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four perspectives on international business
going global: challenges & opportunities

page four of four | previous page   

the audience: q&a

Q: What is being done to get companies to take help from the government?

Mr. Larson: We're trying to speak to groups like this, and we're setting up advisory committees that provide an organized framework for getting interchange between businesses and the government. We're open to any suggestions for how to make that work better. This is an important priority for us and it's certainly important for the Department of Commerce, which does an excellent job.

Q: What are the traits of globalization? There are certainly different political opinions about it, based on the demonstrations we saw at the WTO and IMF meetings.

Mr. Larson: Obviously, there are lots of concerns around the world. Having been a participant at the WTO meeting and the spring meetings of the World Bank and IMF, all of which experienced a lot of demonstrations, I understand your point. I am convinced that, on balance, globalization is probably irreversible. Whatever we think about it, I don't think we're going to stop it from happening. Second, I think that if it’s shaped in the right way, globalization is a very powerful force for lifting up incomes and opportunities for people all over the world. In our own country, it's a key factor in the success and prosperity we've had over the last quarter century. Notwithstanding the fact that there are terrible problems of global poverty around the world, it's one of the reasons why hundreds of millions of people around the world are not living in poverty any longer.

                Our goal is to shape globalization and allow it to help lift incomes around the world. In the area of information technology, our focus has been on making sure that any country that really wants to be a part of it gets the help it needs. They don't have to feel that this is something to resist and ward off; it's something that can work for them. That means training and capacity building for officials in developing country, as well as for businesses. It means helping them figure out how to build out their infrastructure. There are genuine problems in countries where tele-density is 1/100th of what it is in the US, and we have to make sure that people have access to the World Wide Web. It means developing some of these educational and health uses of the Internet which show that there is a way to deliver first-world educational and health information to people all over the globe, if not directly to their house, at least to community centers where they can get access. Finally, I think it means helping the developing countries see that they can make a buck at this. I have a gut feeling that unless there is a commercial opportunity in those countries, it will be hard to make these more socially-oriented educational and health uses of the Internet really sustainable over the long run.

Q: What is your perspective on the issues that American small- to medium-size businesses face today, particularly in Latin America?

Mr. Tosé: Our strategy has always been to try to locate near the customer, and you need to have people who understand the culture. In Latin America, the culture is very much about relationships. It’s about “Let me get to know you. Let me establish a rapport and trust.” It’s not so much the US approach that wants to dive right in and get the deal closed. It's more socialization, “Let's break some bread and talk so that I get a comfort level.” We've leveraged our relation with Lucent there, and we've had employees who were Fulbright scholars from there that are now back working in the countries they came from still in our employ. It's landing troops there, and that's hard to do when you're a small company, so you have to look at how you can leverage other folks who have relationships. Unless, of course, your commodity is so great that people are going to want to buy it over the Internet without that touch and feel.

Mr. Jubeir: The only thing I would add is that the challenge of trying to prove to somebody¾a potential investor, let's say¾the kind of traction you have in that market and how you're able to achieve that traction. Maurice's point is that by working through partners in the local market who can achieve it in the long-term, you are able to deliver the value proposition that you're selling to the US or international investor.

Mr. LeBlanc: I think that a lot of the challenges with emerging markets, whether they're infrastructure or regulatory or political, etc., are not just about Latin America, they apply to a number of emerging markets.

Q: Maurice, when it comes to overcoming the huge infrastructure deficit that Africa suffers from, is that Nigerian project in Jigawa replicable or was there a special set of circumstances that came together?

Mr. Tosé: There is phenomenal opportunity in the developing countries and in Africa. We’ve done studies on Africa that went to great lengths, such as looking at using Iridium’s assets to reach developing countries. Africa, in particular, is like South America was maybe eight to ten years ago. The opportunities are phenomenal. What we are doing with Jigawa can definitely be replicated, and there's already discussions going on with 18 other Nigerian states. Some of them don't really need what we're doing in Jigawa since they can tie into the Jigawa project, but some really want their own. We are being very entrepreneurial and opportunistic. This first step in Jigawa leads us to bringing in broadband wireless or broadband satellite Internet connection. A governor can then have his people in schools, from grade schools to all the way up, getting connected to the Internet. We're going to be doing a wireless local loop situation, and, from there, we look to leverage this potentially into involvement with their spectrum licensing for cellular PCS. We're beginning to work with some European carriers to be the operators as we’re selling our products to carriers around the world.

                Yes, it can be replicated. President Clinton's visit helped expedite the process, but it had already begun. In February, I did a trade mission with Reverend Jackson to Ghana, Nigeria and South Africa, and it was one of the other individuals on that trip who had been contacted by Jigawa to find a company like us. It just so happens that the Chairman and CEO of that company and I sat together on the plane ride. I won't say it was luck, because I don't believe in luck, but that's how things often turn. In Equatorial Guinea it's a similar situation where they don't really like how they're being treated by the dominant European carrier, so we're going to come in and put in a system that will start in one place and then can go nationwide. The potential is boundless.

Q: I want to ask about corruption. As you know, three years ago the 29 members of the Organization for Economic Cooperation and Development (OECD) passed a treaty which, as I understand it, essentially incorporated the Foreign Corrupt Practices Act. Many countries have not yet implemented it, however, and many other countries are not a party to the OECD. It's my understanding that the way people do business in those countries is through local agents. Is that the answer?

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Mr. Larson: I think that the expansion of the principles of the Foreign Corrupt Practices Act through the OECD treaty you mentioned is one of the real landmark achievements. I happened to be there negotiating the end game and it was not easy. The French resisted mightily, but we got it. The implementation has been a little bit better than you might have heard. We've gotten roughly 25 countries to ratify and pass new laws that basically criminalize the bribery of foreign public officials in order to get business. There are about 10 other countries we need to have ratify it and pass laws, and two countries, Britain and Japan, need to improve their laws since the ones they passed were deemed not to be adequate. There's a continuing push to make sure that this is real and that it's implemented in a meaningful way. It is understood that this is just a way of policing business activity, and, basically, creating a more level playing field for businesses like yours that have been subject to the Foreign Corrupt Practices Act for over 20 years.

                We also are working in a variety of ways with other countries to try to deal with what we sometimes call the demand side of the bribery problem, which is to say weak and potentially corrupt local officials. How are we doing that? First of all, through the World Bank and the various regional development banks, we are strengthening civil service, raising the pay and strengthening the oversight with better contracting procedures so that it's more open and transparent. We've been working with these countries individually, as well. Twelve African countries have signed onto a set of anti-corruption principles of their own and are going about expanding the group that signs onto those things.

                Working through a local agent is not a safe harbor for avoiding problems. I'm not a lawyer, but if you know or have reason to know or if the French person that's trying to work through your local agent knows or has reason to know that there are payments being made, they'll still be nabbed. I think that the important thing is to make sure that the people you're doing business with understand, first of all, that this is simply not an option for an American company. It's also not an option for any other major, developed country any longer. If you think you're having problems, let us know, because we have not been shy about being pretty muscular in addressing situations where we think American businesses are being handicapped. This is a generation long struggle, but I think we've made a lot of headway.

Q: Do you think that the ASP model is a viable international strategy for Internet companies, in particular for Internet startups?

Mr. Jubeir: I think it depends on the value proposition. I'm not trying to dodge the question, but we've got one in our portfolio that I think is very applicable. What kind of customization is needed? What kind of local relationships do you need in the delivery of some aspects of that service? Overall, it is a global proposition that should work. We tend to try to focus on the ones that are differentiated and have proprietary elements rather than just taking elements that are not proprietary to your company and putting them on the platform, but the short answer is yes.

Mr. Tosé: The company we're in the process of acquiring in Seattle has a service bureau business model. Part of the reason for acquiring the company was that we wanted to be able to say to the carriers, “You can either use the service bureau if you want to, or we'll install them within your network.” On the ASP side, our wireless Gateway has an open API that developers can use. When you develop an application and are wondering how it's going to get through to the pager or palm device, we can take care of that cloud. We're the only company that we know of today that does that. You can generate a message from VoiceStream, which is a GSM network, and have it delivered into an AT&T handset or your palm device. We take care of all of what goes on inside the network and the developers can add to it. It's nothing fancy. We let you develop in an environment that you are very knowledgeable about.

Q: T. J., does your company invest in any particular industry that shows the potential to grow?

Mr. Jubeir: We focus on what I would call the “horizontal foundation” where we're not taking a particular segment, we're taking the Internet or telecom risk as an overall. Enabling technologies are of great interest to us, and we're also very intrigued and interested in the wireless side, communications infrastructure, ASPs and video. Typically, we come in among the earliest institutional investors in a company, usually after the family and friends when the company has some capital and needs money to deploy or complete the beta testing, but not at the stage where they’re alpha testing.

Q: Can you discuss some of the policy activities involving privacy and consumer protection on the Internet?

Mr. Larson: The Commerce Department has actually played the lead on this and has been trying to work out the differences in philosophy between the European Union (EU) and the United States. The EU wanted to take a top-down, regulatory approach, and they wanted to do something that they typically accuse us of doing¾that is to say, pass a lot of laws at home, then apply them extraterritorially to the rest of the world. We were very concerned about this, and we've been very concerned about the way that their privacy directive might make it impossible for firms that do business both in Europe and the US to even make routine inter-company transfers of data. The safe harbor arrangement that we negotiated last June has dealt with at least the first wave of those types of problems, but I do believe that it is not going to go away. In our preparations for the Okinawa summit meeting, I met with generalists like myself and we were working on this Okinawa information charter. It was obvious that this is a very difficult and troubling issue, even here at home. I don't think we've yet sorted out how to strike the right balance between the protection of data that people believe should not be transmitted without their permission and allowing businesses to serve their customers better by making more efficient use of the data they have. Just speaking as John Q. Citizen, I get a lot of phone calls in which, after the first 15 seconds, I'm outraged that this person even knows what they know about me. I wonder how they got it. Who sold them that information? So, not just as a policymaker, but just as someone who has had some of these experiences, I think that we're going to have to continue to sort out how we feel about it here at home. We have to figure out what the right solutions are and then continue to work on them. The OECD is a good forum for these sorts of discussions. It's going to continue beyond the Digital Opportunities Task Force agenda, and it will not go away as an issue between the EU and ourselves. I wish I could give you more of a silver bullet about how we're going to deal with it, but I don't see it.

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Q: I have a question on the management side. Once you establish operations in the different countries, how do you keep the virtual corporate team going? You may have developed an effective corporate culture for the US which you want to keep in a country like France where people can only work 35 hours a week. How do you get the teams to work together, and how do you maintain a global corporate structure when you have such different work ethics in the different countries?

Mr. Tosé: With great trepidation.

                There's no  easy answer. There are corporate cultures and there are country cultures; you just have to be aware of it and you have to work the issues. Our folks are working 80, 90, 100 hours a week, through Thanksgiving and Christmas, because of customer deliverables that have to happen. We're looking at opportunities in France, and it's going to be challenging, but we have to because Europe is ahead of the US in messaging. As I said, they're sending 15 billion messages per month from their phones, and the US is doing peanuts because we got fascinated with this thing called WAP. Our belief is that we're going to use the phone to do transactions, not to surf the Web.

                You have to have people in the foreign countries, to the extent that you can, whether it’s representative or maybe US citizens who have spent time there. Do anything you can to help understand the issues, but there's no one answer to it.

Mr. Jubeir: From our perspective, one of the biggest challenges is in how you avoid the divergence of views from the local entity versus and the global or parent entity. You want to focus on optimizing the overall operations rather than on the sub-optimization of the local unit. One of our portfolio companies is about 70% international. The way they've overcome the challenge is by making sure that there's constant integration across the various offices. Another thing is to make sure that people work in teams across cultural and geographical lines to ensure that you've got dissemination of learning styles and information. You've got this continual integration of the company as it grows, and that company has grown from about 28 when we invested about a year and a half ago to about 350 today. Their approach was very interesting because the fundamental challenge is always the same¾how do you deal with different cultural situations or contexts, and how do you ensure that the parent entity or consolidating entity is optimized as a whole.

Q: T. J., what are some of the indications you look for to determine whether a company is prepared or well-suited for international expansion?

Mr. Jubeir: It depends. If it's from the perspective of something that we would finance, we look at companies that don't require a strong local presence in the international arena which would require them to own local infrastructure. As a financier, the concern is that if I'd like to take the company out  in 24 or 48 months, I need to rethink having traction over a period of four to six quarters prior to that. This used to be very different six months ago or more, but, at this point, our belief is that you need to be able to show traction. You've got to start working backwards from the particular date of liquidity, whether it's an acquisition, a sale of some sort, an IPO or a recap. To build a local presence in that kind of timeframe is very difficult and has its own challenges, so we tend to support stores where you can partner with somebody locally who can provide the local presence for you. That way the startup won't be concerned about building up international operations in various locations. You're really more concerned about ensuring that the parent organization is growing appropriately and effectively.

Q: What are the issues that an American company deals with relative to foreign languages when you're working internationally?

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Mr. Tosé: I'd say that English is generally the accepted business language, but there are places where you'll need translation. It makes for very difficult dealings, but I’d refer you to Mario’s comments. It's good if one of your folks has an understanding of the dialect and is able to articulate your position well.

Mr. Jubeir: We sidestep some of those issues on two fronts. One is that we tend to invest in companies that are headquartered in the US that have, or will have, international operations. By the way they grow, the language hasn't been an issue; it becomes an issue at the local level. We sidestep some of it by tending to promote strong local partnerships that can deliver a lot of the local requirements. I’d also generally agree with Maurice’s comment about English.

Q: Are there efforts to help countries make a buck on clean energy technology development, especially as it relates to the trading of international environmental commodities?

Mr. Larson: To the extent that you're focusing on actually trading environmental products or environmental services, we're putting a high priority on breaking down barriers to that sort of trade. It is part of our agenda for the new WTO round of talks which will be launched next year. It's also a priority in the various bilateral negotiations that we have underway. I think on the emissions trading issue, you probably know a lot more about that than I do, but I guess my reaction is that one thing governments do is print money and, in a sense, the money is the credit in global emissions trading. I think that until there is a system established that says nations are going to recognize that there is such a thing as credit from emissions trading, it's hard for me to imagine how the trading system would actually work because you don't know what this is worth. The Hague conference that took place during Thanksgiving week was our most recent effort to come to agreement globally on a framework for dealing with global climate change. If successful, it would have begun to set up a global emissions trading system. We're still working hard to do that, even though the meetings in the Hague were a real setback.

Q: The sales cycle for transactions with international customers is much longer than it is in the US, both at the business and individual customer levels. How will this alter the expectations of US firms expanding into the international arena, especially for tech firms that are accustomed to relatively short sales cycles?

Mr. Jubeir: It is an interesting challenge, but I wouldn't discourage somebody from pursuing it. The challenge is whether it’s going to distract you over however many quarters. It's well worth pursuing it, but not to the detriment of the core business you're trying to pursue. Just keep in mind that it will take a long time. You are dealing with time zones and different cultural norms, but you just have to accept that as the premise of doing business internationally. Hopefully, the rewards of being able to close the deal are more than worthwhile.

Mr. Tosé: One of the basics is to make sure you're getting paid in US dollars. For instance, Nigeria uses the naira which doesn't trade anywhere, so you need to make sure that they use US dollars, and US banks, if possible. The cycle is longer, and many countries just don't understand the urgency that we feel as aggressive entrepreneurs, or the need to get something closed and to get paid for it. If you're going to be relying on that foreign business or revenue to keep your lights on, that may be a bad thing to do. I would look at it, especially in the formative stages, as being supplemental with the idea of growing it later. It's like a toy top. There are some tops that get more spin and some that just get a little spin every now and then. As the international component becomes a bigger part of our business, it's getting a lot more spin. It's a challenge, but globalization is occurring. There's a big oyster out there to harvest.

Page four of four | END

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