More U.S. Solution Providers Going International

Now, three years after the vice president of sales and CFO at I.T. Works, a Bellaire, Texas-based solution provider, took on that first project, the opportunities keep coming in. He couldn't be happier. And he's not alone.

I.T. Works joins a number of other U.S. solution providers that are already going global or thinking of conducting business outside the U.S. More than one out of five solution providers, 22.8 percent, currently do business outside the U.S., according to a CRN/CMP Channel International Expansion Study, and another 14 percent plan to expand their sales to other countries within five years.

The VARs cite a number of factors driving their international expansion plans, including new customer prospects that require their IT solution providers to have a multinational presence, as well as demand from current customers, as was the case with I.T. Works.

The strategies VARs use to expand their presence internationally vary greatly, as do their expected benefits and impediments. But one constant is they see opportunity outside the U.S. as a means to drive growth.

"I think the world is definitely getting smaller," Hawkins said. "As companies open up more offices both in the U.S. and internationally, it will lead to demand for more business outside the U.S."

For I.T. Works, it was a Houston oil/gas client that got things started. The customer, which also had offices in the U.K., wanted I.T. Works to handle a Cisco Systems unified communications rollout overseas.

"I've done business here in Houston since 1991, and there's been an influx of international [business]," Hawkins said. "Being an oil/gas city, we're influenced by people all over the world. Just in our own city, our local dealings with more international people are getting more and more prominent."

Next: Expansion Strategies Expansion Strategies
In the survey, solution providers most often cited using a U.S.-based managed service or Web presence as their top strategy to expand internationally. Other strategies included using value-added distributors, partnering with local solution providers, dedicating personnel to develop international business, acquiring a business and opening an office in a target country.

Technology Integration Group, a $282 million San Diego solution provider, chose the latter strategy when it opened a new office in Heidelberg, Germany, last year. TIG hired former Northrop Grumman employees who ran the European office for that company's reseller operations, said TIG President and CEO Bruce Geier.

Northrop Grumman decided to exit the reseller business, and Geier said TIG jumped in to fill the void. The German location serves federal contracts at U.S. military bases in Europe and North Africa.

"Now we are talking about some projects in China," he said. "We are looking at what could be a huge marketplace."

Geier said he's moving cautiously into global markets, and will do so only through partnerships with in-country solution providers or vendors.

"It's in your best interest to partner with people who are already there," he said. "I'd hate to just go in cold turkey. But if you can strike a partnership, there are huge upsides. That whole Asia-Pacific region has huge growth that's going to happen in the next 10 years."

Next: Forecast: Growth Forecast: Growth
Most expectations call for IT sales in the U.S. to grow between 5 percent and 10 percent annually for the next several years. With much higher percentages forecast for foreign markets, solution providers said it makes sense to chase that business.

"We were hoping for double-digit growth this year," said Manny Buigas, CEO and founding partner of Axis Integrated Solutions, Doral, Fla. "But here in Florida it hasn't been growing as much as we would have liked to have seen because of uncertainty as a result of the real estate market. We have a very healthy pipeline, but getting [customers] to make buying decisions in a time of uncertainty is somewhat challenging."

So Axis is going overseas and will be focusing on the Caribbean and Latin America, Buigas said. "Fortunately, most of our consultants are fluent in Spanish, so we can go into certain markets that may not be available to other resellers because of the language barrier," Buigas said.

Not So Fast
Several solution providers said it takes a great deal of patience, investment and a good understanding of international commerce laws to truly be successful.

For example, on I.T. Works' first U.K. project, the transaction was completed in U.S. currency and all the product was shipped to the end user in the U.S., who then shipped it to Europe.

But more recently, I.T. Works had to ship the products from the U.S. directly to a customer's U.K. office, which meant much greater documentation for customs and tariffs. Even though I.T. Works' primary distributor, Ingram Micro, has local warehouses in Europe, the solution provider still had to ship the products from the U.S. Ingram Micro said the way in which international shipments are routed depends greatly on the terms of vendors' distribution agreements.

"You need greater detail in the bill of materials," Hawkins said. "You have to define down to the end user's costs and provide it to the distributor. They have to do extra paperwork from a shipping standpoint."

Regulations and tax policies of targeted countries was cited as the second-greatest impediment to growing overseas, according to the survey, behind insufficient investment funds. Cultural differences, language barriers and vendor contracts also were cited.

In the survey, the weight given to the top impediments of international expansion was significantly lower than the weight given to the top drivers and benefits—evidence that many solution providers recognize the complexity of getting started but still go forward because they expect a nice return on their investments.

For example, Sequel Data Systems, an Austin, Texas-based Hewlett-Packard solution provider, set up its own distribution center in the Netherlands last year to serve clients in the U.K., France and Germany because it was having difficulty getting HP equipment purchased in the U.S. through customs in a timely manner, said President Don Richie.

"We found it easier to establish a warehouse space over there and ship stuff ahead of time. It gives us the time to clear customs so that we're not in an emergency mode," he said.

The key to setting up shop in Europe was to hire a local consultant who knew how to navigate through the regulations of the various European countries. Richie chose the Netherlands for his warehouse in part because the Dutch process necessary to do business in the EU took only six weeks vs. up to several months in the U.K.

"The key to the whole thing is to try not to do it yourself," he said. "Spend the money on professionals who know what they are doing."

Richie said he did about $2 million worth of business in Europe last year and expects to do the same this year as he builds up infrastructure to go after business beyond his existing accounts. Within four to five years Richie says he hopes his European operations equal his U.S. revenue, which reached about $27 million in 2006.

"The potential for new business is phenomenal," he said. "You hear that the EU is so much ahead of us, but the reality is that they are further behind in their business practices. So a company that can get better pricing on the hardware and services can really hit a home run."

SHELLEY SOLHEIM contributed to this story.