tMichaelB is the web site for Tom Bengtson, who writes about business, religion, family and politics.

Tuesday, October 30, 2007

Global business: easier than ever but still challenging

Benjamin Franklin and Thomas Jefferson needed three weeks to travel across the Atlantic Ocean in the late 1700s; Charles Lindbergh took 33 hours to fly from New York to Paris in 1927. Last Friday, it took about 21 hours to travel from Mumbai, India to Minneapolis. The venture consisted of back-to-back nine hour flights, with a three-hour layover in Amsterdam.

Global air travel is routine today, but I still marvel how easy it is for 21st Century citizens to conduct business around the world. When we landed in Delhi on Oct. 21, one of my colleagues quickly picked up the score of the Gopher football game. (The University of Minnesota lost to North Dakota State University, 27-21.) And we could follow the Red Sox victories over Cleveland in the AL Championship series, and the first two games of the World Series, just as if I were in my living room at home. I was able to keep in contact with my office by email and post to my web site with absolutely no trouble.

The ease of conducting business from half-way around the globe, however, should not fool us into thinking that it is easy to do business in a foreign country. Minnesota’s disappointing experience with the Essar Group serves as an apt example. While we were in India, Essar Global of Mumbai announced it had closed a deal to purchase Minnesota Steel Industries in Nashwauk. At a cost of $1.6 billion, Essar plans to develop a specialty steel plant on the site that would represent the biggest foreign investment in Minnesota ever, bringing many sorely needed jobs to the area.

But the ink on the purchase papers was barely dry when the U.S. Department of Commerce contacted Minnesota Gov. Pawlenty to inform him of Essar’s engagements with Iran. Essar apparently is in negotiations to build a multi-billion dollar oil refinery in Iran. The Iran involvement would be a violation of U.S. sanctions against the country; Pawlenty said he could no longer support the Essar investment in Minnesota.

It is possible that Essar will back out of the Iranian deal, and even if it doesn’t it is possible that another steel company will come along and set up shop in Minnesota if Essar is barred from operating here. But what a roller coaster! Whatever happens, it will be a long time before a new steel mill is operating on Minnesota’s Iron Range.

Whenever you do a deal, you never really know what you’ve got until the deal is done. Even with the best due diligence, surprises always come up after the deal is officially closed. The significance of those surprises is typically proportionate to the size of the deal -- $1.6 billion is a lot of money; gaining a new steel plant, and then losing it in a matter of days for an area that desperately needs the jobs, is wrenching.

During our trip, we were apprised of cultural differences between Americans and Indians. Proud and formal, Indians like to assure potential clients. Sometimes they say “yes” to cover for the short term, only to back away when it comes time to close a deal. One mission delegate shared a story about contact he had with a potential Indian customer. All the negotiations went smoothly, and a deal was all but signed. In the end, the client never signed, much to the surprise of the Minnesotan.

I don’t consider any of these nuances to be significant enough to deter American business people who really want to do business in India. If you have a product appealing to middle class consumers, you really need to look at getting into this market. Rusy Kohli, who is handling distribution of Polaris in India, summarized the decision American companies need to consider about doing business in India.

“You can get in now and be the first one in, and put up with all the difficulties and barriers,” he said, on the one hand. Or, on the other hand, Kohli said: “You can wait until some of the barriers become easier to handle but then play catch up to all those others companies that got in ahead of you.”

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