the work as the market in its homeland was slowing.
Lagan managing director David Jeffs points to the differences in business cultures abroad.
“Jamaica and Puerto Rico would only be an hour and a half apart by plane but you have to fly via America, so it actually takes eight hours,” he says. “Business in Puerto Rico is heavily influenced by the detailed American legal system but in Jamaica the attitude is ‘It’ll get done’. ”
When Lagan went to Hong Kong, none of its staff had worked overseas before and the firm found it a challenge.
“You think of Hong Kong as a modern place but back then it still seemed quite remote,” says Mr Loughran.
“The difficulties were chiefly logistical – moving materials from Singapore and moving people on and off the island.
“It was a pretty bleak site and it was a big challenge to keep morale up. We gave the guys 10 days off at a time to go home or travel and held events such as barbecues.”
The company decided to work abroad as it was a good way to gain experience it couldn’t get at home.
Mr Loughran says: “It was an opportunity to grow the airport business, for example.
“There are few new airports in the UK and the opportunity to build them doesn’t come up enough. But many islands in the Caribbean, for example, need airports. So working abroad gained us the expertise. But you are not going to make a fortune overseas.”
For Mr Kilby, overseas work provides a degree of security.
He says: “In the UK people can’t see past 2012 – no one knows what’s going to happen after the Olympics. In the long term there is less stability here.”
Forewarned is forearmed
• Know your market. “You must have local input. We’ve stuck with our local contacts and knowledge,” says David Jeffs, of Lagan Construction.
• Think carefully about the culture of the place you’re considering. “Take traffic management, for example. In some places you put cones down and before you’ve put them all down people steal them,” says Mr Jeffs. Large rocks are used instead.
• Tread cautiously when it comes to local suppliers, he adds. “Our belief is you can’t rely heavily on local suppliers. In Puerto Rico we have our own batching plant, technicians and equipment so you have control over the bulk of the work. If you rely on the locals they might let you down.”
• Think money. “Get a local contract that isn’t paid in local currency. Get paid in US dollars, then you can mitigate risk to a degree by buying forward,” says Mr Jeffs. The Jamaican dollar has recently dropped by 30 per cent against the pound.
• Consider health and safety. Lagan aims to have the same standards as apply in the UK but in some places it is difficult to enforce.
• Understand that things often take longer abroad. Mr Jeffs says business in Puerto Rico might take three times as long as it does here.
• Consider the political situation. Mr Loughran says: “Politics is king. The country might revolve around which party is in power; it is part of daily life.”
• Paperwork. This may also be more complicated. “Puerto Rico depends on legal assistance for virtually everything. We had to have 47 types of work permit,” says Mr Jeffs.
• Think about opportunities for new ventures. Cornhill is expanding into wind farms. “We will be speaking to the Barbados government about wind farms or undersea turbines as it’s the perfect area for them,” says Mr Kilby.
FACTORS TO CONSIDER
Adrian Mulea, director in Ernst & Young's Real Estate practice offers advice about moving overseas:
How to set up a business abroad
"Research and planning is key. Select your location carefully and base your decision on criteria such as the extent of business opportunities in your areas of expertise and your capability to deliver.
Where SMEs are looking to set up overseas, a good rule of thumb is to establish a small-scale operation initially, perhaps based on a contract success engineered from the UK. You don’t have to set up a business on your own – you may consider a joint venture or partnering arrangement with a local firm as a better way of establishing your presence – in which case choose your partner carefully."
"Local knowledge in areas such as law (both employer and contractual) and finance (tax/accounting) is essential – make sure you select the right employees or advisers in these key areas.
It is also an idea to make sure that governance processes are in place from the start, for example, does UK management have the ability to monitor and influence effectively the financial and operating performance of the overseas business? In terms of project expertise, it’s a good idea to blend a local workforce on a construction project with experienced project managers from your existing workforce – and don’t forget about factors affecting the availability of labour such as labour regulation, social security costs and the potential impact of local trades unions."
"Think also about the cash flow implications – the availability of funding is tricky enough at present to mean that the last thing you want is a drain on resources in a remote location. Consider your funding strategy – its often sensible to achieve certainty in cash flows by agreeing contract terms up-front and hedging foreign currency cash-flows where appropriate."
Which markets to target?
"This is dependent on the nature of your existing business. It makes sense to concentrate on what you are already good at. It’s hard enough breaking into new geographical markets without having to concentrate on the demands of a new sector or a project of a size or complexity which is unfamiliar. Do your research, establish where you think you have a clear competitive advantage – for example, where the market for a particular type of service/product in the construction industry is immature in the overseas country concerned, but where you can boast a track record of success. Clients (including lead contractors) in the construction space wherever they are in the world are also often most comfortable dealing with familiar suppliers/sub-contractors: that can pose problems for a firm looking to break into a market from overseas. Again, it might make sense to team up with a partner especially where you offer complimentary skills which combine to make a persuasive business case in the geographical market concerned."
"Consider the processes involved in winning new business – for example, if you envisage tendering for public sector work, consider the length, complexity and potential competition involved in bid processes."
Pitfalls to avoid
Don’t dive in too deep, too fast – take on contracts and establish an organisation which is familiar and manageable and where costs can be managed"
Remember to implement the governance and risk management processes you would establish in your ‘home’ office – monitor performance regularly and be aware of the changing pattern of risks which might be peculiar to a particular country"
Don’t compromise on planning and advice – while there might be cost savings initially by not doing the necessary level of due diligence upfront, these might be pyrrhic, especially, for example in complex tax jurisdictions or where knowledge of local business practices and customs is essential"
Language barriers can also be important – construction is a sector where minimising the possibility of misunderstanding between supplier and customer is critical, whether in terms of delivering the product the customer wants, or in completing a job efficiently and safely. Make sure you have a team which is able to communicate effectively in the country concerned."