No Silver Bullet When It Comes to Global Growth

Doing business in different countries demands different approaches. Acquiring in order to grow isn't always the answer

Written by John Lorinc

For years, Phoenix Systems, a well-established enterprise software firm, had been creating customized Microsoft-based inventory, accounting and purchasing applications for small- and medium-sized manufacturers. Based in Newmarket, Ont., Phoenix’s operations and client base were primarily located in Canada; other than some long-established clients in the U.S., the company gave little thought to taking the business beyond domestic borders.

Then, about a year ago, Phoenix was approached by one of its largest clients—a Canadian multinational with subsidiaries in the U.S., China, India and the Philippines—that had decided to restructure its entire operation. Over time, says Phoenix president Dan O’Toole, the company had accumulated a patchwork of disparate information and reporting platforms. The client required what amounted to a global assignment: standardize and harmonize the whole system with the goal of making the company operate more efficiently across all its geographical divisions.

Re-vamping the Canadian and American operations was relatively straightforward, says O’Toole. However, aligning the internal systems in the Pacific Rim divisions proved to be much more difficult due to language differences, as well as unfamiliar legal and accounting requirements that had to be programmed into the company’s newly harmonized enterprise systems.

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In effect, Phoenix’s client was confronting the competitive realities of the global market, and that meant that Phoenix had to confront them as well.

From local to global

The 33-year-old company (No. 312 on the PROFIT 500, with $8 to 10 million in revenues in 2012) already did business in the U.S. But the software firm is now tapping into lucrative international markets. Overall, exports accounted for about 20% of the company’s revenues last year, up from just 5% in 2007.

In 2009, the company opened an office in the U.S. after acquiring a Bell Canada division that included offices and a customer base in Portland, Oregon. Phoenix has since made three other acquisitions, reckoning that top-line growth in its very mature sector could only occur by buying up smaller firms and integrating their client lists into its overall operations.

While Phoenix saw the Portland division as a foothold in the U.S. west coast market, the first few years following the deal were lacklustre, coinciding with the recession. Phoenix struggled to find new customers, and lost some existing ones.

Yet in the past year, things started to turn around. O’Toole says his U.S. customers have become more receptive to expanding the services they buy from Phoenix. What’s more, the company’s Portland-based sales team has been able to sign on new customers for the first time since the downturn. “We’re getting strength and confidence in the economy,” he says.

Different countries, different approaches

Phoenix has adopted a different approach to its presence in China, India and the Philippines, via its multinational client. Instead of establishing field offices, the company decided to recruit local agents who could deliver the software and systems upgrades to new customers.

Finding Microsoft accredited programmers in China and the Philippines wasn’t difficult, says O’Toole; in India, however, he has found far fewer programming professionals with the right credentials. “We found ourselves blazing trails,” he allows.

As Phoenix and its network of agents have slogged through the work required to harmonize the systems of that one large client, O’Toole now finds himself thinking about what comes next. In the Philippines, for example, the company is looking at acquisition opportunities as a means of building a local customer base.

The company is also pursuing opportunities in the UK, France and Australia, which has meant that Phoenix sales and programming staff must become familiar with the prevailing business cultures, legal environments and language differences.

But because all this international activity is still new for Phoenix, O’Toole’s strategy has been to take a cautious approach to gaining a presence in foreign markets. That’s meant using video-conferencing to minimize the time and expense of international travel, and relying on a network of carefully selected agents instead of establishing foreign offices and actively prospecting for new clients.

“The goal,” says O’Toole, “is to establish something on a low risk basis.”

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