<![CDATA[Small Business Consulting - Blog]]>Sat, 23 Jan 2016 20:41:41 -0800Weebly<![CDATA[Investing In Your Staff]]>Wed, 20 Jan 2016 22:11:06 GMThttp://www.perezincr.com/blog/investing-in-your-staff
As one who has been in the top finance role of organizations, I must admit that the first time I read the quote above I was somewhat offended. Having been in that role, I am very much aware that to some the CFO is "the evil business person." CFO's are people too!

Ignoring the view of CFOs, I would like to mention the value of investing in the development of staff. For many years I was an Executive Director of an organization that had the schedule flexibility to allow me to implement a policy that would encourage staff to continue their professional development. The policy was simple.  The organization would allow staff half-a-day a week to continue their formal education on any subject that they wanted. It had to be formal, meaning that they had to receive some kind of certificate, diploma or degree. In addition to that, if that subject had a direct relationship to their daily work, the organization would consider supporting their studies financially depending on the cost and the financial capacity. As a result, I, and other staff members pursued Masters degrees, Project Management Certification, a Bachelors degrees, a culinary arts specialization and barista training.

My reasoning behind this was simple. Without fail, every time, the organization benefited from those of us on staff who continued our education.

Staff that are being further developed bring new ideas and insights that they want to implement. Those ideas are fresh, and if the education is formal and of quality, they are stemming from best practices. Oftentimes, we on staff can get stuck doing things a certain way, because "that's the way they have always been done." One of the best ways to break that cycle is to have others speak to us about better ways to operate. This is especially important for those of us in leadership roles, because there is nothing automatic about a leadership role that suddenly makes us more knowledgeable about best practices. We, of course, have to be open to learning from our own staff... but that's another post, another day.

Staff that are being developed, tend to value the opportunity to continue learning and appreciate the organization for allowing them to further their education. This can result in very positive morale and a reduction of staff turnover. Both of these have a very direct correlation to productivity. Staff that are happy with their organization and are growing in their role will be more productive, and the organization will be more successful.

People who love what they are learning, also love sharing insights about what they are learning with others. This will allow the organization as a whole to learn new things, and can create a sort of domino effect. Others want to learn, so they too can have things to teach. As an anecdote, one of my favorites moments was when a staff member who was taking a barista course wanted to try new coffee drink recipes on me. As I write this, I remember one specific drink he brought to my office, which was exceptional. For the first and last time of my professional career, I had a staff member who would bring me coffee to my office. I could say the same about the staff member who was taking cooking classes and wanted me to try some of the new recipes he was learning. To be honest, most of my favorite moments with regards to this policy were centered around food.

A fourth benefit, which addresses the hypothetical concern of the CFO in the above quote is this. Staff will leave. That's just a reality. I am one of those odd leaders that actually hope for their sake, that one day staff outgrow their role. I often tell staff, "I don't believe in lifers." That is, I don't believe that a person will work for me or the organization that I lead for the rest of their life. The organization I led at the time when I implemented this policy had only twelve staff, and therefore very few opportunities to move up the ladder. I have found that many people who do the same job for many years, don't actually expand their future opportunities, but their opportunities become more narrow. This might make them stay because they are stuck and can't move forward, and not necessarily because they still have a passion and a vision for the mission of the organization. Personally, that motivation is not one that I want in my staff. I want people who love what they do, and want to be the best at doing it, for the time they are with us.

It is always my goal that the exit door of any organization that I lead be wider than the entrance door. I want people to leave because they have greater opportunities ahead of them. Without fail, I saw the value of having people grow out of our organization to do great things in other places. I'll even be honest and say that I envied some of the wonderful opportunities of those staff members. Having them look back on the organization I was in as a stepping stone to the greater things they accomplished later,was much more valuable than it would have been had they looked back and considered it the greatest obstacle to their growth. Now, I had champions for the organization in great roles, and not people who resented their years there.
This week, I am at a training. This training was provided to me by two different organizations. The organization in which I am employed by, and an organization that I am on the Board of. Both organizations believed that helping me further my capacity would be of great benefit to them, and to the people I lead. I can say openly, I don't believe in lifers. That means, I may not be with either of the organizations 25 years from now, but as the above quote says, think of how much worse it would be if I was, and didn't receive any further training during that time. Invest in your staff. Invest in people. It may cost money, but the return on investment will be much higher than what you will obtain, if you choose not to invest.
]]>
<![CDATA[You can recruit on p´╗┐assion alone. You cannot retain on passion alone.]]>Wed, 20 Jan 2016 22:07:13 GMThttp://www.perezincr.com/blog/you-can-recruit-on-passion-alone-you-cannot-retain-on-passion-alone
I have been involved in the nonprofit world for the majority of my professional life. I joined a nonprofit with my first job informing me that they would not be able to pay me a wage, but that I would be welcome to raise money for my "support". Unfortunately for me, I was unsuccessful in fundraising, but still felt such a strong "calling" that I believed it was the right move. Perhaps because of my unsuccessful fundraising attempt, the organization I worked with was able to offer me a stipend of $500 a month, as well as housing for me and my wife.
A little over 15 years since that initial experience, I have begun to coin the phrase above as I interact with the directors of many other nonprofits. In the last week, I've repeated this phrase at least four times, which led me to write about this. "You can recruit on passion alone. You cannot retain on passion alone."  It is my experience that often, nonprofits are able to encourage incredibly qualified and capable individuals to join their staff and help them fulfill their mission. Of this I was equally guilty. I had no lack of individuals wanting to join our cause, and to my shame, I would always repeat to them, "If you want to be underpaid, overworked and unappreciated, this is the right job for you." Believe it or not, people still wanted to participate in our work. In my limited experience, this is especially true of faith-based nonprofits, where not only passion is used as a recruiting tool, but sometimes guilt as well. If passion is a powerful force, guilt is an even more powerful one.
What I've learned since those days is that nonprofits who recruit on the basis of passion for the mission without being able to provide compensation that allows those individuals to also succeed in their financial wellbeing, have significant turnover of qualified individuals. This is especially negative, as some of the knowledge, networks, skills and overall performance that those individuals developed in the time they were present is lost.  Since the organization is not likely to have the capacity to hire people with equal qualifications, they have to start over with new individuals, and the nonprofit's mission suffers.
I am a firm believer that nonprofits ought to establish compensation policies based on a fair assessment of market rates. Most nonprofit employees are not looking to become wealthy from their work, hence why they choose this field. Nonetheless they have the same general expenses that others who are in more profitable fields have (housing, clothing, food, healthcare, and even vacations.) When considering compensation, I look at studies which share the average compensation of equal positions according to the overall budget. Guidestar publishes an annual compensation study for nonprofits, which helps you distinguish according to the type of nonprofit, budget size, and location. This unfortunately is limited to information from 990 forms, which only requires organizations to report the top officers. Online resources like Glassdoor and Salary.com are a good source for compensation for other staff. You may even want to talk to other peers.
Some of the benefits from an objective compensation policy in nonprofit are the reduction of staff turnover, the opportunity to hire equally qualified staff when there is turnover, general positive morale, opportunity for people to know what they can hope to attain financially as they remain with the organization, and the lack of subjectivity stress for executives determining salaries (every nonprofit director who is determining a salary based on opinion, knows exactly what I mean by this). In addition to that, you will also able to determine what a realistic budget for success in your mission should be.
Whether you work for a nonprofit, want to work for a nonprofit, or sit on the Board of a nonprofit, let me encourage you to look at establishing objective salaries for all staff. Those fulfilling the mission of the organization will be very grateful to you, and be able to serve others for a longer time, without feeling guilty.
]]>
<![CDATA[Garth Brooks and Temporary Restricted Assets.]]>Thu, 26 Jan 2012 19:51:40 GMThttp://www.perezincr.com/blog/garth-brooks-and-temporary-restricted-assetsI read the news today about the jury awarding Garth Brooks, not only a "refund" of his donation to a hospital in Oklahoma, but an equal amount in punitive damages due to their failure to apply those assets as agreed to in a verbal conversation. I am no lawyer, but I do understand nonprofit responsibilities and obligations, and agree fully with the return of the original donation. Donors have the opportunity to give and restrict those gifts to some use that would be near and dear to their heart. For instance, an organization that I worked for received a donation from the family of one of our former students to build a memorial in that student's name, after he passed away in a tragic accident. The organization not only was pleased to receive that donation, but was excited to do so, and is completing that memorial as I write this. Foundations assign specific uses to the grants that they give to organizations according to the agreement reached throughout the entire grant writing and allocation process. The government is the most strict of all donors in this regard, and just recently I was discussing with the Executive Director of a local organization regarding the fact that they do not pursue government grants because they find the paperwork to evidence the appropriate use expensive and onerous (something often true of smaller organizations who cannot afford the staff necessary for this paperwork.)

Because foundations and governments are very strict regarding the proper use of their funding, nonprofits are usually careful to guard those funds and apply them only to the purposes for which they were assigned. As was shown in this case, at least by the limited information given in the media and the jury award, sometimes nonprofits feel they have more leeway when it comes to individual and personal donors requests. Because they know that most donors will give and forget, they may not feel the obligation to prove to the donor that the funds were used in the manner which they requested. In many of the cases, the donation may be too small to warrant the proof that the donation was assigned properly. Nonetheless, technically and legally, when a donation is given regardless of the source, it ought to be used for the purpose to which it was given. This requires careful wording of donation and pledge requests.  Under GAAP rules, the donations are categorized as Temporarily Restricted Donations, which are restricted until the moment that the service or project for which they were given has been completed. General donations fall under the unrestricted donations and can be used for whatever purpose the organization and it's governing board believe is the best use.  Although GAAP requires that the money be counted as income and falls under the category of "temporary restricted net assets" for the period at which it was given, in a Director and Board's mind, it should be considered a liability until the service or project is completed. If it is not completed, that money should absolutely be returned, along with a clear explanation as to why the organization was unable to fulfill the donor's wishes. It's up to the donor if he accepts the return.

As a former Executive Director, I loved unrestricted donations. It implied that the donor trusted me, my staff, and my board to use the money in the best manner possible. Because of my experience, I also give unrestricted donations. Yet, I also understand the reasons that motivate a donor to give for a specific purpose, and this may require the most difficult discipline in any Executive Director's life, which is to be able to say, "We're sorry, but we will not be able to accept your donation, since it is not aligned with our mission." Perhaps this can be followed with a plea for a donation that is aligned, but it must always respect the donors desires. Because good nonprofits are strategically networked with other nonprofits, it may be possible to refer the donor to a place that does fit her mission and desire for funds, and maybe, one can hope that they may have a little left over for ones own needs.

Some of the comments at the bottom of the article for Garth Brooks, make him out to be the enemy, but Mr. Brooks is completely correct, if his telling of the facts is true. More donors should have the follow up intention that Mr. Brooks had, and demand that donations be used appropriately. At the same time, donors should be aware that nonprofits need money for mundane purposes in order to fulfill their mission, such as electricity, water, and even salaries. ]]>
<![CDATA[Getting and Keeping the Right People!]]>Mon, 09 Jan 2012 14:10:32 GMThttp://www.perezincr.com/blog/getting-and-keeping-the-right-peopleIf I haven't mentioned it elsewhere, I would be surprised. Jim Collins book "Good to Great." has remained one of my favorite books on leadership and management. Although some of the companies mentioned in the book, like Circuit City, A&P and Fannie Mae have had to be reevaluated as great companies in light of the economic recession, I still believe that his vision for how businesses should grow and become great competitors is solid and scientifically founded.

One of the principles of Good to Great is "Getting the Right People on the Bus." This goes along with my personal values that employees should be seen as assets and not as expenses.  Yes, a cliche statement, but one that has an incredible impact on your long-term bottom-line, versus your short-term results.  When employees are seen as expenses, the management team does everything in their capacity to hire "cheap".  This economic recession has been key in revealing employers true motivations. It is an employers market, and therefore people can be offered lower wages, taking advantage of their willingness to work for less.

Recently I have been meeting with two different companies regarding their growth, and the subject of employees has come up. In one case, the company has been paying slightly below market value for some of their employees, while creating greater cash reserves. I expressed to them my concern that if their employees are good at their jobs, even if they love the work environment, they will be forced to make a choice between their job and their personal future.  This doesn't imply that one must always pay the highest, since salary is not the only indicator of job satisfaction, but it means that one must compensate fairly and sufficiently. Sure enough, within a week, this company lost one of their key employees to another place who not only offered her a position that would allow her to grow, but also compensated her in such a way that she could prepare her future better.  The second company that I met with was a business owner who was struggling to grow his business. He needed to focus more on sales. When I asked him if there was somebody who could run the operations, while he focused on sales, his response was very quick and affirmative. There was one person whom he trusted blindly, and to whom he could leave the entire operation.  When I asked him whether this person was being compensated well, the response was negative. He could probably get a lot more if he looked elsewhere. I suggested he evaluate his position because the loss of such a key employee who has responsibilities of his own to take care of can become difficult to recover from.

One of my rules of management is hire the best you can afford. The definition of "best" will be company and position specific, but when it comes to hiring, especially among small businesses and nonprofits, you want to be very selective. A highly qualified, driven, and connected individual may cost you more up front, but will make up for it in productivity and future business. A lesser qualified individual will represent a cost savings to you in the short run, but will present multiple headaches down the road. Have you ever had those individuals who are just good enough that you can't fire them, but not so good that you are really glad you hired them? You want to fill your business with people who you are constantly glad that are members of your team. When you have these, it is a joy to compensate well... unless you're the wrong person driving the bus. ]]>
<![CDATA[Use Analytics!]]>Sun, 04 Dec 2011 13:53:14 GMThttp://www.perezincr.com/blog/use-analyticsI recently went to a Business Plan competition being held by Chattanooga's Enterprise Center's Technology Transfer department. Among the competitors, there was a woman who was pitching a software that would hope to integrate all the city's different services, so that policy decisions could be based on real life data. Chattanooga is the country's only Gig city, where the whole city has been connected through fiber optics to give every home a 1 Gbps potential connection. Her idea was a brilliant idea, but a similar idea to saying, "I want to achieve the end of  World hunger." 

Nonetheless, an a much smaller scale, one should be looking for ways to bring data into a business in order to achieve data-driven decisions. I read this article on the 10 New Google Analytics Features You Need to Start Using. I discovered Google Analytics probably about 8 years ago, when we built a new website for Portantorchas, the Bible School I was directing in Costa Rica. I was amazed at the time that Google (known then mostly for their search mechanism) would offer me so much information about the visitors to my website for free. Since then, I have become an Analytics addict. I add Google Analytics to every website, every blog, every newsletter, every ad. I love the level of detail in Analytics that I receive and when evaluating that data right, I can make decision at a very micro level about how I should be marketing. Where are my visitors coming from? How many people went to the website after I added a blog post? What medium are the visitors using to read the website? How long did they stay? What pages did they look at? What did they have for dinner, prior to visiting my website?

Well, maybe that last one is still a level of detail that Google hasn't posted online. 

Google is not alone offering analytical information. If you sign up for a email marketing company, you can probably receive significant analytical information. My own brother has started a business called AudiencePoint to draw analytic information to time-target marketing campaigns across multiple platforms.  A pretty creative use of analytics.

My point is that the drawing of analytic information is a tool that you should be using to help improve the way that you are targeting your business or organization. If you are not using analytic information, you really need to begin


]]>
<![CDATA[Cash Matters!]]>Sun, 30 Oct 2011 15:43:51 GMThttp://www.perezincr.com/blog/cash-mattersRecently, I was reminded of the importance of keeping an eye on your cash flow from operations. I recall in business school doing a case study for Sears-Roebuck where clearly it was demonstrated that although the company was growing in revenue generation, and had  a significant increase in net income, year after year, they were treading in dangerous waters, because they were not collecting equally well on their accounts receivable. This was due to the beginning of their program that allowed people to buy on credit, and because, at the time, Sears was handling their own credit, they were not receiving cash for their sales.

Cash Matters! For a time, a business or nonprofit can survive by increasing their accounts payables and postponing their bills. When one measures the cash cycle of a company (otherwise known as cash conversion cycle), a metric to determine when/if the company will run out of money to fulfill their obligations can be determined. When the accounts receivable aren't being managed correctly, and the cash cycle is negative, meaning in essence that the payables will be due before the money comes in, the business risks bankruptcy, even though it might show outstanding net income results.

Income is not cash, and most probably people and vendors will want to eventually be paid in cash. When that day comes, you will need to make sure that you will have the cash to fulfill your own obligations.  A cash flow problem can occur to the best of businesses, as well as to the best of nonprofits. Keeping an eye on cash is crucial to a smooth and reduced stress operation. ]]>
<![CDATA["Keeping the Main Thing, the Main Thing."]]>Tue, 30 Aug 2011 16:36:47 GMThttp://www.perezincr.com/blog/keeping-the-main-thing-the-main-thingI begin this post with a cliche.  This cliche is paraphrased differently by many different authors.  Jim Collins calls it "the Hedgehog Concept." Steven Covey may say "Put First Things First."  Others will refer to the Pareto Principle of business, where 80% of your revenue comes from 20% of your business. Focus on that 20% while not ignoring the other 80%.

Often when talking to business owners, they are not really sure what is their main business.  This may be due to the fact that they lose the trees because of the forest.  They are so consumed by everything that is keeping them busy that they don't realize that they may be neglecting to grow their core business.  Recently I had a conversation with a successful business owner who is looking at the projected economic acceleration as the biggest threat to his business, which has flourished due in part to the recession. He wants to consider building other businesses that may make him recession proof.  In finance we would say, he wants to diversify his portfolio in order to hedge his economic risk.  Obviously, this sounds like wise advice.  Diversification is good.

As I pondered my conversation with him, I was reminded of another client who also has looked to diversify their portfolio out of fear that they may lose their core business in the future.  This company has spent significant amounts of money on ventures that have proven unsuccessful, while the only business that continues to grow exponentially is their core business.  I am a believer that businesses need to focus their finances and energy on building their core, seeking new markets, and making the changes that will allow them to push out their competitors.  Innovation should occur within their core, (ie. make even better consumer electronic products, add new softdrink formulas, improve your software, even increase your efficiency and quality.)

There is nothing wrong with diversifying or hedging our risk.  Simply, we shouldn't allow our new ventures to take our focus away from our core business.  I would suggest that we internally diversify and innovate our core business first, and then follow the natural leads where it takes us.  Don't spend your time, effort and finances on developing a business completely out of your core based in fear.  Look at the opportunities and take them, but don't do it at the expense of what you are best at. ]]>
<![CDATA[Delusions of Grandeur and Castles in the Sky.]]>Mon, 15 Aug 2011 17:31:50 GMThttp://www.perezincr.com/blog/delusions-of-grandeur-and-castles-in-the-skyToday, I am reviewing my basic financial management textbooks.  Going back to the very basics of the statement of cash flows, I was struck by the reminder that a profitable company can still declare bankruptcy if they are not careful to build up their cash from operating activities.  "Cash is King!" was ingrained in our studies in B-school.  Unfortunately, though, some startups with financial backing from either Angel investors or VC's may forget the basic cash principle, because they sit back comfortably in their security cushion thinking that it will always be there to protect them.  If they run out of cash they can just go to their investors and ask for more, right?

The reality is that we do live in an investment world that allows for people to build castles in the sky (I give credit to Burton Malkiel's "A Random Walk on Wall Street" for my use of this expression, although I don't know if he coined it in this context.)  These are businesses that have negative cash flow, no obvious potential for generating revenues, but that manage to be purchased for sums that make no sense to the foundations of finance.  Remember when Color.com received $41 million dollars in investment funds?  We're still not sure how they are going to make a profitable return for their investors.  Maybe Color.com will wow the World, as Groupon did.  Maybe it will just become another dot com.  Only time will tell, but stories such as theirs make some young entrepreneurs forget the basic formula of building a product or service, selling said product or service, and collecting money from their clients.  This age-old formula continues to be the best way to build a business.  Making a profit isn't even enough.  Having a positive cash flow on operations is precisely where a business needs to arrive.  In other words, make deals, sign contracts, but make sure to get paid.  Personally I would hope this would wow many more investors.  Unfortunately, there are too many out there who are investing less in good businesses than in the psychology of the markets.
]]>
<![CDATA[Costa Rica's Solidarity Movement as a Model for Economic Development]]>Wed, 03 Aug 2011 17:28:58 GMThttp://www.perezincr.com/blog/costa-ricas-solidarity-movement-as-a-model-for-economic-developmenti just finished reading "When Helping Hurts: How to Alleviate Poverty Without Hurting the Poor and Yourself." By Steve Corbett and Brian Fikkert.  In one sense this book was "preaching to the choir" for me.  Growing up in a Lesser Developed Nation, I have seen firsthand the damage done by Relief organizations as well as well-intended churches that have a very ethnocentric mentality.  As I was reading the book, I was reminded of the Short-Term Missions group that was sent by one of the most vocally large Churches in America, to a 6000 member Church in Costa Rica.  Among the STM members was a 17 year old who was tasked with teaching the Sunday School teachers at this church how to lead a Sunday School class.  Some of these teachers had many years teaching Sunday School (perhaps in some cases more than the life of this young man).  In no way do I believe that a 17 year old has nothing to teach, but I believe this group was led by a misconception that the proverbial "white man" in the North has the ownership of knowledge that the poor brown man in the South of the World needs to be informed of.  The North man has little or nothing to learn from the South man, despite their age.  I have seen this mentality replicated in ministry as I have in business.  Often American businesses believe they have an exclusive hold on understanding of viable business models that need to be applied everywhere.

Having said that, the book proposes a Micro Finance solution through the local Church.  This model reminded me of the Costa Rican Solidarity Movement which began in the late 40's.  As a Caveat, it must be understood that Costa Rica is a Social Democracy.  As most people know Latin America is a collectivistic society.  This means that the value of the collective well being is placed above as that of the individual.  US culture, in contrast is an individualistic society.  Independent success for instance is valued in the US, above communal success.  I am not making a value statement.  Any cultural mindset book will chart these two values and explain the differences.  As such, there are social requirements that all businesses must adhere to in Costa Rica.  One example is the fact that Costa Rica has Universal healthcare and every company must contribute to their employee's healthcare.  It also has a mandatory bonus for every employee equal to 1 month of payment.  Finally there is a mandatory severance.

In the solidarity movement an Association has been set up to handle savings by the employees.  These savings are matched by the company, up to a pre-agreed percentage that is deducted from that mandatory severance.  Therefore both the company and the employee are saving.  The Solidarity Association functions as an independent entity with a volunteer board composed of employees from the company.  The company is not required to provide members from the executive staff on this board, or any resources, but may do so as a sign of solidarity.  Usually the Financial Manager sits on the board because of her knowledge of finances.  The savings serve two purposes:  Assistance and Support.  Assistance is given in the form of loans at excellent interest rates to the members of the Solidarity Association based on a percentage of their accumulated savings and matched savings.  Support is grants given to members of the Association due to unforeseen circumstances, generated from the interests earned by the Association as well as a partial percentage of the matched savings.  For instance, if a person's house burns down, the Association may vote to give them a grant for immediate expenses, and a loan to rebuild.  The person may opt for the grant portion only, of which he will have no debt remaining.  Often the owners of the company may choose to give more to that fund in order, once again, express solidarity with their employees.

I have been viewing this model as a potential business model.  In the solidarity association, membership is optional, but the savings is required for every member.  You cannot withdraw your savings unless you leave the company, but you are welcome to take out loans under the agreed percentages against those savings.  In this, the solidarity association functions as any bank or Credit Union. The closest I have seen in the US is the 401K with company matching.  But the 401K does not include the "support" side of it.  Only the Assistance, and even that is given through local banks as a line of credit, at usually high interest rates.

Is there a viable business here?  Perhaps.  Further research will be done.
]]>
<![CDATA[Distance Matters.]]>Wed, 18 May 2011 19:40:07 GMThttp://www.perezincr.com/blog/distance-mattersIn his article “Distance Still Matters: The Hard Reality of Global Expansion” published in HBR Dr. Pankaj Ghemawat establishes another framework by which companies should evaluate their entry into foreign markets.  The most common analysis made is what is commonly known as a CPA, or Country Portfolio Analysis.  A CPA generally evaluates different macro and micro economic barriers that can allow for a comparison of two or more potential foreign markets.  Items such as GDP, Population, Geographic location, political stability, etc., are all important elements in considering different markets.  This is especially true, since most businesses will choose to enter one market at a time, until they have sufficient experience and growth in those markets.  Failure to make a sufficient analysis can quench all future inertia in that direction.

Dr. Ghemawat suggests that in addition to the CPA, companies ought to look at the CAGE Distance Framework.  As suggested by the title, distance between two nations is important in establishing trade with another country.  Distance in no way is confined to geographic location.  Even then geographic location cannot be considered solely on the mileage between two places, since there can be physical barriers that make that mileage more significant.  As an example, I think of a student of mine who lived in Pucalpa, Peru.  Although only a 30 minute flight to Lima, Pucalpa represented a 24 hour bus drive due to the slow climb up the Andes.  One would question the management of any business who wouldn’t realize that the miles between them was not indicative of the time spent trading heavy volume to weight items.

So there are four other “distances” that need to be considered: Cultural distance, Administrative or Political Distance, Geographic Distance, and Economic Distance.

Cultural Distance is obvious to anybody who has traveled to a foreign country.  Even the difference between the US and Canada is obvious when one has spent significant time with both cultures.  This becomes more distinct with Asian, Arab, Latino, African and European cultures.  Europe is great example of this.  Although joined by a short geographic distance, the cultural differences between France and Germany are very significant.  Germans companies would fail greatly to not account for these when marketing to the French.  I recall the shock when in Geneva, the cashier called the client in front of me “stupid” to his face.  Customer service is not at all seen with the same importance around the World.

Administrative Distance.  Some countries share historical affiliation.  Colony-colonizer nations have a 900% increase in trade.  Just recently, Latin America was able to get the European Union to drop some of their quotas on bananas, while giving preference to colonies or former colonies (this is especially interesting, judging from the fact that historically Latin America was a colony of Spain and Portugal, but didn’t share the same status in the EU.  Perhaps it is more indicative of a lack of political voice for Spain.)  Tariffs, quotas, government control and even corruption can be a barrier to entry into a foreign market.

Geographic Distance.   Enough mention was made above as to how geographic distance amounts to more than the actual mileage between two markets, but the ease of trade between those to locations.  Countries that can trade by just reaching over the border will be more likely to do so.  Countries that require extensive or costly travel, will be less likely.  Interestingly, services are being traded in spite of these distances.  My friends at Global Pueblo Solutions have recently announced the expansion of their offices in India, to outsource computer programming to the US (very simply put).  Granted they serve as liaisons for companies unable to bridge the other gaps.  Some businesses are revisiting nearshore solutions, because despite the fact that the internet has allowed to bring these countries closer for services, travel is still necessary and at times exhausting.

Economic Distance.  This one is often tackled by the CPA.  The wealth of a nation, the choice of what that wealth is spent on, the volatility of their currency, the stability of their economy, all these items are significant factors to consider in evaluating a foreign market.  The macro and micro economic factors are important considerations for any business looking to invest in a foreign market.

At Permo Opportunities, we look to be able to help businesses evaluate foreign markets when determining their future growth.  At times we have done this when businesses have considered expanding or outsourcing their operations, at others we have helped companies evaluate foreign markets when looking to increase their revenues.  Either one, a thoughtful and thorough analysis is worth its weight in gold.
]]>