Navigating the shoals of global commerce

The Internet is driving the harmonization of global business practices and technology standards, but businesses need to recognize discordant legal, regulatory, and technical issues.

Globalization has fundamentally changed the way business is, or can be, conducted around the world. IT's central role in the New Economy is taken as a given and holds out promises: A rising tide lifts all boats, and everyone can profit from the ability to operate anytime, anywhere.

But the fresh opportunities also open up new pitfalls. The international telecommunications infrastructure is not seamless, and companies get caught in the cracks. Companies rushing headlong into international expansion often hit unexpected cultural and legal barriers. As technology makes cross-border communications instantaneous, there is no room for error, and IT professionals need to learn to play an ever more important role in the enterprise.

The Web itself has spawned a whole ecosystem of companies that provide services to help businesses deal with international commerce.

When AltaVista, of Palo Alto, Calif., was looking to outsource customer support for the services and products it offers on its portal it zeroed in on 24/7 Customer.com, a start-up that runs a support center in Bangalore, India.

"India has a natural advantage for this business because of the availability of skilled, low-cost English-speaking manpower," says Prakash Gurbaxani, CEO of 24/7 Customer.com. "The Internet and the improved telecommunications infrastructure in the country has enabled us to offer these services from India."

Implementing a Web-based technology infrastructure can help companies quickly set up shop in new countries, but quick doesn't mean it's easy, according to Jan-Erik Gustavsson, CTO of Stockholm, Sweden-based LetsBuyIt.com. The Europeanwide company allows Web shoppers to exercise collective buying power.

Although setting up an office is a matter of bringing a few portable computers to an office building, Gustavsson finds that setting up security to his standards is difficult.

"Usually all these office hotels have a very low IT knowledge, and we're not allowed to adjust their firewalls and intranet settings to set up our VPNs," Gustavsson says. He also found that obtaining permission to use SSL (Secure Sockets Layer) encryption was a complicated process in France -- so much so that he had to hire a lawyer to pore over documents and fill out forms to inform the French authorities.

Companies, especially Web-based businesses, live and die on the telecom network. But Gustavsson has found that true Pan-European services don't exist, despite the "marketing talk" of the various carriers.

"Right now we're connected to seven different operators so we can reroute traffic because no one gives the perfect solution and customers are sitting on so many different providers," Gustavsson notes.

Global consumers

Gustavsson and other business professionals with Web experience agree that one of the trickiest problems about using the Net to do business, especially across multiple countries, is making sure pricing is accurate and customers do not see discrepancies or anomalies. This is especially difficult when a business has 80 different virtual sites in 16 languages with different payment options and value-added tax rates, as LetsBuyIt.com does.

This ability for buyers to obtain instant comparative pricing on the Web ratchets up the competitive pressure on companies.

"When our clients sell online the price information becomes public across borders," says Andreas Fahrion, marketing director at Recaro GmbH & Co., in Kirchheim unter Teck, Germany, a maker of seats for auto and aircraft manufacturers.

"In Denmark, a seat is sold for 40 percent more than in Germany. A Dane who lives 20 kilometers from the border sees that on the Internet and goes across the border to buy it, or else orders it from Germany," Fahrion says. "When there's worldwide [price] transparency, the world becomes a single market. That's certainly an advantage for consumers, but can cause problems for dealers and importers."

With so much information at their fingertips, buyers can become quite demanding, note retailers.

"The great quantity of information that the Internet allows us to obtain, and the possibility of knowing in detail the needs of the client, mean that consumers are ever more demanding," notes Elena Carasso Batlle, IT director at Spain-based clothing retailer Mango.

When businesses face such well-informed customers who expect instant communication on demand, there is little room for error.

"It's an ever-continuing challenge because you're updating products, you're updating descriptions of products and technology briefs, prices, [and] availability," says Ron Edelstein, CIO of biotech company PE Corp.

Similar to other CIOs with global purviews, Edelstein says that having a worldwide, standards-based technology platform is key to being able to have applications around the world interoperate seamlessly. But establishing a consistent set of standards and approaches to problem-solving requires more than an understanding of how systems -- and people -- work together.

"If you try to shove down a consistent solution, you will fail," Edelstein says.

Relationship-building is also key. "I've had to manage European [and] international IT people for about 10 years now. My approach is that I buy in to them as people with unique cultures and experiences and build a relationship," Edelstein says. "Once I establish the relationship, and we have a kind of bond, then IT is IT -- everything else becomes IT, using consistent and proven methods."

In building ties to staff in different cultures, managers have to be sensitive to local practices, according to Edelstein -- and sometimes these practices are a matter of law. For example, in some countries, if you want to document a staffer's performance in writing, or schedule a meeting for the weekend, permission from a works council is necessary. It can be necessary for a corporate official to request permission to transfer personnel records.

One thing that U.S.-based executives need to keep in mind, agree corporate globe-trotters, is that many cultures outside North America emphasize face-to-face encounters to build business relationships. Industry insiders say this is especially true in Japan, where the business environment is "very clubby," says John Castor, president and co-founder of Teralogic, a maker of processors and software for digital television.

When in Rome...

Relationships count in every culture, "but in Japan breaking in and building a relationship is a larger exercise," Castor says. "You have to be willing to work for years in some cases without giving up and [to] suffer lots of setbacks and rebuffs." Foreign companies need to show real commitment to the market, which means flying top executives to the country, especially to help close deals, Castor says.

Many companies find that rather than building a business from scratch in a foreign country, it's more efficient and sometimes necessary to find a local partner.

New York-based Trade.com, a unit of BlueStone Capital Partners, initially tried to create a worldwide Web-based financial portal by building sites from the ground up in individual countries. This was a mistake.

"As soon as we got into it and started designing the system we very quickly realized that they [local users] didn't want to use it," says Kamal Mustafa, chairman of BlueStone, which also invests in emerging growth companies around the world. "We discovered that you need to work with a financial institution that is part of the culture and that has all the appropriate licenses. You actually need the brick-and-mortars because there is a part of the local culture that is tightly linked to brick-and-mortars."

The Trade.com interbank network is designed to allow, for example, a Turkish bank's customers to acquire a Mexican security, Mustafa explains. Trade.com routes the order on the back end to a Mexican bank linked to the Trade.com system that can fulfill the request.

Mustafa believes that the banks in the Trade.com system also can play a role in the growth of Web-based business-to-business exchanges. "In terms of business-to-business, IT has created a dating service, but the marriages have yet to happen," he notes. Once companies meet on a business-to-business exchange, he says, they still need third parties, namely financial institutions that can facilitate a deal, providing, for example, letters of credit.

One of the reasons Trade.com has been able to sign up banks for its system is that it is helping arm smaller players against financial giants, which are themselves merging to achieve economies of scale that allow them to invest in new technology infrastructure worldwide.

Shrinking world problem

"Simultaneously with our effort to solve the localization problem, the banks themselves were running into a globalization problem," Mustafa says. "Their world was shrinking." Large national banks now find themselves to be relatively minor players in a global market and prey to financial powerhouses such as CitiCorp or Chase Manhattan.

Consolidation is hitting not only the financial sector, however, but others as well.

"It's all about scale and surviving," says Eugene Goland, founder of Port.ru, a Russian-language portal. Although Port.ru has grown to be the dominant portal for the world's 300 million Russian speakers in part by acquisition, Goland says it's only a matter of time before Port.ru itself is acquired. "There will be only three or four major portals worldwide," he says.

Globalization, however, is not necessarily code for Americanization, Goland says. "Globalization makes it hard to identify ownership by country," he explains. "As one company acquires another, its shareholder base will be worldwide."

In this world of financial and communications giants, is there room for niche players? David Phillips, CEO of independent music download site iCrunch, says yes.

For example, a lesser-known band, such as the Scottish band Mogwai, has a large international following but "someone trying to find their CD at, say, a Virgin Megastore in Los Angeles will have a very difficult time locating Mogwai," Phillips says. The situation now "allows us to be a niche player, but a global niche player."

Source: IDG News