InformationWeek
Defining The Business Value Of Technology
January 18, 1999
Small But NimbleEmerging enterprises use IT to go international
By Natalie Engler
merging enterprises may not be able to match multibillion-dollar behemoths' efforts to build global electronic value chains. But some fast-growing smaller organizations are taking the first steps to becoming international players. Like savvy business travelers who pack nothing but the essentials, these young companies have certain advantages over their more luggage-laden competitors--including focused IT endeavors and organizational efficiencies that help them respond quickly to market demands.|
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Companies seek end-to-end information systems |
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System conversions still lag in currency transition |
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Emerging enterprises use IT to go international |
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Beamscope was an early adopter of an enterprise resource planning system, in 1994, for cost efficiency.Early on, it also offered its retail and corporate reseller customers online service and round-the-clock ordering capabilities via Beamscope Online, an AS/400-based system. It's now upgrading that platform for the Internet and investigating a new warehouse-management system that should reduce overtime costs and improve logistics. Beamscope hopes its long-term IT plan will further narrow the gap between itself and its larger competitors. Its goal is to link all the systems in the countries in which it operates to facilitate information-sharing across continents, and better anticipate trends.
Serving Customers EverywhereNew England Pottery Co., a 100-plus employee division of Ameritac Holdings, adopted technology that helped it become the largest global vendor in the garden pottery industry. By speeding the flow of information between retail buyers andmanufacturing partners in Asia, Europe, and South America, the Foxboro, Mass., company has been able to increase its sales 20% a year.
New England Pottery sells flower pots to thousands of small garden centers in the United States, Canada, and Mexico, as well as to giant retailers such as Home Depot, Kmart, and Wal-Mart. "If our buyers had time, they'd hop on planes and tour different countries," says Larry Gitlitz, New England Pottery's CEO. "But we can bring the countries to them." The company provides this virtual shopping tour via the Internet and digital photography. It
E-mails presentations that include digitized product images to its sales representatives so that clients can view the items without having to wait for a physical sample to be shipped overseas. This lets clients quickly customize orders and capitalize on the leading trends revealed by their own data.
The company also uses the Internet to send customer requests back to its overseas manufacturing partners, all but eliminating its own shipping and inventory costs and speeding delivery of goods directly to clients. It recently developed an additional service: an electronic clearinghouse that gives its clients access to excess inventory from producers around the world. "We make the connection between manufacturers and retailers," Gitlitz says. "That's a win-win for everyone."
New England Pottery is on the right track, according to InformationWeek Research. Improved customer service stands as the primary IT-driven strategy emerging enterprises should follow to compete effectively globally. Companies outside North America are pursuing the same tack: For example, Wolf Garten, a 1,000-employee German company that sells seed, fertilizer, garden machines, and tools, has this goal in mind for its IT initiatives.
Wolf Garten is the first garden-supply company in Germany to offer an extranet, which connects the Betzdorf company to 700 dealers throughout Europe. Being able to track product availability and the progress of orders online is still a rarity for customers of German businesses, and Wolf Garten hopes to beat its bigger competitors by using this service to promote stronger relationships with its clients, says Thomas Utsch, project manager for the extranet. He says Wolf Garten expects its Internet chat platform will smooth communications with dealers and help it to resolve problems sooner, too.
Electronic commerce, which is ranked second only to customer service in the recent InformationWeek survey, is another important strategy small and midsize companies are embracing to extend globally. Take Music Sales Ltd., a privately held, $70 million British music retailer and publisher with 200 employees in the United Kingdom and 100 abroad. Online sales increase visibility and profits for the company, which sells sheet music and books, and its expansion of those efforts will give customers access to a wider selection of products than before.
Music Sales is building a frame relay network among its U.K., Spanish, French, and German offices. The goal, says Chris Butler, director and general manager, is to bring Music Sales' Spanish, French, and German offices onto the distribution and copyright systems already running in the United Kingdom, creating a centralized, multicountry system. With this in place, the company will have a better view of its international inventory, which will help it improve fulfillment for Internet sales. Music Sales will be able to deliver products more quickly and from a larger variety of sources to online customers. "We want the security of a larger system that will enable us to better meet the needs of the existing and new customers," Butler says. Overall, the company is dedicating 12% of its IT budget to global operations.
"E-commerce and the Internet enable these companies worldwide to bypass the normal prerequisites of an established distribution channel and get to a huge market," says Alexander Drobik, research director at Gartner Group Inc. in the United Kingdom. For example, RS Components has invested more than $4 million in IT to enter the global arena. Though larger than a typicalmidmarket enterprise, the U.K. maker of electronic components with some $1 billion in sales is still dwarfed by competitors such as Premier Farnel. According to David Sones, head of technical development, RS Components' ability to compete with such companies and enter the U.S. market depends on its use of Internet technology and E-commerce systems.
The 300-employee company, which operates in more than 10 countries across Europe and the Asia-Pacific region, has developed a Web site that lets customers browse and order any of the 114,000 products it sells to industries that range from health care to automotive. The site, developed using One-to-One E-commerce software from BroadVision Inc., lets customers tailor their view to highlight relevant products, giving RS Components a competitive edge, Sones says. It also reduces costs--for example, the company saves by not having to print product catalogs--allowing the supplier to lower its prices.
But if RS Components hopes to crack the U.S. market, it will have to take the next step--integrating its Web site with partners' fulfillment sites around the world. At first, it will rely on E-mail. Then, if volume demands it, the company will fully integrate into the partners' back-office systems, over the Web, as it has done with its U.K. partners.
Similarly, Autobytel.com, an Irvine, Calif., company that lets consumers buy, lease, and insure new cars and trucks online, is taking its E-commerce system into Scandinavia and the United Kingdom. An early step involves revamping its database system so that it's easier to change a local Web site without extensive programming.
Grabbing Opportunities
Large companies would be smart to pay attention to the global growth strategies being pursued by growing enterprises. These young businesses are inclined to be inventive, says Rosabeth Moss Kanter, Harvard Business School professor of business administration. "Their very existence in the marketplace is based on the fact that they have a new concept or a new way of doing things," she says, and customers may be eager for their fresh approach.
Carlson Companies Inc., for example, found that a small company, Captura Software Inc., had begun offering an innovative expense-management system to customers of the $20 billion global travel, marketing, and hospitality services company. Rather than lose out on the opportunity Captura had uncovered, Carlson formed a relationship with the vendor, and both now market the system worldwide. "In those situations, we try to work with the small company to provide what the customer wants," says Rex Carter, Carlson's senior VP and CIO.
But larger companies that take note of their smaller competitors' initiatives may be the exception. "Most large businesses don't pay much attention to emerging enterprises," says Terence Barlin, who works on large business accounts as an SAP consultant for Softline Inc. in San Jose, Calif. "They think, 'We're bigger, we're better.' That could be a strategic mistake."
Indeed, emerging enterprises can use their size and nimbleness to their advantage, capturing an overlooked niche as Captura did, or winning in head-to-head competitions for contracts. Such was the case for CPI Process Systems Inc. The six-employee import/ export oil-field and infrastructure equipment company in Houston beat Swiss giant ABB for a contract to build a power station in China. CPI primarily won the deal thanks to a strong relationship with small overseas suppliers--partly facilitated by E-mail--that could help it deliver more advanced power station technology at a lower price.
But company founder George Brock also points to CPI's ability to act quickly on a number of levels as a key component in the success of all its operations. Its employees, he says, don't have to navigate complicated political or IT infrastructures, whether they're deciding on new drilling technology or a new IT initiative. "You don't have a series of meetings you go through to make a decision about what technology to follow," Brock says.
Still, getting into the international arena and maintaining a strong presence there requires a substantial investment and extensive resources, says Carlson's Carter. To fully support large global companies, as Carlson does, requires not only a physical presence in foreign capitals and network connectivity, but technologies that work in different countries and languages and an understanding of local cultures, distribution channels, competitive conditions, and even relationships with high-level government officials.
So, some emerging enterprises are forming partnerships to help them respond globally, or improve their existing position in international ventures. Often, says Mark Weaver, associate professor of management at the University of Alabama and director of the Strategic Alliance Research Group, small companies are "not so much challenging the bigger companies, but are cooperating with them as well as with one another."
In a Strategic Alliance survey of 2,000 small companies in nine countries, the majority of the respondents had something they called a "strategic alliance," Weaver says, such as technology sharing, licensing agreements, joint ventures, or distribution partnerships.
For instance, NewsEdge, a 400-employee, $80 million news aggregation and filtering company in Burlington, Mass., recently formed a relationship with the largest Dutch business daily newspaper, Het Financieele Dagblad, that crosses several of these categories. NewsEdge worked with HDF to develop a Web-based service that includes Dutch-language content and reference information on Dutch companies, along with technology and consulting services from NewsEdge, in an attempt to expand their positions in the Dutch news market.
Beamscope partnered with a small high-tech firm, Ironside Technologies Inc., to develop the second generation of Beamscope Online, which is designed to improve service and ordering for the company's North American and South American customers. Beamscope garnered a 20% ownership stake in Ironside to help fund development of the new Java-based system. The software will let Beamscope provide customer self-service and subsecond ordering times. The benefits are threefold, says chairman Wasser: Beamscope will better satisfy customers, lower its cost per transaction from $20 per order to 50 cents, and--it hopes--profit from additional sales of the system to other distributors.
Still Some Obstacles
But ramping up to become an international force has other challenges, too. For one thing, effectively using the Internet is still a problem for some companies. According to a survey by American Express Foreign Exchange Services and International Strategies Inc., 43% of 675 small businesses polled said they can't find information on the Web that will help them do business internationally. Even getting E-mail to work reliably can be difficult for some smaller companies working with far-off partners. "This year, 75% of our communication with Asia will be hard fax," says CPI's Brock. "We'd like to routinely use E-mail, but that seems to be a difficulty." Pinpointing whether the problem is due to faulty file translations or other causes is trickier when a company has a one-person IS department to handle all its technology initiatives.
For Boxlight Corp., a company with 125 employees and $75 million in revenue, integrating telecommunications systems in two countries and Web-related systems in four countries creates hurdles. The company, which sells LCD projectors on the Web and via a toll-free number, plans to invest the majority of its IT budget in a Web telephony system. It's implementing a Windows NT-based phone system called Interactive Intelligence that will connect to its customer database and route calls from anywhere in the world, along with information screens, directly to salespeople. But that project involves working with BT, Deutsche Telekom, and France Telecom, as well as MCI WorldCom, and each requires different intercountry links, E-commerce structures, and toll-free number routines, says Herbert Myers, Boxlight's president and CEO.
Myers adds that the additional task of making Boxlight's Web site International "is not trivial." Web design may cost between $10,000 and $30,000, he says, "but when you start adding localization, your costs double." Autobytel solved that problem for its own international endeavors, Autobytel.com, by offsetting the cost of creating localized versions of its Web site. It's working with Bilia AB, a $1.8 billion company in Norway that sells and services cars in 10 countries, and Inchcape plc, a U.K. importer and distributor of cars that operates in 31 markets worldwide.
Still, dedicating the money and resources to build an extranet for different countries can be a significant problem for many smaller businesses. Take Martin Braun, a 450-employee baking-ingredients supplier in Germany that does business with bakeries and industrial users across Europe, the United States, and Asia. Its international business is conducted by conventional means--phone, fax, or through local distributors. Its extranet is available only to German customers. Because of various export restrictions,the company would have to build different Web shopping systems for each country that would tie into the appropriate ordering software. Björn Robbe, project manager for the Internet group at Martin Braun, says that "the expenses for the additional programming and database creation are too high and not efficient."
Despite these hurdles, emerging rapidly growing companies are joining the jet set, and even have the potential to change industries, says Harvard Business School's Kanter.Grabbing their carry-ons and zipping out of the airport, these companies are getting down to business--often leaving large com- petitors temporarily waiting at the baggage claim.
--with additional reporting by Vicki August, InformationWeek U.K., and Annette Ruess, InformationWeek Germany
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