Wall Street Journal: For Small Businesses, Big World Beckons
Jan 26, 2011 -
By Justin Lahart, Wall Street Journal
Husband-and-wife business partners Matt and Rene Greff are on track to open the first out-of-state branch of their Michigan brewpub later this year—in Bangalore, India.
At Peter Frykman's Palo Alto, Calif., irrigation-equipment company, seven of the 20 employees are located outside the U.S., in China and India, while Gangesh Ganesan's communications-chip firm, in San Jose, has about a quarter of its staffers in Istanbul, and others in Tokyo and Taipei.
While big companies have been the trailblazers of globalization, a growing number of relatively small businesses are following in their footsteps. Like their larger counterparts, they are drawn by new markets that are often growing much faster than those at home.
Their forays abroad are made possible by technologies like file sharing and video conferencing, which allow managers to communicate easily across continents. Though these technologies aren't new, their price has fallen sharply over the past decade, putting them within reach of more companies.
Still, crossing borders doesn't come easily. Advances in technology haven't done away with the need for small-business owners to spend face time with employees and clients in other countries. PharmaSecure Inc., for example, is based in Lebanon, N.H., but Chief Executive and co-founder Nathan Sigworth says he has been spending more time in India, his primary market, than at home.
Venturing abroad also requires small companies to put a lot of care into choosing the employees or local partners who will represent their interests overseas. The task often requires bridging cultural differences and navigating complex and unfamiliar bureaucracies.
The Greffs, in Ann Arbor, Mich., were skeptical when Gaurav Sikka, a former University of Michigan student, approached them last year about opening a brewpub in Bangalore. Mr. Sikka, a native of India, was a regular at the couple's 200-seat Arbor Brewing Co. The couple had recently opened a small brewery in nearby Ypsilanti, and worried about stretching themselves too thin. "We said no, we don't have any time or money," recalls Mr. Greff. "He said: 'Don't rule it out of hand.' "
The Greffs traveled to India, where they came to believe Mr. Sikka's idea was feasible. They found that southern India had a beer-drinking culture, as well as lots of U.S.-educated professionals, including plenty of University of Michigan grads. Moreover, it was an untapped market for traditionally crafted microbrews like the ones the Greffs serve in Michigan.
Now, a group of local investors, led by Mr. Sikka, is supervising arrangements for the Bangalore opening. The Greffs will have a stake in the new brewpub, and will receive consulting and licensing fees.
According to the Census Bureau just 2% of U.S. companies with fewer than 100 employees sell their goods in overseas markets. Though there are no hard figures available, the number of small businesses that have invested directly in overseas operations, which typically requires a bigger financial commitment than exporting, remains relatively small. But it is growing, says Larry Harding, president of High Street Partners Inc., an Annapolis, Md., company that helps small firms set up foreign offices. A year ago, he says, his company was working with about 200 companies; now it's working with more than 300.
"There's an explosion of 50- to 100-person companies that are going overseas," he says. "We're not even scratching the surface."
Mr. Frykman, the irrigation-gear executive, was part of a group of Stanford University graduate students who in 2008 came up with a method for making drip irrigation systems inexpensively. After testing them in Ethiopia, "we saw that this could help farmers across the world," he says. He put his plan to get an engineering Ph.D. on hold and formed Driptech Inc.
A pilot project in India went well and caught the eye of Chinese officials. In 2009, the company made its first sales, in India and China, and began to seek angel investors. Last spring it raised $900,000 in funding.
Seven of Driptech's employees are now working in its offices in Beijing and outside of Mumbai, and Mr. Frykman expects that within a few months half of its workers will be overseas.
Having offices in three countries is a challenge, he says, but thanks to the revolution in communications technology he is able to hand off work in the evening to his co-workers in Asia, and pick it back up in the morning. "If you get the rhythm right, you can really be working around the clock as an organization," he says.
PharmaSecure got its start in 2007 when Mr. Sigworth and his friend Taylor Thomson came up with a low-cost way to combat counterfeit drugs, a big problem in the developing world. PharmaSecure's system, which combines mobile-software apps and databases, allows customers to send text messages containing the codes printed on drug packages and get a reply indicating whether the code is legitimate.
After a year of traveling, the partners decided that India, the source of much of the developing world's drug supply, was the best place to begin. Now, most of the company's 15 employees work out of New Delhi.
Mr. Sigworth says the ability to communicate cheaply has been crucial. "We use [Internet telephone service] Skype a lot; we use email a ton," he says, but he adds that just as important has been the company's ease and comfort working across cultures.
Born in Germany, Mr. Sigworth grew up in Connecticut, and spent summer breaks from high school working in Botswana. Many of the company's Indian employees went to U.S. universities or have worked for major U.S. multinationals.
Ubicom Inc., which produces chips for products such as wireless routers, made its first international foray three years ago when it tapped a Turkish employee to start an office in Istanbul. Now about 20 of its 85 employees work there. Ubicom also has offices in Taipei and, as of this month, Tokyo, as well as a group of engineers in the U.K.
To videoconference, chat and work together on projects, Ubicom's offices use technology that would have been too costly for the company a decade ago, says Mr. Ganesan, the CEO. He adds that he doesn't think a company like his can do without an overseas presence."Even though we're a small company, our customer base is truly global," he says.