ESTABLISHING A US SALES OFFICE OR SUBSIDIARY
Excerpts from Charles Klein's book Marketing to America: How non-US Companies Can Profit Selling in the US Market

Article on US marketing by Chuck Klein

Controlling your destiny

In recent years, many exporters have opened subsidiaries or sales offices in the United States. At one time, such operations were primarily opened by large non-US companies with "deep pockets". However, due to increased competition and the need to establish a true presence in the market, even many small start up companies have opened US offices, allowing them to control their US marketing organization. They have learned that relying on a distributor, agent, rep or marketing partner is simply not enough.



Advantages of a US sales office

Why invest in your own US operation?

You control the company's destiny. Rather than depending on the actions of a marketing partner, all responsibility for US marketing is in your hands.

The staff answers to the home office. There is no need to ask for favors when speaking with the US based marketing staff, a common situation when selling via a marketing partner.

You will benefit from close contact with end users of your products, which aids new product development and the building of customer relationships. Marketing partners often try to keep their non-US suppliers away from their customers.

It eliminates the risk of the US company switching suppliers. We have seen US marketing partners find a less expensive or more advanced product to sell, causing an immediate drop in sales.

When you own the operation, even if the manager leaves, she can be replaced and the business will continue.

You own all business information such as customer lists and leads from advertising, trade shows and Web sites. Nothing is hidden.

Your company becomes known. There is no need to sell via private label or other methods which hide the manufacturer's identity.

There are no restrictions on your involvement at exhibitions. Marketing partners often prefer to keep you away from their trade show booths and staff. This problem is non-existent with your own office.

Over the last few years, we have seen numerous non-US companies open American subsidiaries that achieved outstanding results. A manufacturer of packaging materials doubled their US sales in the first year their US office operated, achieving a 500% increase in sales after three years. This company had worked with a US marketing partner for more than 10 years before opening their own office. A small producer of electronic components was unsuccessful in recruiting a US marketing partner and "took the plunge" by opening its own US office. After 2 years sales went from -0- to $7,000,000 with 30-40% growth projections per year for the next 2-3 years. There are clearly rewards for successful US marketing.


Disadvantages of a US sales office

So why doesn't every exporter open a US office? There is also a downside:

A significant financial investment is required.

You need to provide substantial logistical, financial, manufacturing and marketing support from company headquarters, taking attention away from other priorities.

It requires a minimum 2-3 year commitment. Building a reputation and generating substantial US sales takes time to develop.

The cost of setting up and operating a US sales office is significant for small and medium sized companies. Even larger companies with more substantial resources are often very cautious before making such a move as a small investment can grow into something much larger and expensive to operate. We know of several non-US companies who opened US offices only to close them several years later, with a significant financial loss. Reasons for the failures vary from the exporter's inability to recruit qualified marketing management, changes in technology making their products outdated, the bankruptcy of a major customer and an overly optimistic assessment about market size.

While we believe that US sales offices can be extremely beneficial for many companies, substantial research, analysis and planning are recommended before opening such an operation.



A typical US office


The structure of the US operation will vary from company to company. Many exporters open a small office as a first stage, sometimes with only one employee, an experienced manager with the ability to build a national sales organization. Others require several people from the start such as a marketing manager, technical support staff and a logistics and administrative coordinator, with staff increasing as the business grows. In the early stages, a small number of people can produce substantial results, often by working together with independent reps and distributors throughout the United States and outsourcing various office functions.


Who should run the US operation?


A key issue facing all exporters at this stage is: Should the US office be managed by "one of us", a staff member from the home country who knows the products, the company culture, speaks the language and can be trusted? Or should an American manager be hired, someone with extensive industry contacts and experience, who can quickly achieve sales by using industry contacts developed over a period of many years?

Our experience has shown that the most successful combination is both. An American with industry contacts working side by side with someone from the home office is a match made in heaven. Each brings an important element to the success of the new venture.

But what if you can only have one manager? Many new exporters have sent a manager from the home office or hired someone originally from their country who now lives in the United States. It seems that many companies are seeking a "cultural comfort level" to bridge their entry into the USA.

Interestingly, US offices of more experienced exporters are more likely to be managed by Americans. Presidents and key executives of non-US companies operating in the US for many years have advised that hiring Americans is the only way to go. They stress that the manager's ability to manage a US company, utilize a strong network of business contacts, gain entry into key accounts as well as manage reps and distributors are all far more important than speaking the language used in the exporters country. Whether you hire an American to establish your new US operation or send over a trusted employee, be sure the new manager has the management skills needed to succeed in the difficult task of establishing and running a US company. Stockholders of non-US companies typically relate to the US office as a risky endeavor and justifiably want to see a return on their investment. For this reason, be sure to select a manager who can generate sales as quickly as possible, utilizing contacts and experience gained at someone else's expense. "Buying" contacts and experience is clearly the way to go.

When speaking at a seminar on US marketing attended by managers of non-US companies, we once met another speaker who had previously been sent to Chicago to establish a sales office for her non-US employer, a building supply manufacturer. She spoke of the major effort she made, traveling from coast to coast, week in week out, learning how to do business in the US, meeting with potential customers and trying to understand how to penetrate the market. We asked her how long it took her to generate her first commercial order and her response was "two years"! While the company's US operation has grown substantially, there is no question that had an American with experience in their industry been hired from the start (as is the case now), they would have received orders far more quickly.

On behalf of a client, we once successfully recruited a US manager from a direct competitor by offering a competitive salary coupled with options in the new US subsidiary. This manager had strong industry contacts with end users, distributors, reps, journalists and others in their niche market. He was an effective manager from day one and generated substantial profits for his employer in his first year. The non-US company "bought contacts" and it paid off.


Choosing a location

Factors that you should consider when choosing a US office location include:

Where your customers and competitors are based.

The cost of doing business in a particular city or state.

Easier access from overseas flights. European companies may prefer an East Coast location over the West Coast as it will save time during their frequent flights from the home country.

Time zone differences. If your US office begins to work only after the home office people have gone home, it will be difficult to communicate and collaborate.

While all of these factors play a role, the primary consideration should be based upon which location provides the greatest benefits in serving the US customers. In some industries this is obvious while in others there is no one ideal location.


Legal and tax issues

Many legal and tax issues need to be fully evaluated before making a decision on opening a United States sales office or subsidiary. Some of these issues will be based on laws and regulations in your home country while others are impacted by United States law. Exporters are strongly advised to seek qualified professional assistance from legal, tax and other advisors familiar with the laws and regulations in both the US and in their home country.

Key issues we have seen non-US companies consider at the initial stages of this process include:

Should they open a sales office, branch, subsidiary or other type of legal entity?

In which state should the company be established?

At what stage will there be an obligation to pay US taxes?

If hiring only one person to start, could she be employed as an independent contractor?

Which method will provide the least exposure to the company in case of a lawsuit?


Considerations before deciding to open a US office

The decision to open a US operation should not be taken lightly. Even in its simplest form, the costs and management time required are substantial and should only be implemented after considering all available options.

As readers may have sensed, we clearly like the idea of exporters controlling their destiny by having their own US manager and marketing network. Having observed hundreds of exporters investing years trying to push and threaten US marketing partners to make progress, we are convinced that far more exporters should at least evaluate the option of going it alone. Full control of your US marketing can often push your company ahead in terms of sales and market share.

On the other hand, such a move must make sense for your company. If the market or your product line is too small, it may not be an economically viable option. Start up companies lacking the needed budgets for a running a US office are better off seeking marketing partners or establishing a "master rep" organization as outlined earlier. Exporters fearful of going it alone - and many are - can establish a US company and hire a sales manager in partnership with an American entity, thus retaining partial control. This arrangement reduces risk (it also reduces control) but helps ensure that someone is actually developing the market. Depending on a US distributor to market your product line on its own without your involvement is often unsuccessful as even the best companies have numerous priorities and lack the time and resources to make the major effort required.

Regardless of the US entry strategy selected, experience has shown that greater involvement by the non-US company in the actual US marketing significantly increases chances for success. If opening your own office is not a practical option at this stage, strive for the greatest possible level of involvement which will bring you closer to success in the highly competitive American market.

About the Author:

Chuck Klein is managing partner of Amcon Marketing Strategy International, which specializes in helping non-US companies profit in the USA. Amcon provides tangible marketing and human resource services in the US including market studies, competitive intelligence, strategic partner searches, rep searches and executive recruitment serving clients worldwide.

Klein is considered an expert on US marketing for non-US manufacturers and international trade. He has published over 100 articles and presented numerous seminars and lectures on marketing skills and strategy for non-US manufacturers interested in the American market. His book Marketing to America: How non-US Companies can Profit by Selling in the USA was published by the Financial Times/Prentice Hall.

Amcon's web site is: www.amconmarketing.com

e-mail: info@amconmarketing.com

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