Growing Your Business by Going Global
Hungary is reeducating its people, encouraging a free-market mentality. In the past three years, U.S. investors have sunk $1.8 billion into the country. Is Hungary the new gateway to Europe? (page 2)* * *
Lori Sweningson of Job Boss was fluent in quality lingo but had never heard of ISO before a customer mentioned it in passing. Now her commitment to achieving ISO certification may transform her company. (page 3)* * *
On the Road
The well-packed briefcase (page 5)* * *
The Global Perspective
"I am not enough Master of the Course of our Commerce to give an Opinion on this particular Question, and it does not behove me to do it; yet I have seen so much Embarrassment and so little Advantage in all the Restraining and Compulsive Systems, that I feel myself strongly inclin'd to believe, that a State, which leaves all her Ports open to all the World upon equal Terms, will, by that means, have foreign Commodities cheaper, sell its own Productions dearer, and be on the whole the most prosperous.'
-- Benjamin Franklin, in a letter to Robert R. Livingston, July 22, 1783* * *
"You wake up over the Mideast, over North Africa. As you eat breakfast you look out the window as you're going past and there's the Mediterranean area, and Greece, and Rome. . . . And you finally come up across the coast of California and look for those friendly things: Los Angeles, and Phoenix, and on across El Paso and there's Houston, there's home. . . . And you identify with that, you know -- it's an attachment. . . . And the next thing you recognize in yourself is, you're identifying with North Africa. You look forward to that, you anticipate it. And there it is. That whole process begins to shift what it is you identify with. When you go around it in an hour and a half you begin to recognize that your identity is with the whole thing.'
-- Rusty Schweickart, Apollo 9 astronaut, quoted in Peter Senge's The Fifth Discipline (Currency/Doubleday, 1990)* * *
"The prudent traveler in the former Soviet Union carries soap and toilet paper because hotels may not have any. A light bulb is a good idea. And about two pounds of rubles. The government eased my burden when it issued 5,000-ruble notes (worth $40 in July  but only $12 in December ).'
-- Mike Edwards, "A Broken Empire,' National Geographic, March 1993* * *
"The Chinese expression 'Shang chang ru zhan chang' translates literally as, 'The marketplace is a battlefield.' That is how the Asian people view the importance of success in the business world. The success of a nation's economy influences the survival and well- being of a nation as surely as does the course of a battle. Asians understand the true nature of business competition. They see it and call it as it is: 'Shang chang ru zhan chang.' '
-- Chin-ning Chu, The Asian Mind Game (Rawson Associates, 1991)* * *
"The best thing about our victory [in the cold war] is we did it with Levi 501's. Seventy-two years of Communist propaganda got drowned out by a three-ounce Walkman. A totalitarian system has been brought down because nobody wants to wear Bulgarian shoes.'
-- P. J. O'Rourke, "The Berlin Ball,' Rolling Stone, January 11, 1990
EXPLORING HUNGARIAN OPPORTUNITIES
By Albert Warson
New England machinery is pure Americana, fairly reeking of small-town industriousness, inspired tinkering, and Yankee trading shrewdness. It was created in a garage in 1974 by three enterprising packaging engineers -- one of them a Hungarian immigrant sentenced to death, in absentia, in his homeland because of his exploits during the 1956 uprising.
But instead of being hanged when he first returned to Hungary, in 1988, Geza Bankuty was welcomed. He was the prodigal son, returning to put to use some of those American entrepreneurial virtues he'd learned so well. So profitably, too. Virtues that Hungary -- then a pseudo-Communist society heading down a free-market road -- craved.
Bankuty is president of $8-million New England Machinery, in Bradenton, Fla. The 50-person enterprise designs and manufactures packaging equipment.
New England Machinery opened in Hungary in 1989 with a sales office in Budapest and 12 employees in a rented plant in Szeged. Within a year that branch had replaced the company's manufacturing operation in Sweden and absorbed the Paris office.
Opening Hungarian Branches
"We're profitable in Hungary,' says David Burton, New England Machinery's vice-president of finance, "because we started from ground zero instead of acquiring an inefficient enterprise' from the State Property Agency (SPA), which is selling off state-owned assets.
New England Machinery trained Hungarian staff in the United States and added equipment, operating capital, and marketing. Sales, profits, and export markets throughout Europe keep improving.
Resources: Doing Business in Hungary (Price Waterhouse, 212-819-5000; free) is becoming dated but remains useful for general information. For on-the-scene assistance, call Peter Fath, American Chamber of Commerce in Budapest (36-1-142-8752). Brian Toohey is desk officer for Hungary at the U.S. Department of Commerce, 202-482-4915.
The Acquisition Route
Through international trade shows, a state-owned Hungarian sheet-glass factory's technicians came to know managers at Guardian Industries, in Northville, Mich., a manufacturer of flat-glass products. The Hungarian company's glass was inferior, and its appeal as an exportable product was waning, so the Hungarians invited Guardian to transform their energy-inefficient and labor-intensive operation into a sophisticated float-glass facility. "It was a strategic fit for us,' says Ralph J. Gerson, executive vice-president of Guardian. "We needed additional product for our European markets.'
A joint venture was signed in 1988. "At the time Hungarian law precluded foreigners from having more than 49% equity interest, but negotiations allowed us to maintain management control. We raised our equity interest to 100% after the law was changed to allow full ownership, in 1991.' Guardian rebuilt the plant and reduced the work force to 250 and retrained it. The factory reopened as Hunguard Float Glass in 1991; some 80% of its production is today exported to distributors throughout Europe.
"We had to educate Hungarian management about Western standards, philosophies, and techniques . . . straightforward things like loan agreements,' says Mark Manion, Guardian's assistant treasurer.
Resources: The Central and Eastern European Trade and Technical Assistance Center of the U.S. Chamber of Commerce publishes the definitive guide, the two-volume Datafile: Hungary (202-463-5460, 1993, $47.50 for both ).
The Export/Distributor Route
When $58-million Zebra Technologies, in Vernon Hills, Ill., considered marketing its bar-code-labeling systems in Hungary, it interviewed several potential distributors. "In 1990 we made an arrangement with Mag ICS, with offices in Budapest and Sopron,' says Jay Elwood, Zebra's international-sales manager. "At the time Hungarians didn't understand business very well. We even had to tell them how to build in a cost factor. Today they're fairly sophisticated, aggressive businesspeople.'
Resources: The Hungarian-United States Business Council (contact Thaddeus Kopinski, 202-463-5482) has been in the thick of trade and investment between the two countries for 20 years.
Tapping Market Niches
Andrew E. Stevens, president of Euro Enterprises, in Los Angeles, sells expensive medicated toothpaste and other U.S.-made oral-hygiene products. But rather than starting from scratch, Stevens invests in state-run businesses. He recently invested in a Hungarian retailing enterprise and acquired the government's share of a company that produces herbal tea for domestic consumption; he also found an Italian partner who sells the tea in Italy for five times the Hungarian price.
While Stevens has not found the employees of the SPA to be "the easiest people to deal with,' he still advises patience. The SPA plans to privatize by 1997 more than 2,000 state-owned enterprises through majority-foreign-owned joint ventures, public offerings of shares listed on the Budapest Stock Exchange, competitive tenders, employee stock ownership plans, lease transactions, and management contracts.
Resources: Overseas Private Investment Corp. (800-424-6742) insures U.S. businesses against political risks when they invest in emerging market economies.
Getting money out isn't always easy. "Wire transfers of money to and from Hungary can take two weeks instead of two hours,' says New England Machinery's David Burton. "Clearing checks can take a long time.'
Payment can also be problematic. "While everybody would like to buy, people don't always have the money to pay,' says Bernie Mantel, managing director of the Swiss subsidiary of $65-million Sulcus Computer, based in Greensburg, Pa. Sulcus insists on 50% up front and the rest on delivery. To overcome banking delays, Sulcus negotiates deals with customers with letters of credit in dollars, which are easily arranged between the National Bank of Hungary and banks in the States.
Resources: The Hungarian-American Enterprise Fund (202-467-5444) promotes private enterprise in Hungary through equity investments, loans, feasibility studies, training, and insurance.
Albert Warson is a Toronto-based writer specializing in international business.
Top 10 Reasons to Invest in Hungary
1. The political process is stable and democratic.
2. Foreign companies have been able to acquire up to 100% of a formerly state-owned business since 1991.
3. There is no double taxation.
4. There is a 100% tax holiday for joint ventures during their first five years.
5. U.S. businesses have invested $1.8 billion in Hungary -- more than half of all the country's foreign direct investment and more than U.S. investment in Poland and in the former Czechoslovakia combined.
6. The Foreign Investment Act protects foreign investors against losses resulting from nationalization, expropriation, and joint-venture liquidation.
7. Since 1990 legislation has allowed, through the National Bank of Hungary, full repatriation of capital invested, capital gains, profits, and dividends, in hard currencies.
8. Hungary is geographically the gateway to Western and Eastern European markets.
9. The labor force is low cost (wages average less than $200 per month) and highly skilled.
10. Foreign companies are eligible for subsidies from the $20.5-million Investment Promotion Fund (36-1-111-5067) if they have equity capital of at least $685,000 and a 30% interest in the project.
Republic of Hungary
Population: 10.4 million, slightly more than half of it female; 59% of it concentrated in the capital, Budapest (population 2.1 million), astride the Danube; and in other cities and towns
Official language: Magyar, or Hungarian, although English and German are widely spoken
Political system: A multiparty parliamentary democracy
Education: Compulsory to age 16; free through university; more than 7% of the population graduated from a university
Unemployment: 11.8% in 1992; 15% to 16% in 1993 (both estimated)
Gross domestic product*: $30.6 billion in 1991; $27.7 billion in 1990; GDP per capita increased from $2,364 in 1990 to $2,976 in 1991
Inflation: More than 39% in mid-1991, down to an estimated 23% at the end of 1992, and expected to decline further
Joint ventures with U.S. and other foreign companies: 13,250 in varying percentages of ownership and 2,252 that began as partnerships and evolved into 100% foreign ownership
Total merchandise imports (U.S. included)*: $11.25 billion in 1992; $12.55 billion in 1993 (both estimated)
Currency: The Hungarian forint (100 fillers) is expected to become fully convertible this year. In the meantime the exchange rate floats against U.S. dollars and European Monetary Units (EMUs), rather than at a fixed rate. Foreigners have the right to exchange forint earnings for hard currency and transfer those funds out of the country without any interference or conditions. Last June $1 U.S. was worth 80 forints. As of April 20, 1993, the dollar was worth 87 forints.
*All figures are estimates, in U.S. dollars.
Hottest U.S. Exports*
U.S. exports to Hungary nearly doubled from 1990 to 1992, when they reached $310 million. They increased 28.8% in 1990 and another 63.8% in 1991.
Computer software: Projected annual growth, 1992-1994: 3%Imports from the U.S., 1992: $167 million
Household consumer goods Projected annual growth, 1992-1994: 0.3%Imports from the U.S., 1992: $100 million
Medical equipment: Projected annual growth, 1992-1994: 0.4%Imports from the U.S., 1992: $3 million to $4 million
*Source: "Hungary: Country Marketing Plan 1993,' U.S. and Foreign Commercial Service (202-482-4915).
ISO 9000: MAKING THE GRADE
By Leslie Brokaw
The first time Lori Sweningson heard the phrase ISO 9000 was back in October 1991, at an annual conference her Minneapolis company holds for its software users. "One of our customers asked, 'What are you going to do about meeting ISO 9000, those European quality requirements?' And I thought, Beats me.' But then Sweningson knew little about the European market, period. Her company, Job Boss Software, hadn't yet sold there, mostly "because I didn't know anything about it.' There certainly was no reason not to consider the possibility, though: founded in 1985, Job Boss makes software for small custom manufacturers to manage their shop flow, and with 800 customers, it had profitable 1992 sales of $2.3 million.
Inspired by the conversation, Sweningson went to a couple of seminars on international selling and in February 1992 attended a matchmaker trip, sponsored by the Department of Commerce, to France and Belgium to scope out overseas distribution opportunities. The more people she came in contact with, "the more ISO 9000 kept coming up. The word was that to trade in the European economic community, manufacturers were going to need to prove their processes met minimum quality standards.'
Like many people running U.S. companies, Sweningson already was fluent in quality lingo: she has embraced the theories of total quality management (TQM), is applying for a Minnesota Quality Award (which she doesn't expect to win but does expect to learn from), and plans on one day going for the Malcolm Baldrige citation.
But ISO was unfamiliar. An acronym for the International Standards Organization, ISO is the newest quality to-do bubbling within manufacturing circles. Spawned in Europe, ISO aims to promulgate quality standards for companies to meet as a way of showing that the methods they use in product development and testing ensure quality end products. (See "ISO at a Glance,' below.) Unlike TQM or other internal quality programs, ISO requires certification by a third party. Among many large European businesses, ISO is becoming a kind of Good Housekeeping Seal of Approval, increasingly being required of both European and U.S. suppliers.
The more Sweningson heard, the more she thought ISO made "tremendous sense' from marketing and quality-discipline points of view. "The whole idea is to get to where you could take a person out of the process, and the process would continue because of the habits of the organization,' she says. That tenet of quality management is one she'd already been pursuing, and ISOmade it all the clearer. After looking into ISO over the summer, deciding that she would need the designation to sell in Europe, and weighing the amount of time it would demand from people at her company, Sweningson ultimately took the plunge and committed last fall to undertaking the yearlong certification process. Her goal: ISO certification by the end of 1993.
Because ISO is just beginning to move beyond its initial buzz here in the States, Sweningson is finding that working toward certification is a bit like inventing the wheel -- but it's to her advantage. "One big reason to do it right now is that the system is still embryonic, and there are more issues subject to interpretation,' she says. "The requirements are definitely easier than they're going to be in a couple of years.'
Her first step toward ISO certification was to begin preparing an extensive quality manual. Job Boss hired a consultant to help put together a paper trail documenting each step in how the company designs and tests products and gets customer feedback. (See "So What's Involved, Anyway?' below.)
Writing the manual over the next several months should be fairly straightforward; a set of printed guidelines supplied by ISO -- for a software company, that would be form 9001-3 -- tells exactly what the company has to account for.
Explains Sweningson: "There'll be a section titled 18.104.22.168' -- the minutiae of subsections is prodigious -- "which deals with authority, and under A we'll write, This is how they initiate action. Under B we'll write, This is how they record any quality problems. And so on. We'll take every one of these tiny sentences and blow them up to several paragraphs.'
The next step will be submitting the document to an ISO-certification auditing firm, which must approve the paperwork and then make an on-site visit. There are accredited U.S. firms, but for added credibility in Europe, Job Boss is looking into using a Belgian firm, Bureau Veritas Quality International. (BVQI has an office in Jamestown, N.Y., and has already certified another Minneapolis software company.) Job Boss vice-president of customer service Marlene Walsten, who currently spends about half her time heading up the ISO effort, estimates that 80% of the steps Job Boss needs for certification already are in place. "Really, the key is understanding the specs of what the auditors want,' she says. "When the form states 'Your quality policy must be visible,' does that mean everyone has to have a copy at his or her cubicle? That it's on the reception-area wall? That it's included in your quality manual?' Walsten is counting on the consultant, Jolene Hart, a senior partner with Software Quality International, in Minneapolis, to help interpret the sometimes-vague directions of the guidelines.
The process doesn't come cheap. Sweningson has budgeted $30,000 to $50,000 for out-of-pocket consultant and auditor fees. And steaming toward ISO may be overwhelming for Job Boss's 40 employees, who already are busy enough running the company, let alone ruminating on how they do it. "On the face of it, it's almost contrary to all the '90s things, where you're empowering your employees to make their own decisions,' concedes Walsten. "But part of the guidelines say that if the customer's needs have to be met in a more efficient way than how you've documented, you do that. You make that flexibility explicit in the manual.'
Job Boss is banking on the payoffs' being broad. The most obvious benefit is that ISO certification should have cachet as a marketing tool both in foreign countries and in the United States. In addition, 20% of Job Boss's revenues come from consulting services, and Sweningson figures the company will add the ISO experience to its offerings. And she truly believes that ISO will fast become a minimum requirement for many sales.
Adds Walsten: "The kicker is that the certification can include vendors. If you're not doing business in Europe, but one of your customers is, they may have to require you to have ISO certification. It's a pyramiding thing: it starts one place and just builds from there.'
Now in the middle of the process, Walsten and Sweningson both grant that it's a bit boggling. "People ask me about ISO every week,' says Sweningson. "And I confess to them that I was extremely excited about it before I started, then I began feeling as if I were standing in a swamp, with hip boots on. We're just getting out of the swamp, and when we do I'm going to be superexcited again. The thing I like about ISO in particular is that you have a blueprint to shoot for. When you're running any kind of a small business, that's so helpful.'
So What's Involved, Anyway?
Steps Completed: Month 1: Committed at a board meeting to be certified within 14 months. Month 4: Hired certified quality auditor as consultant to prep company. Month 5: Consultant spends one week talking with 17 of 40 staff people about how they do their jobs and about quality programs already in place. Submits to Job Boss 26-page document of findings and recommendations. Fee: $3,600.
Steps Anticipated: Months 6-8: Company writes down descriptions of quality procedures and adds other procedures as recommended by auditor. Company then files application with auditing firm. Month 9: All written materials completed. Company mails them to auditing firm, which will evaluate the quality manual. Month 10: Auditor reviews manual, makes suggestions. On-site visit is scheduled for 2 to 4 months later. Month 11: Company makes more changes as recommended. Month 12: On-site visit by auditor, up to 3 days. Concludes with sit-down meeting to hash out auditor concerns and company explanations. Certification is granted or denied right there. If certification is not granted, company still pays full fee and reschedules future on-site visit. If certification is granted, company celebrates.
ISO at a Glance
ISO stands for International Standards Organization. The organization was put together in 1979 by European representatives in the quality field. Also known as ISO, or ISO 9000, are the quality standards it worked on for eight years and published in 1987.
The organization is based in Geneva, Switzerland. The U.S. "delegate" is the American National standards Institute, in New York City.
ISO's intent is to create standards for products traded across international borders and within the as-of-January-1993 unified European economic community. Unified standards, the thinking goes, should minimize the need for on-site vendor visits.
Companies seeking ISO certification put to paper the steps in their operations that ensure the quality of goods and services. There are several certification options: ISO 9001 is the broadest set of standards, while ISO 9003 focuses just on final product inspections. Formal outlines detail what's necessary for each. An auditing firm visits the company -- as with a financial audit, the more-than-$10,000 fee is paid by the company -- with authority to grant or deny certification. companies must undergo two follow-up audits per year to maintain certification.
Roughly 40,000 companies worldwide are ISO-certified. In the United States, slightly more than 1,000 mostly large companies and divisions of major corporations are.
To Get Information
Free information packets are available from the American Society for Quality Control (800-248-1946), the American National Standards Institute (212-642-4900), and CEEM Information Services (800-745-5565).
ON THE ROAD
Don't ask Harvey Mackay, CEO of Mackay Envelope Corp., in Minneapolis, what he carries in his briefcase when he travels internationally. He's apt to tell you. Five colors of Post-its, a dictionary, a Berlitz guide, earplugs, a Polaroid camera, a wad of 100 $1 bills, his passport, a tiny bottle of Bayer aspirin -- "for when your flight is four hours late and there's no food on the plane' -- book contracts, a "mini Rolodex' with the numbers of 400 people he'd most likely call. And much, much more.
"I'm a time-management freak, I guess,' says the man who wrote his latest tome, Sharkproof (HarperCollins, 1993), mostly on legal pads, scrap paper, and napkins while 30,000 feet up. "The important thing is to know what you have packed.'
And Mackay does. He packs everything he needs into one big briefcase that conveniently collapses, accordion-style, into one manageable over-the-shoulder tote. Well, almost one. Mackay cheats a little; he also carries a lightweight 18-by-36-inch artist's portfolio containing a photocopy of his passport and his stash of on-the-road reading: the hometown papers, prioritized magazine articles, and unopened mail.
But back to the incredible expanding briefcase. (He owns five exact duplicates; three are packed at all times.) From the outside, it looks like a cross between an attachÉ and a doctor's bag -- except it's soft. Two large zippered pockets on either side hold things he needs to get to fast, like his cellular phone, his itinerary, and a list of favorite restaurants.
The briefcase unlatches from the corner. A big flap pulls back to reveal four "accordion slides, each with pockets.' Mackay stores business papers -- recent financial results, acquisitions, contracts, speeches -- in what else but Mackay 9-by-12-inch envelopes.
A "mammoth pocket' good for storing larger items takes up the other half of the briefcase. And there are plenty of smaller pockets for little items like Mackay's Norelco Dictaphone, stamps, and sunglasses. Oh, and one more item -- a Snickers bar. "I haven't traveled anywhere over the past 40 years without one.' -- Susan Greco