Oil- and gas-field machinery and services:
Imports from the U.S., 1992 $2.3 billion
Estimated average growth rate of market, 1993-1995 8% to 9%
Aircraft and parts:
Imports from the U.S., 1992 $750 million
Estimated average growth rate of market, 1993-1995 50%
Telecommunications equipment:
Imports from the U.S., 1992 $92 million
Estimated average growth rate of market, 1993-1995 25%
*Source: U.S. Department of Commerce, International Trade Administration, Office of the Near East.
YOU HAD TO BE THERE
By Robert A. Mamis
This is a cautionary tale describing the consequences of a young company's jumping headlong into global waters. Its CEO wants his story told lest others act on similarly nave -- and similarly expensive -- presumptions. But because the threat of litigation still looms, Inc. has changed the players' names.
Acme Corp. was barely four years old in 1987, and founder Ian Greene was barely 30, when the company got the call that was to propel it into the global marketplace. On the line was a reseller in Japan called SofTouch. "We think you're the kind of people we want to work with," urged its enthusiastic principal, Ken Ahara. "We'd like you to come over so we can move forward with a deal." The flattered Greene took off for Japan, where he found that Ahara already had translated Acme's promotional literature into Japanese and had lined up potential clients like Mitsubishi and Matsushita. "His marketing was way beyond anything I'd done in this country!" Greene marvels now. Ahara romanced him further, asking if he could distribute Acme's product.
Now that Acme is a leading vendor of specialty software and is ensconced in slick Silicon Valley headquarters, Greene feels a little less foolish for saying yes so fast. "I look back and wonder how I could have done such idiotic things. But going international is something you learn by doing," he rationalizes. "So you might as well do it when you're small and mistakes are less costly."
Actually, Acme's mistakes were far from cheap. A debacle in Japan, followed by a fiasco in France, drained some $2 million from the corporate till. Like many emerging companies, when Acme was considering the Japanese venture, it faced a risk-now-or-risk-later dilemma: (1) go overseas early to establish markets while you're still vulnerable, or (2) hold off until your staying power proves itself and risk losing customers to competitors. Chancing the former, Greene opted for an exclusive distributorship arrangement, rather than a joint venture, with SofTouch, on the money-saving grounds that (1) nobody from here had to be sent over there, and (2) you can always get rid of a distributor.
It was a near-fatal miscalculation.
At first SofTouch contributed significant revenues. Then sales growth flattened. Early buyers would purchase a unit for evaluation but wouldn't commit to more; Ahara insisted the situation would improve only if Acme established a presence in Japan. He proposed a corporate joint venture called Acme Corp. Kabushiki Kaishun (ACKK) -- 51% of which SofTouch would own.
"No way," said Greene. "I won't put a company in Japan with exclusive rights to our software that I don't control." Well, Ahara countered, then how about an entity no one controls? SofTouch would own 45%; Acme, 35%. Two big corporations -- Magna Power and Kabuki Communications -- were interested in becoming codistributors. For a 10% share each, they'd put up the capital and advance Acme an extra $150,000 for that privilege. "We made money just by setting it up," Greene says. "It seemed like a win-win situation."
It wasn't. ACKK's charter granted each party veto rights, paralyzing the organization. Although the charter was in Acme's name, Acme could make no decisions. And, accountable to no one, Ahara had installed himself as president of both ACKK and SofTouch. "There was SofTouch, this flaky little company of about 30 people," Greene says, "and there were two very large companies, Kabuki and Magna; yet, strangely, most of the sales were coming from SofTouch." Indeed, SofTouch accounted for 70% of Japanese revenues and 30% of Acme's total revenues, which in 1991 amounted to $8 million. (Greene later determined that Ahara had saddled Kabuki and Magna with big up-front guarantees and out-of-date versions of the product.) "We need control of our operations, of our accounting methods, of our vision," Greene advised Ahara. "Without it, we're doomed." Ahara agreed to realign ACKK, granting Acme 51% and keeping 39% for SofTouch. The other two partners were reduced to 5% each.
Even with control, you can't gain insight from the United States into what's going on in Japan, Greene realized. "You're dependent on the people you've got there to find and fix problems." Trying to manipulate events from California "was like trying to nail Jell-O to a tree." And after four years Greene couldn't install someone senior to Ahara: "If we had set it up that way to begin with," he now says with regret, "it would have been not only acceptable but expected; the Japanese don't set up an office in the States without having a Japanese person present to get it going."
Greene sent over his first American, not to run the place but to implant a sense of California culture and to "give us a set of eyes and ears to help us understand things a little better." The unmistakable conclusion: SofTouch was in fiscal distress. Greene called Ahara onto the well-worn carpet. "If SofTouch is in trouble, we're in trouble! What's happening?" "Nothing," Ahara reassured him.
Greene was therefore startled shortly thereafter by a phone query from another small Japanese high-tech reseller, Modern Technologies. We're considering acquiring the assets of SofTouch, the caller said, but SofTouch seems to have lots of debts and probably can't pay them. What are your plans? The shocked Greene decided the plan suddenly was to collect $900,000 in accumulated revenues that SofTouch owed ACKK. "We were stuck with two choices -- sue SofTouch immediately or hope for the takeover," Greene says. "We didn't want to be the blundering Americans going in and screwing everything up, so we decided on hope." While Greene hoped, the deal collapsed: Modern Technologies' due diligence disclosed that SofTouch was further gone than suspected. Sure enough, in April 1992 SofTouch notified ACKK that it was unable to meet its obligations. Greene's lawyers drummed SofTouch out of ACKK.
