06 Aug 2001  Research & Ideas

Go Global—or No? Can You Make the Case?

Ever wanted to judge a Harvard Business Review case study? Here's your chance. Help DataClear decide whether or not to go global. Authored by Harvard Business School associate professor Walter Kuemmerle.

 

Editor's Note— Ever wanted to judge a Harvard Business Review case study? Here's your chance. In its June issue, Harvard Business Review published an account of the fictional company, DataClear, authored by Harvard Business School associate professor Walter Kuemmerle. The firm must decide whether to go global in the face of a new competitive threat. HBR published comments from four management gurus on what DataClear should do. (See Close Up.)

Now it's your turn.

We have included an excerpt of the case and a summary of the consultants' advice. But if you want to act as your own consultant—and possibly have your comments published in an upcoming issue of HBS Working Knowledge—it will cost you $6.00 to download the full story from HBR. See details below.

For two years, U.S.-based DataClear has all but had a stranglehold on the data analysis market. Sales of its product, ClearCloud, hit $2.2 million in 1999, the company's first year of operation. The following year, the company was on a $5.3 million run rate. The bad news: competition is suddenly on the horizon, in the form of British start-up VisiDat—at least according to a trade journal story. So now what? Does DataClear stay focused on the U.S. market, leaving VisiDat a worldwide opportunity on its own? Or do DataClear execs Greg McNally, the founder; Susan Moskowski, head of sales; and Tom Birmingham, business-development manager, forge a global strategy?

The group heads to an Alta, Norway, offsite to discuss options.

At ten o'clock the next morning, Group A took the floor and made their recommendation right off the bat: DataClear should immediately establish an office in the U.K. and staff it with four to six salespeople. Britain would be a beachhead into all of Europe, but eventually there would also be a sales office somewhere on the Continent, maybe in Brussels. They had even drafted a job description for a head of European sales.

Greg was impressed, if a little overwhelmed. "Any idea how much this would cost in terms of salaries and expenses over the first year?" he asked.

"Conservatively, about $500,000 a year; probably more," the group leader replied. "But cost is not so much the point here. If we don't make this move, we'll get killed by VisiDat—or some other competitor we don't even know about yet. Imagine if SAP introduced a similar product. With their marketing machine, they would just crush us."

Tom Birmingham started to object. "Where are we going to find local staff to install and support this product?" he wanted to know. "I mean, this is not just about setting up an office to sell: ClearCloud is a complex product, and it needs a service infrastructure. We'd have to translate the interface software, or at least the manuals, into local languages. We'd need additional resources in business development and product support to manage all this. Selling ClearCloud in Europe is going to cost a lot more than $500,000 a year—"

Susan was quick to jump in. "Good point, Tom, and that isn't all we'll need. We also have to have somebody in Asia. Either Singapore or Tokyo would be an ideal base. Probably Tokyo works better because more potential clients are headquartered there than in the rest of Asia. We need at least four people in Asia, for the time being." Tom frowned but, feeling that Susan had the momentum, decided to hold his fire.

After lunch, it was Group B's turn. They suggested using autonomous software distributors in each country. That would help DataClear keep a tight grip on expenses. Greg spoke up then. "What about teaming up with some local firm in Europe that offers a complementary product? Couldn't we get what we need through a joint venture?"

If we don't make this move, we get killed by VisiDat—or some other competitor we don't even know about yet.

"Funny you should mention that, Greg," said the presenter from Group B. "We came up with the idea of Benro but didn't have time to pursue it. They might be willing to talk about reciprocal distribution." Benro was a small software shop in Norway. Greg knew if had made about $5 million in sales last year from its data-mining package for financial service companies. Benro was very familiar with European customers in the financial services sector but had no experience with other industries. "Working with Benro might be cheaper than doing this all on our own, at least for now," the presenter said.

Susan chose that moment to speak up again. "I have to admit I'm skeptical about joint ventures. I think it will probably take too long to negotiate and sign the contracts, which won't even cover all the eventualities. At some point we will have to learn how to succeed in each region on our own."

That's when Greg noticed Tom studying Susan, his eyes narrowing. So he wasn't surprised—in fact he was a little relieved—when Tom put the brakes on: "I guess I don't see how we can make that decision until we gather a little more input, Susan," Tom said. "At the very least, we need to have a conversation with Benro and any other potential partners. And I know I'd want to meet some candidates to lead a foreign sales office before I'd be comfortable going that route. But my real concern is more fundamental. Are we up to doing all this at the same time we're building our market presence in the U.S.? Remember, we don't yet have the capability to serve the chemical and pharmaceutical industries here. There are still only 38 of us, and I estimate that building the support infrastructure we need just for domestic expansion could cost as much as $2 million—on top of product development."

Before Susan could object, Greg struck the compromise. "Tell you what. Let's commit to making this decision in no more than two weeks. I'll clear my calendar and connect with Benro myself. At the same time, Susan, you can flush out some good candidates for a foreign sales office and schedule them to meet with Tom and me."

Go Global—or No? The Consultants Speak

This is a summary of the comments of four business experts asked to review DataClear's dilemma.

Alison Sander (HBS 1986)
Boston Consulting Group

Instead of undertaking huge investments to open global subsidiaries, DataClear should leverage the existing global infrastructures of customers such as MasterCard or Visa. "…Greg could hire a manager in the United States to supervise sales and develop customized support for large multinational customers. The best-run companies follow a step-by-step approach to global expansion."

Scott Schnell (HBS 1985)
Senior VP of RSA Security

"A move abroad at this time makes questionable strategic sense." The young company's management is not ready to take on the project, and the company has little international experience. Better to cement its place in its most promising territory—the US—than be first to market in all possible territories. Later in its development, DataClear can consider joint ventures or partnerships to get it overseas.

Heather Killen
Senior VP of international operations for Yahoo

The company faces a daunting challenge—but "remaining a domestic player is not an option." Because building overseas offices is expensive, an alliance strategy could be attractive. But partners need to be chosen carefully. Consider targeting global companies based in the US, starting with its own customers. Greg should also consider bringing in a strong VC in Europe or Asia.

Barry Schiffman
President and executive managing director of JAFCO America Ventures

As a start-up, DataClear does not have the resources to mount an international venture. A good first step: Get more information by hiring a consulting group. If the results are promising, approach investors with a two to three-year business plan, recruit good international talent, and consider domestic partners with international presence. It also needs to understand the potential competition more than just relying on trade journals and press releases.

Excerpted with permission from "Go Global—or No?", Harvard Business Review, June 2001, Vol. 79, No. 6.