What to consider when expanding businesses into North America

Sep 01, 2009
Volume 21, Issue 9

North America is the world's largest pharmaceutical market. Opportunities for high margins, strong demand and exceptional market potential are compelling factors that prompt European manufacturers to start supplying the North American marketplace. As home markets mature, however, competitive presence becomes painful and opportunities for growth become limited.

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The vision of successfully expanding into North America is one that has been shared by many companies over the years. While the English language does not pose undue hardship for most educated Europeans, American culture and business often present unexpected and unique challenges.

Look before you leap

As a case in point, a European manufacturer seeking to develop new business supplying the North American pharmaceutical industry with an innovative technology engaged the services of a local independent sales agent. Initially, things looked promising, but after several false starts and months of inactivity, expectations for new sales were unmet.

The author says...
The manufacturer then replaced the sales agent with a dedicated sales office staffed with some of the best and brightest long-time employees. After all, he rationalized that they were familiar with the technology, loyal to the company, had a reliable command of the English language and could communicate with the factory in great detail.

Unfortunately, while opening a North American office might have been a good idea, it did not meet with success for many reasons, and after several years and several million dollars were spent, the office was closed.

What went wrong?

Each market is very different. There are 'needs' and 'wants' that differ by company and by specific job-related corporate hierarchies. North American purchasing decisions are made in ways that are distinctly different from European purchasing practices, and the culture, which at first glance may seem to be so open, is actually very complex and challenging. In Europe, a great product sold into a good market is expected to return a reliable profit. In North America, the same product may meet limited customer interest, develop minimal customer interaction and result in considerable cash, and brand losses.

What are the potential risks?

To limit the risk of failure, it is important to understand all of the potential risks, which may include:

  • Limited knowledge of market and cultural issues can result in unanticipated expenditures, lost time and sales opportunities.
  • Lack of North American business experience may expose the company to contract complexities and legal restrictions, penalties, and unforeseen and damaging brand consequences.
  • The industry is very relationship-oriented. Appropriate industry contacts are not readily accessible or are resistant to engaging new suppliers.
  • Already-in-place contract agreements or a corporate mandate to select suppliers from a prequalified vendor list may present roadblocks to hamper a new supplier from the opportunity to compete.
  • Overconfidence in the technology and traditional way in which product design, development and manufacturing are done in Europe may not fit with the more consultative, hands-on North American problem-solving style approach.
  • Expanding into the North American market with a 'business as usual' mentality often increases risk. Remote management with decision making done from an office at the overseas parent company isolates the company and key management from the market and inhibits direct customer interaction.
  • Sometimes European companies tap top-quality technical personnel to manage the North American operation. These individuals may have technical expertise, but lack management and sales experience. In addition, they are not typically familiar with local customs, business practices and industry purchasing protocol. Reliance by the home office on what is traditionally comfortable and familiar further isolates the operation from meaningful customer interactions.

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