go global - or no com

HBR CASE STUDY

For two years, DataClear has had the data analysis market to itself. But now a British

upstart is nipping at its heels. Should DataClear continue to focus on its strong

domestic prospects or expand overseas to head off the nascent international threat?

by Walter Kuemmerle

l A/HY AREN'T THEY BITING?" wondered Greg McNally as he laidV V down another perfectly executed cast. He was fly-fishing inthe most beautiful spot he had ever seen, on the Alta in Norway-reputedly the home of Scandinavia's worthiest salmon. And he hadplenty of opportunity to admire the view. No fish were getting inthe way.

What a difference from the luck he'd had a couple of weeks earliertrout fishing at Nelson's Spring Creek in Montana. It seemed like somuch more time had passed since the two-day off-site he had calledthere, designed to be part celebration ofthe past, part planning forthe future.

Some celebration had definitely been in order. The company,DataClear, was really taking off, fueled by the success of its firstsoftware product, ClearCloud. In 1999, its first full year of operation,DataClear's sales reached $2.2 million. Now, the following Sep-tember, it was looking like 2000 sales could easily reach $5.3 million.At the all-staff meeting on the Friday before the off-site, Greg hadannounced the company's success in recruiting two more great

JUNE 2001 37

HBR CASE STUDY • Go Global-or No?

executives, bringing the staff to 38.Tmmore confident than ever that we'll hitour goals: $20 million in 2001 and then$60 million in 2002!"

Clouds on the HorizonA New Jersey native, Greg held an MScfrom Rutgers and then went West to gethis PhD in computer science from UCBerkeley. He spent the next 15 years atBorland and Oracle, first as a softwaredeveloper and then as a senior productmanager. He started DataClear in PaloAlto, California, in the spring of 1998.

At that time, Greg realized that com-panies were collecting information fasterthan they could analyze it and that dataanalysis was an underexploited segmentofthe software business. It was at a sem-inar at Northwestern University thathe saw iiis opportunity. TWo researchershad developed a set of algorithms thatenabled analysts to sift through large

amounts of raw data in powerful wayswithout programmers'help. Greg cashedin his Oracle options and, in partnershipwith the two researchers, created Data-Clear to develop applications based onthe algorithms.

His partners took responsibility forproduct development and an initial stakeof 20% each; Greg provided $500,000in financing in return for 60% of theshares and the job of CEO. A year later,Greg offered David Lester, founder ofDL Ventures and a former Oracle exec-utive, 30% ofthe company in return for$5 million in additional funding.

In his previous positions, Greg hadshown a knack for leading "fizzy" tech-nical teams, and under his leadership,the two researchers came up with astate-of-the-art data analysis packagethey dubbed ClearCioud (from the clar-ity the software brought to large dataclouds). TWo versions, one for the tele-

communications industry and the otherfor financial services providers, wereofficially launched in September 1998.ClearCioud had a number of immedi-ate and profitable applications. For in-stance, it could be used to help creditcard companies detect fraud patternsmore quickly in the millions of trans-actions that occurred every day. Gregconservatively estimated the annualdemand from the U.S. telecommuni-cations and financial services sectors tobe around $600 million. The challengewas to make potential users aware ofthe product.

ClearCioud was an instant hit, andwithin just a month of its launch, Greghad needed to recruit a dozen sales andservice staffers. One of the first wasSusan Moskowski, a former sales rep atBanking Data Systems, who had workedsuccessfully with Greg on several majorjoint pitches to financial institutions.

38 HARVARD BUSINESS REVIEW

GoGlobal -or No? • HBR CASE STUDY

She had spent two years at BDS's Sin-gapore subsidiary, where she had laidthe groundwork for a number of im-portant contracts. She had left BDS todo an MBA at Stanford and joined Data-Clear immediately on graduating as thenew company's head of sales. She wasan immediate success, landing Data-Clear's first major contract, with a largeWest Coast banking group.

Greg realized that ClearCloud hadhuge potential outside the telecommu-

Walter Kuemmerle is an associate pro-fessor at Harvard Business School inBoston. He is the author of "Building Ef-fective R&D Capabilities Abroad" (HBR

March-April 1997}.

HBR's cases present common managerialdilemmas and offer concrete solutionsfrom experts. As written, they are hypo-thetical, and the names used are fictitious.

nications and financial services indus-tries. In fact, with relatively little prod-uct development, Greg and his partnersbelieved, ClearCloud could be adaptedfor the chemical, petrochemical, andpharmaceutical industries. Annual de-mand from customers in those sectorscould reach as high as $900 million.

But accessing and serving clients inthose fields would involve building spe-cialized sales and service infrastructures.Just two months ago, to spearhead thatinitiative, Greg recruited a new busi-ness-development manager who had 20years' experience in the chemical indus-try. A former senior R&D manager atDuPont, Tom Birmingham was excitedby ClearCloud's blockbuster potentialin the U.S. market. "The databases canonly get bigger," he told Greg and Susan.Greg had asked Tom to put together apresentation for the off-site in Montanaon the prospects for expanding intothese new sectors.

Just two weeks before the outing,however, Susan burst into Greg's officeand handed him an article fi"om one ofthe leading trade journals, lt highlighteda British start-up, VisiDat, which wasbeta testing a data analysis packagethat was only weeks away from launch."We're not going to have the market toourselves much longer," she told Greg."We need to agree on a strategy for deal-ing with this kind of competition. If theystart out as a global player, and we stayhunkered down in the U.S., they'll killus. I've seen this before."

The news did not take Greg alto-gether by surprise."I agree we've got toput together a strategy," he said. "Whydon't we table the domestic-expansiondiscussion and talk about this at our off-site meeting, where we can get every-one's ideas? Unlike the rest of us, you'vehad some experience overseas, so per-haps you should lead the discussion.I'll square things with Tom."

Go FishIn Montana, Susan kicked off the firstsession with the story of GulfSoft, athinly disguised case study of her for-mer employer. The company had devel-oped a software package for the oil and

gas exploration business, which it hadintroduced only in the United States.But at almost the same time, a Frenchcompany had launched a comparableproduct, which it marketed aggressivelyon a global basis. A year later, the com-petitor had a much larger installed baseworldwide than GulfSoft and was mak-ing inroads into GulfSoft's U.S. sales.When she reached the end ofthe story,Susan paused, addingominously,"Today,we have only 20 installations of Clear-Cloud outside the U.S.-is in the UK andfive in Japan-and those are only U.S.customers purchasing for their overseassubsidiaries."

At Susan's signal, the room went dark.Much of what followed, in a blizzard ofoverhead projections, was market re-search showing a lot of latent demandfor ClearCloud outside the United States.The foreign markets in telecommunica-tions and financial services were shownto be about as large as those in the U.S.-that is, another $600 million. The po-tential in Pharmaceuticals, petrochem-icals, and chemicals looked to be about$660 million. Taken together, that meanta potential market of $1.5 billion domes-tically and $1.26 billion abroad.

In ending, Susan drew the obviousmoral. "It seems pretty clear to me thatthe only defense for this kind of threatis to attack. We don't have any intema-tional sales strategy. We're here becausewe need one-and fast."

She glanced at Greg for any hint ofobjection, didn't see it, and plungedahead: "We know we can sell a lot ofsoftware in the U.S., but if we wantDataClear to succeed in the long run, weneed to preempt the competition andgo worldwide. We need a large installedbase ASAP.

"I propose that for the afternoon wesplit into two groups and focus on ourtwo options for going forward. Group Acan consider building our own organi-zation to serve Europe. Group B canthink about forming alliances withplayers already established there. Basedon what you come back with tomorrow,we'll make the call."

As the lights came back on, Gregblinked. He was dazzled. But he sensed

JUNE 2001 39

HBR CASE STUDY • Go Global -or No?

that he needed to do some thinking,and he did his best thinking knee-deepin the river. After lunch, as the twogroups got to work, Greg waded intoNelson's Spring Creek. The fish seemedto leap to his hook, but his thoughtswere more elusive and ambivalent.

Money, Money, MoneyGreg decided he needed a reality check,and that night he called David Lesterto review the day's discussion. Not toosurprisingly, Lester didn't have a lot ofadvice to give on the spot. In fact, hehad questions of his own. "Instead offocusing on foreign markets in our coreindustries, what if we focus on develop-ing ClearCloud for the domestic phar-maceutical, chemical, and petrochemi-cal industries and capitalize on that$900 million U.S. market?" he asked."How much would that cost?" Greg of-fered a best guess of $2 million for theadditional software-development costsbut hadn't yet come up with a numberfor marketing and sales; the industrieswere so different from the ones Data-Clear currently focused on. "Whateverthe cost turns out to be, we're going toneed another round of financing," Gregallowed. "Right now we're on track togenerate a positive cash flow withoutraising any additional capital, but itwon't be enough to fund a move beyondour core industries."

"That's not where I was headed,"Lester replied."What if we went out andraised a lot more money and expandedthe product offering and our geographicreach at the same time?"

Greg swallowed hard; he was usuallygame for a challenge, but a double ex-pansion was daunting. He couldn't helpthinking ofthe sticky note he'd postedon the frame of his computer screena few days after he started DataClear.It clung there still, and it had just oneword on it: "Focus."

Lester sensed Greg's hesitation: "Look.We're not going to decide this tonight.And really, at the end ofthe day it's upto you, Greg. You've done the rightthings so far. Keep doing them." Hangingup, Greg was reminded of how pleasedhe was with Lester's hands-off ap-

proach. For the first time, he wonderedwhat things would be like if he had amore hands-on venture capitalist as aninvestor-maybe one with some experi-ence in international expansion.

Greg was also reminded of his ownlack of international management ex-perience. Eight years earlier, he had po-litely turned down an opportunity tolead a team of 50 Oracle developmentengineers in Japan, primarily becausehe had been unwilling to relocate toTokyo for two years. His boss at the timehad told him: "Greg, software is a globalbusiness, and what you don't learn earlyabout cross-border management willcome back to haunt you later."

Options on the TableAt ten o'clock the next morning. GroupA took the floor and made their recom-mendation right off the bat: DataClearshould immediately establish an officein the UK and staff it with four to sixsalespeople. Britain would be a beach-head into all of Europe, but eventuallythere would also be a sales office some-where on the Continent, maybe in Brus-sels. They had even drafted a job de-scription for a head of European sales.

Greg was impressed, if a little over-whelmed. "Any idea how much thiswould cost us in terms of salaries and ex-penses over the first year?" he asked.

"Conservatively, about $500,000 ayear; probably more," the group leaderreplied. "But cost is not so much thepoint here. If we don't make this move,we'll get killed by VisiDat - or someother competitor we don't even knowabout yet. Imagine if SAP introduceda similar product With their marketingmachine, they wouid just crush us."

Tom Birmingham started to object."Where are we going to find local staffto install and support the product?"he wanted to know."I mean, this is notjust about setting up an office to sell:ClearCloud is a complex product, and itneeds a service infrastructure. We'd haveto translate the interface software, or atleast the manuals, into local languages.We'd need additional resources in busi-ness development and product supportto manage all this. Selling ClearCloud in

Europe is going to cost a lot more than$500,000 a year-"

Susan was quick to jump in. "Goodpoint, Tom, and that isn't all we'll need.We also have to have somebody in Asia.Either Singapore or Tokyo would be anideal base. Probably Tokyo works betterbecause more potential clients are head-quartered there than in the rest of Asia.We need at least four people in Asia, forthe time being." Tom frowned but, feel-ing that Susan had the momentum,decided to hold his fire.

After lunch, it was Group B's turn.They suggested using autonomous soft-ware distributors in each country. Thatwould help DataClear keep a tight gripon expenses. Greg spoke up then."Whatabout teaming up with some local firmin Europe that offers a complementaryproduct? Couldn't we get what we needthrough a joint venture?"

"Funny you should mention that,Greg," said the presenter from Group B."We came up with the idea of Benrobut didn't have time to pursue it. Theymight be willing to talk about reciprocaldistribution." Benro was a small soft-ware shop in Norway. Greg knew it hadmade about $5 million in sates last yearfrom its data-mining package for finan-cial services companies. Benro was veryfamiliar with European customers inthe financial services sector but had noexperience with other industries. "Work-ing with Benro might be cheaper thandoing this all on our own, at least fornow," the presenter said.

Susan chose that moment to speakup again. "I have to admit I'm skepticalabout joint ventures. I think it will prob-ably take too long to negotiate and signthe contracts, which won't even coverall the eventualities. At some point wewill have to learn how to succeed ineach region on our own."

That's when Greg noticed Tom study-ing Susan, his eyes narrowing. So hewasn't surprised - in fact he was a littlerelieved-when Tom put the brakes on:"I guess 1 don't see how we can makethat decision until we gather a littlemore input, Susan," Tom said. "At thevery least, we need to have a conversa-tion with Benro and any other potential


Go Global -o r No? • HBR CASE STUDY

partners. And 1 know I'd want to meetsome candidates to lead a foreign salesoffice before I'd be comfortable goingthat route. But my real concern is morefundamental. Are we up to doing all thisat the same time we're building our mar-ket presence in the U.S.? Remember, wedon't yet have the capability to serve thechemical and pharmaceutical industrieshere. There are still only 38 of us, andI estimate that building the support in-frastructure we need just for domesticexpansion could cost as much $2 mil-lion - on top of product development."

Before Susan could object, Gregstruck the compromise. "Tell you what.Let's commit to making this decisionin no more than three weeks. I'll clearmy calendar and connect with Benromyself. At the same time, Susan, you canflush out some good candidates for aforeign sales office and schedule themto meet with Tom and me."

Casting About

And that's how Greg McNally foundhimself up a creek in Norway that Sun-day morning. Benro's CEO had beeninterested; Greg was confident that themeeting with him on Monday wouldyield some attractive options. And oncethe trip was booked, it didn't take Greglong to realize that he'd be near somefabled fishing spots.

He also realized it would be a greatchance to pick the brain of his oldBerkeley classmate, Sarah Pappas. Ahardware engineer, Sarah had startedher own company, Desix, in MountainView, California, in 1993. The companydesigned specialty chips for the mobilecommunications industry. Within sevenyears, Desix had grown into one of themost successful sf>ecialized design shopsaround the world, with about 400 em-ployees. Like Greg, Sarah had receivedfunding from a venture capitalist. Sincea lot of demand for Desix's services wasin Scandinavia and to a lesser degree inJapan as well, Sarah had opened subsid-iaries in both places and even decided tosplit her time between Mountain Viewand Oslo.

Greg arrived in Oslo on Thursdaymorning and met Sarah that evening at

a waterfront restaurant. They spent thefirst half-hour swapping news aboutmutual friends. Sarah hadn't changedmuch, thought G reg. But when the con-versation turned to potential geographicexpansion and he asked about her ex-perience, Greg saw her smile grow a lit-tle tense. "Ah, well," she began. "Howmuch time do you have?"

"That bad?""Actually, to be honest, some things

were easier than we thought," she al-lowed. "Recruiting, for example. Wenever expected to get any great engi-neers to leave Nokia or Hitachi to join

"Soyou think you made thewrong choice in expanding

internationaiiy?"

us, but we ended up hiring our Oslo andTokyo core teams without much trou-ble. Still, some things tumed out to beso hard - like coordinating the threesites across borders. There were so manymisunderstandings between Oslo andMountain View that at first our produc-tivity went down by 40%."

The story got worse. Sarah explainedhow, in 1998, her venture capitalistsought to exit its investment. Since anIPO seemed inadvisable for various rea-sons, the parties agreed to sell the com-pany to Pelmer, a large equipment man-ufacturer. Sarah agreed to stay on forthree years but couldn't do much to keepthe engineers in her Oslo and Tokyo sub-sidiaries from leaving. No one had fullyanticipated the clash between Pelmer'sstrong U.S. culture and Desix's local cul-tures in Oslo and Tokyo. By this point,Sarah felt, the merger had destroyedmuch that had gone into making Desixa small multinational company.

"1 can tell I've been a real buzz killer,"she laughed apologetically, as Gregpicked up the check. "But ifl were you,given what I've been through, I'd stayfocused on the U.S. for as long as possi-ble. You might not build the next Oracleor Siebel that way, but you'll live a hap-pier life."

"So you think you made the wrongchoice in expanding internationally?"

"Well, no," said Sarah, "because I don'tthink we had a choice. You, on the otherhand, can sell much more product inthe U.S. than we could have."

Up to His WaistThe next day brought its own worries, asGreg met with Pierre Lambert, a candi-date for head of European sales, whomSusan had identified through a head-hunter. Lambert had graduated fromthe Ecole des Mines in Paris and thenworked for four years at Alcatel and fiveyears at Lucent. As they talked, it oc-curred to Greg that he had no experi-ence in reading r^sum^s from outsidethe States. Was Ecole des Mines a goodschool? He noted that Lambert hadworked only in Erance and the U.S. Howsuccessful would he be in the UK orGermany? As he wrapped up the inter-view, Greg figured he would need to seeat least five candidates to form an opin-ion about the European labor market.And Asia wouid be even harder.

That evening, he compared noteswith Tom, who had interviewed Lam-bert by phone the previous day. Tom ex-pressed some doubts: he suspected thatLambert wasn't mature enough to dealwith the level of executives-CIOs andchief scientists-that DataClear wouldbe targeting. That call only just endedwhen the cell phone rang again, withSusan on the line."Greg-I thought youwould want to know. VisiDat just madeits first significant sale - to Shell. Thedeal is worth at least $500,000. This ishuge for them."

And now, two days later, here hestood in the glorious, frustrating Alta.He could see the salmon hanging justunder the surface. He cast his tine again,an elegant, silvery arc across the riverand maneuvered the fiy deftly throughthe water. Nothing.

Greg slogged back to shore andpeered into the box housing his exten-sive collection of hand-tied salmon flies.Was it just that he was so preoccupied?Or were the conditions really so differenthere that none of his fiies would work?One thing was for sure: it was a lot chill-ier than he'd expected. Despite the linersocks, his feet were getting cold.

JUNE 2001 41

HBR CASE STUDY • G o G l o b a i - o r No?

Should DataClear go global?Four commentators offer their advice.-

"Remaining a domestic U.S. playeris not an option. DataClear needsto take its business and productglobal"

Heather Kitten is senior vice president

of intemational operations at Yahoo!.

DataClear is facing a dilemma commonto many small companies that realizethey have a global opportunity on theirhands. Should it take the plunge intonew markets at the risk of overreachingits capabilities or stick to its knitting atthe cost of missing key growth oppor-tunities?

Greg doesn't have too much to workwith. He and his team have little inter-national operating or sales experience.His current VC has adopted a hands-offapproach and is unlikely to be muchhelp in plotting out an internationalstrategy. What's more, the company mayhave to overcome technical difficulties.If DataClear has to reengineer the prod-uct so it can analyze data in other lan-guages {especially two-byte languageslike Japanese and Chinese) or use dif-ferent data formats (commas instead ofperiods to indicate decimal places, forexample), the road ahead will be long.

That said, remaining a domestic U.S.player is not an option. DataClear needsto take its business global. For a start,the company is not growing quicklyenough, and it needs to move aggres-sively if it is to break out. What's more,if Greg is correct that the demand fordata analysis services is about to ex-plode, then the company could easilybe scooped by established businesses

entering the space or by better-fundedstart-ups.

A move abroad also fits with bothDataClear's actual customers in thetelecommunications and financial sec-tors and its potential customers in thepetrochemical and pharmaceutical in-dustries. Many of the players in theseindustries are based outside the UnitedStates (DataClear's first real competitor,VisiDat, has just sold its product toShell, a global enterprise that's notbased in the States).

It makes no sense to distinguish be-tween the "U.S." and the "international"markets. Rather than ask whether theyshould expand overseas, Greg and histeam should ask whether customers willwant to implement DataClear's producton a global basis. The case gives us littleto go on,but if we assume that they will,then, once again, that's a strong argu-ment for moving abroad. After all, Data-Clear needs to reach its customers wher-ever decisions about global investmentsare being made.

However, the expansion alternativespresented in the case are not attractive,and Greg needs to review his optionsmore thoroughly. Building intemationalsales offices from scratch could be ex-pensive and may not yield much in theway of concrete results. On the face of

it, an alliance strategy is more promis-ing-but choosing a joint-venture part-ner is a difficult process. What's more,Greg has already given up a fairly largeslice of his equity in the company to DLVentures, so he needs to be judiciousabout the partners he brings into thebusiness at this stage. Benro is clearlya nonstarter. As a small niche player, itdoesn't have the juice to help DataClear.

There are, however, other options.Targeting global companies based in theUnited States could be a good way tobegin to expand overseas. In fact, Data-Clear has already made a start in thisdirection; several U.S. customers havepurchased the product for their foreignsubsidiaries. (This also suggests that theproduct may be fairly easily adapted toconditions outside the States.) Gregshould also seek out a powerful channelpartner with connections to non-U.S.markets. SAP, mentioned as a possiblecompetitor, could also be a g(X)d partnerin view of its strong European orienta-tion. In fact, co-opting SAP as a partnerbefore it becomes a competitor wouldbe a smart move. Finally, Greg shouldconsider looking for fresh input and cap-ital from a strong VC in Europe or Asia.That would help DataClear get incuba-tion support for a more daring go-it-alone approach.


HBR CASE STUDY > Co Global-or No?

"Greg needs to clarify his rationalefor global expansion and consider abroader range of tactical options."

Alison Sander is a manager in the Bostonoffice ofthe Boston Consulting Groupand serves as BCG's global topic leader.

DataClear has a product with interna-tional potential, but Greg is on the vergeof making three classic mistakes in eval-uating his options. The first is goingglobal for reactive instead of strategicreasons. The second is basing a decisionon numbers that seriously underesti-mate the costs of international expan-sion. The third is gravitating toward ob-vious and expensive approaches ratherthan examining a full range of options.

Greg needs to clarify his rationale forglobal expansion and consider a broaderrange of tactical options. VisiDat's saleto Sbell is not reason enough to refocusDataClear's strategy on overseas alter-natives. An international strategy sbouldbe based on at least one of three com-petitive advantages:

• arbitrage-leveraging advantages avail-able in specific countries (for instance,low-cost capital or labor, special exper-tise, or favorable tax positions);• strategic positioning - preempting acompetitor, gaining a first-mover advan-tage, or locking in favorable terms withsuppliers;• replicability - reproducing a productor a business model cost-effectively inmany countries in order to gain scaleadvantages.

DataCtear appears to bave no arbi-trage advantage. The company reallyhas no strategic-positioning advantageeither, even though the main rationale

presented is that DataClear should pre-empt VisiDat in order to defend its stra-tegic position. VisiDat is oriented towardthe oil and gas market rather than Data-Clear's financial services market. De-fending a strategic position is expensive,and until DataClear builds a bigger warchest, such a move may divert manage-ment's attention from the immediatepriority of selecting markets where Data-Clear can build profitable market sharequickly. Indeed, Susan's focus on VisiDatappears to have obscured her best argu-ment for going global: the opportunityto profitably replicate DataClear's exist-ing software product. But a far moretborough analysis is required beforea replication strategy can be developed,as the competitive challenges of andopportunities for building profitableoperations vary widely from country tocountry.

Building a successful global strategywould also require Greg to take a muchcloser look at the cost estimates. For astart, he hasn't factored in the typicalcosts for software adaptation, such aslocal product customization and sup-port. What's more, the company hasfocused on two ofthe world's most ex-pensive markets in which to set up op-erations: London and Tokyo. Finally,as Sarah points out, global complexitycomes with unexpected administrativeand coordination costs.

If Greg does decide to go global, heneeds to look beyond the options pre-sented in the case. Establishing an over-seas subsidiary is expensive. And whilea joint venture would cost less and bringin new knowledge and capabilities, thepoor track record of most joint venturessuggests that DataClear needs to evalu-ate its potential partners more system-atically. An ill-conceived alliance withBenro could prove as risky as competingagainst VisiDat; Benro also serves the fi-nancial services sector and could developcapabilities through the venture thatwould let it compete with DataClear.

Fortunately, Greg does not have tochoose between those two options.Lower-cost alternatives do exist: licens-ing ClearCloud, selling it on the Web, orhiring a local sales representative, forinstance. Perhaps the smartest option,however, would be to continue with thestrategy that is already working: sellingto financial institutions that are pur-chasing for their overseas subsidiaries.By targeting global companies like Visaor MasterCard, DataClear could lever-age those customers' existing globalinfrastructures. Instead of investing inoverseas offices, Greg could hire a man-ager in the United States to supervisesales and develop customized supportfor large multinational customers. Thebest-run companies follow a step-by-step approach to global expansion.


HBR CASE STUDY • Co Global-or No?

"DataCkar needs to understand itspotential competitors a lot better thanit seems to. Thus far, its competitiveanalysis seems to be limited toreading news articles and pressreleases from the competition."

Barry Schiffman is president and executivemanaging director at JAFCO America Ventures,a venture capital firm based in Palo Alto,California, and Boston.

Greg is facing a common strategic threat:the possibility that a competitor willbeat his company to overseas marketswith a similar or better product A more-established company would be wise topreempt the threat as soon as it can. Butas a fledgling start-up, DataClear doesnot yet have the personnel or capital tosupport an intemational venture. Un-less Greg and his team take a lot moretime than they seem to wish to do, theymay well find that they'll spend a lot ofmoney without getting a single interna-tional order.

For a start, DataClear does not havea manager who can spearhead a moveabroad. To pursue that option, the com-pany would need a senior executivewith five to six years' experience in thetarget markets and a mastery of at leastone relevant foreign language. At pres-ent, the only executive with any inter-national experience is Susan-and herswas just two years in Asia, not Europe.Greg may be tempted to strike a com-promise by putting Susan in charge ofthe expansion on an interim basis whiiesearching for someone with the rightexperience. But going that route wouldbe unwise. DataClear would be likely tolose domestic business without winningenough foreign business to compensate.

Second, DataClear needs more capi-tal. G lobal expansion tends to be a long,

drawn-out war. International salesteams (especially in non-English-speak-ing markets) take a long time to closetheir first deal. Even when they have awell-developed product, they still haveto customize it to suit local needs andestablish distribution channels. Whenthe California-based software companyBroadVision, for instance, set up its Jap-anese subsidiary in 1997, it had to waitabout two years before it was able to re-alize any value from the venture. In themeantime, it had to support the sub-sidiary from its U.S. operations.

DataClear doesn't have the capacityto support a move abroad from currentoperations; it will have to raise cashfrom its investors to cover the costs - asl£Ster and Greg recognize. That meanscoming up with a convincing businessplan, which Greg is far from being ableto do at present.

For these reasons, I do not recom-mend that Greg go along with Susan'sevident determination to head up animmediate intemational expansion ini-tiative. But he would certainly be welladvised to invest some money in a fea-sibility study in the next three to sixmonths. I would suggest that he hire aconsulting firm to do a detailed analysisofthe opportunities in both Europe andAsia. Working with the consultants,Greg should spend a few days himself

in each of his initial target markets andmeet face-to-face with potential part-ners and customers.

At the same time, DataClear needs tounderstand its potential competitorsa lot better than it currently seems to.There are plenty of unanswered ques-tions, ts VisiDat the only threat? Howreal is the $500,000 order from Shell?Is that a big order in the petrochemicalmarket? How long will it take to convertClearCloud to compete with VisiDat'sproduct in that market? Thus far, Data-Clear's competitive analysis seems to belimited to reading news articles andpress releases from the competition.

If the results of these market researchefforts are encouraging, DataClearshould immediately approach its in-vestors with a two- to three-year busi-ness plan. When its funding is in place,the company shouid recruit a new ex-ecutive to head its intemational opera-tions. In the meantime, DataClear mightbenefit from continuing to build closerelationships in its domestic marketswith customers that have a strong in-temational presence or at least globalbrand recognition. Names like Sprint,Citigroup, and Microsoft spring to mind.Having references from companies likethese will make it much easier for Data-Clear to get its foot in the door withoverseas customers.


Co Global-or No? • HBR CASE STUDY

'To spend so much time establishingforeign operations when thecompany has not yet fortified itshome base is a recipe for failure/'

Scott Schnell is senior vice president ofmarketing and corporate development atRSA Security, a software company basedin Bedford, Massachusetts.

DataClear is facing a decision thatsooner or later every new business mustface. But any expansion plan must befully understood in the context of acompany's existing strengths, its man-agement experience and talent, and itscurrent and future opportunities. Gregis in danger of allowing himself to berushed into a decision without takingthe time for responsible due diligence-and his celebratory off-site has beentransformed into a crusade to solve anissue that does not need an immediateresolution.

In fact, a move abroad at this timemakes questionable strategic sense. InDataClear's market, it is much more im-portant to focus on cementing a posi-tion of strength in the United States -where the company has an early lead inthe largest, most-promising territory -than to be the first to market in all pos-sible territories. Businesses win by build-ing from a strong, defensible market po-sition with a top-performing productand a supporting organizational infra-structure. To spend so much of seniormanagement's time on aggressively es-tablishing foreign operations when thecompany has not yet fortified its homebase is a recipe for failure. A $5 million,38-person company like DataClear doesnot seem to have a strong enough baseof strength, given the potential size ofthe markets involved.

From an organizational perspective,DataClear's lack of planning demon-strates that management is not readyfor the challenges involved in build-ing an international business. The com-pany has not even developed a strategyor a time line for expansion into newdomestic markets. And no companyshould guide its actions solely on thepress releases, rumors, and sales tri-umphs of competitors, especially whenselling a sophisticated product with along sales cycle like ClearCloud.

Worse, DataClear is worryingly thinon international experience. Greg ad-mits he doesn't know what it would taketo be a good head of European sales.The only person with any intemationalseasoning is Susan, but her judgmentseems to be clouded by BDS's bad ex-perience in Singapore. She has failed torealize how different BDS's situationwas from the one that DataClear nowfaces. BDS was already an internationalcompany and could easily have sold itsnew product overseas had it decidedto - it just unwisely chose not to. ForDataClear, however, going abroad rep-resents a much greater challenge.

At some point, of course, DataClearwill have to expand internationally, andin my experience, its best alternativewill be forming joint ventures or part-nerships with value-added resellers-notestablishing its own intemational pres-

ence as a first step. In this respect, Greg'sinstinct is quite sound. But before talk-ing to companies like Benro, Greg andhis team need to think carefully aboutthe markets and partners they shouldchoose. How do DataClear's current tar-get segments differ in the United States,Europe, and Asia? Shouid the companylook for partners that have similar prod-uct experience in adjacent markets orones that serve DataClear's traditionalcustomers with other products? Howmany partners should DataClear havein Europe? What sort of partnershipstructure will best align the incentivesofthe partners involved?

Finally, Greg should not delegate thetask of devising an international plan toTom and Susan. Given their strongly dif-ferent views on expansion, their jointefforts could disintegrate into a powerstmggle. Instead, Greg should lead theplanning effort himself and allow two tothree months to formulate a strategy.For help in leaming about foreign mar-kets, Greg should look outside the com-pany to colleagues, investors, and spe-cialists - as indeed he has started to dowith Lester and Sarah. The challengeGreg faces is daunting, but it is not im-mediate, and a panic reaction will onlymake matters worse. ^

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JUNE 2001 49

go global - or no com

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