As one Toronto firm has learned, where you locate your first overseas operation can determine whether you succeed or fail.
As Vigorate Inc., a Toronto-based digital marketing firm discovered, pursuing exports in uncharted regions requires careful discovery of what works and where. Take the advice of senior partner and CEO Michael Grieve, and start your expansion into Europe by tackling the northern countries first. Over the past eight years Vigorate has developed parallel service lines to address the steadily expanding opportunities in the world of digital marketing. The bread-and-butter business is building online properties for clients—social media, web content, and e-mail marketing campaigns.
But in recent years, Vigorate has also made inroads in the fast-emerging and complicated market of specialty e-commerce. For example it manages the back end of online merchandise-auction sites for professional sports leagues, points programs and other “extremely customer facing” consumer brands. The firm’s client roster includes Aeroplan, the National Hockey League and the National Football League.
Vigorate—which has revenues in the $4 to 8 million range and ranked 255th on the 2013 PROFIT 500—opened a Chicago sales office a few years ago to make further inroads with professional sports teams in the U.S. And in 2012, it set up a similar sales hub in Barcelona, reckoning, as Grieve explains, that the sprawling European soccer industry would also be receptive to the sort of digital marketing the company provides to North American leagues.
But Grieve explains that he and his team didn’t really think through the implications of Spain’s financial and economic crisis. During the year they were in Barcelona, the unemployment rate hovered between 30 and 40%. “It’s real,” he says. “You could feel the cultural tightening.” Plus there was a thicket of regulations and legal approvals that required five months to work through.
Many foreign firms, Grieve discovered, were packing up and leaving because potential local customers preferred to hire local companies or suppliers instead. He said Catalan-based companies would always take a sales call, and encourage Vigorate to bid on contracts. “They were very friendly and took it down to the wire.” But in the end, these jobs always went to a Spanish competitor. Given the hobbled state of the economy, Grieve adds, “it makes perfect sense.”
Even as Vigorate was striking out in Spain, Grieve says the company’s sales executives were frequently flying to other European locations to visit customers, London in particular proved to be one of the most regular destinations.
As Grieve observed, London and Barcelona proved to be sharp contrasts in terms of business conditions. In Barcelona, the company enjoyed a relatively low cost of doing business and had great access to an eager and well-educated workforce. But it couldn’t close deals.
In London, the cost of doing business was extremely high: salaries, rents, and other outlays. But, Grieve says, the city had lots of opportunity, and prospective clients were looking for suppliers selling the best solution, as opposed to a local incumbent. London’s business culture generally was less insular. “They were more open to a bunch of Canadians coming in and selling them stuff.” As Grieve and his team weighed the costs and benefits, they began to realize that it would make more sense for them to be in a high-cost market with lots of upside sales potential than in a sluggish region with low overheads. In the fall of 2013, Vigorate finally made the decision to head north, relocating its Barcelona office to London where it could work on a plan to carve out a client base with the U.K. soccer clubs.
Yet the company’s experience in Europe, and in particular its decision to move sales offices, may only be transitional, adds Grieve. Because the European market is so small, geographically, he says the company’s mid-term plan is to get the best out of both locales. Eventually, Vigorate intends to be running a London-based sales division as well as an operational office, staffed by technical employees, in Barcelona, with its generous supply of highly skilled code writers.
“That’s the plan,” says Grieve, who advises Canadian SMEs thinking of expanding into Europe to start in the north. “It’s a question of patience. You have to build an annuity of clients.”
Advice and tactics from Canada’s fastest-growing exporters and the editors of PROFIT magazine.