Taking the pain out of growth: business process outsourcing.

As the board presses management to ensure the success of foreign ventures, more companies rely on business process outsourcers' expertise to pave the way -- and translate foreign business into shareholder value.

Global Markets for Shareholder Value

Most companies learn the true meaning of "growing pains" only when they expand into foreign markets. And in the age of global expansion, record numbers are learning how hard it can be to seize foreign and emerging markets and meld efficient global operations. Still, aggressive foreign investment continues, as companies try to build revenue and profit growth in foreign markets including Eastern Europe, Latin America, and Asia Pacific. By 1996, U.S. companies had poured over $800 billion into direct foreign investment -- up from only $270 billion a decade before.(1) Similarly, United Kingdom's direct investment in all countries around the world rose to $334 billion in 1996.(2)

The board of directors' fiduciary responsibility for stewardship of company resources puts major capital spending programs at the top of its agenda. And management is responsible for strategic business plans that create long-term profitability. Both devote time to planning global investments, which offer exciting growth opportunities -- and pose serious business challenges and financial risks for even the largest multinationals. Companies with the speed, resourcefulness, and flexibility to lead domestic markets often find themselves short of all three in foreign markets. Difficulties are multiplied many times by factors companies fail to appreciate initially. Unanticipated obstacles make it difficult to manage the new business, let alone expand it to build shareholder value.

Obstacles to Foreign Market Entry

Some foreign markets are harder to enter than others; none is "easy." Companies that launch foreign operations without the benefit of a joint venture or outside support face the painful, costly process of learning a new culture and business environment. Investment and trade opportunities, restrictions, incentives, and government and regulatory agencies' requirements vary widely among countries. So do import and export laws, labor relations, and finance and accounting requirements. The company must know all the basics before setting up back-office services.

Some companies resolve many start-up issues, move brands and products into foreign and emerging markets, and develop sales and distribution channels. But actually supporting the business is hard from the Stan and only gets harder Many take the first hurdle, achieving financial control over the growth program, whether organic growth, capital investment or acquisition. But as the business takes off, problems escalate.

Busy pursuing opportunities, how does the company perform all the support processes on which it relies? How does it provide standard accounting and management practices in markets that lack trained people? If a U.S. company opts to send more staff to work in Europe or Asia, it spends, on average, triple their total domestic cost; a European company can expect expatriate staff in Central Europe to quadruple its domestic cost. How can management handle human resources programs -- recruiting, training, compensation/ benefits, payroll, expatriate administration -- when each element varies for nationals and expatriates. And how will the company provide the information technology (IT) infrastructure underpinning operations -- when everything from software to training manuals must speak the right language and accommodate currencies, social customs, and local business practices?

Companies that muster the resources to resolve these issues internally do so at great cost. Worse, they expend too much time in the start-up phase, when more nimble foreign and local competitors are gaining share. Whatever the market, finding a sufficient number of people with the right mix of skills to support the business immediately becomes the most painful issue.

Relieving the Pain

Companies may need a local partner in the new territory just to get in the game. Many rely on local joint ventures or acquisitions with established product or distribution channels to help launch the business.

But with so much money at stake, many companies need more comfort. They now look for alliances and new types of business relationships in the area of support processes. Their goal: to turn over responsibility for operating them to partners who take the pain out of growth.

Beyond demonstrated expertise, such partners must offer a critical mass of resources to keep pace with rapid business growth -- relieving the worst pain of expansion. They must offer a core of appropriately skilled staff, including nationals. to handle high-volume transaction processing services and the flexibility to add staff as the venture expands. Effective partners will have a strong local...