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U.S. Business Expansion Overseas: Opportunity and Surprise

U.S. companies accustomed to markets and business principals at home should be aware of significant differences that exist overseas with regard to labor laws, facility acquisition or lease, and more.

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Who's Your Agent?
Not all countries share the American concern for identifying and declaring brokerage relationships. In the United States, strict rules require declaration of whose interest landlords, tenants, and brokers serve. One cannot safely take this for granted overseas. Depending on the market, a tenant representation advisor may also turn out to be the leasing agent for the building, and possibly its owner. An American realtor would refer to this as "triple agency."

Overseas, disclosure of this conflict of interest may not be required by law. Also, it is possible to create an agency relationship inadvertently. Carelessly involving multiple parties in a space search can lead to payment of multiple leasing commissions.

Conversely, in some parts of the world one can spend time and resources negotiating with the wrong party. Particularly in China, business processes are not well documented and are in constant flux. Securing the support of local officials, up to and including the mayor, may result in a project that is afoul of national goals, and which may be shut down after a few years to make room for a master plan from another part of the government.

The Built Environment
As discussed earlier, constraints on supply result in higher costs, and more efficient use of space. But this also means that smaller blocks of space are expected. Brokers active in the market identify the following concerns:

  • Building quality - A much larger disparity in quality exists between classes A, B, and C space. Rather than the difference between granite and wood, expect the difference between granite and linoleum.

  • Green features - There's greater incorporation of green and quality-of-life features in facilities. This can include open work plans, incorporation of low VOC materials, and the extension of available light into the workspace all the way to the core. (Again, this is driven by workers councils.)

  • Measurement standards - More than ever, you'll need to conduct analysis to figure out just how much space you're getting, and how you will fit. "Gross internal area," measured from the interior wall of the physical envelope, doesn't give you much of an indication of potential utilization.

The American Influence on Vocabulary
Since the adoption of facsimile machines, American English has invaded the vocabulary of real estate and location selection decisions. Where Bulgarians use a single word to signify amortization, depreciation, interest, and mortgages, American English is filled with multiple, precise terms. Like the Eskimo vocabulary for snow, American English contains multiple, precise words for real estate, facilities, and expansions. But outside of America, a few keywords are worth knowing, mostly having to do with time:

  • Mahlzeit - Roughly translates to "Enjoy your lunch." A few years ago, DaimlerChrysler telephone customers calling at lunchtime were stunned to hear endless ringing at the other end of the line. No voicemail, and no menu choices. Complete shutdown at lunchtime remains common among German companies.

  • August - Especially south of the UK, August is a nonproductive period. American project plans calling for decision and action during this month often fail.

  • Easter - This is a four-day weekend, at least in the UK.

  • Midsummer's Eve - This is a Scandinavian period of rest running roughly from June 22 to August 1.

  • Bailiff - This is the person paid to deliver notice of such actions as early lease termination or execution of an option.

Combine these with complex notice requirements, and the risk of unintentionally extending or failing to terminate a lease is increased.

Addressing the Challenge
Nevertheless, many companies succeed in operating across borders without apparent difficulty. The challenges described herein are more than offset by access to labor, skills, and markets. By understanding the assumptions we make, and the consistency that does not exist across borders, we can set realistic expectations based on local conventions and local markets.

This cannot be accomplished by remote control. Obtaining and analyzing the necessary data requires a mix of local knowledge and understanding of international corporate needs. Companies with an American base and scattered international operations often work through consultants to provide this capability. Those with larger or more repetitive international needs will either hire in-country or cross-train personnel from other countries. In either case, significant investment in communication is the key.

Over time, international facilities decisions will become easier. The aggregation of market data and business practice documentation continues to accelerate. International economic development organizations increasingly make this information available without requiring a trip overseas (at least in the early evaluation stage) and stay with projects to clear up communications issues and expedite processes. Though borders remain, barriers are fading.

About the Authors
All four contributors to this article are with the newly combined firm of Newmark Grubb Knight Frank. Two are based in Chicago: Noah Shlaes, CRE, FRICS is Senior Managing Director, focusing on portfolio strategy and data integration. Bob Hess, Executive Managing Director, helps clients with location selection, supply chain planning, and their implications for the ability to compete.

Two are based in London: Duncan Hamilton is Senior Director and leads efforts for American companies with facilities requirements in Europe. Dan Robinson is Managing Partner, Joint Head of Europe, Middle East & Africa, and focuses especially on clients in turnaround and restructuring situations.
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