Setting up a Business in the USA 1 - Understanding the Geography

The USA is, as we all know, fairly big. To be more precise the USA covers nearly 4million sq miles, which makes it 40 times larger than the UK (or 473 times the size of Wales...!). In fact 11 of the 50 states are bigger than the UK in terms of area - which gives you a lot of ground to cover. And there are a lot of people in the USA too - 300 million of them, making it the 3rd largest population in the world, after China and India.

But the thing to bear in mind, when considering setting up in the USA is while there are a lot of people in a lot of land, there is an awful lot of space. Even when you take into consideration that there is enough land in Alaska for each of its residents to have a square mile each, the USA is a relatively empty place, made up of areas of high density with huge distances between them. This in turn means that ,while there are federal laws and governance in place, in reality a lot of the administrative and legislative functions are handled state by state.

So what does this mean for you if you are considering setting up a business to distribute in the USA? Well, it means that you might be better off thinking of the USA more like a collection of small (and not so small) countries (a bit like the EU) rather than a single homogenous country. You can get away with having a central hub in Lyon if you want to cover all of France, but if you want your reach to extend to Turkey, Norway, Portugal and Poland, you might need to think again. Likewise a base on the West Coast of the USA is great… for covering the West Coast, but less useful if you want to reach those in the Central Time Zone and almost useless if you want to get to the East Coast - The distance between New York and LA is only 2/3 of the distance between New York and London.

And speaking of time zones - there are 4 of them on 'mainland' USA, not including Alaska and the various islands. So when it's midday in New York it's still 8am in California (and 5pm in the UK) which means if you want to deal with people all across the country, you might need to get a few extra clocks for the wall - and be prepared to work later or earlier than normal.

So, my top tip when understanding the geography of the USA is to focus on the 'United States' part first and 'of America' next. And remember, you're not in Kansas anymore, Toto....

Article copyright John Cave 2008

Meet me at the "Focus on Doing Business in the USA Event" 13th March 2008 in association with the British American Business Council

If you have any queries on freight to and from USA, please do not hesitate to contact one of our team on +44(0)121 713 7250 or by email for advice or further information.

Maps from: Map of the USA - Visit us for more maps of the USA including all the states.

Impressions of India 4 - UK/Indian SME Partnerships

Outsourcing and offshoring are nothing new, corporates such as HP, IBM, Intel, AMD, Microsoft, Oracle Corporation, and Cisco have been taking advantage of competitive and flexible workforces in the developing world for over a decade now and investing heavily in those areas to support their business aims. But there is a new trend appearing with more and more SME's looking further afield, to partners in China, Eastern Europe and India. In many ways the corporates have been blazing a trail for these SME's, not only by fine tuning the processes from the point of view of the outsourcing company but also by establishing an understanding of the business culture and requirements of the outsourcing companies within the offshore partners

IT, KPO and BPO business functions are obvious candidates for offshoring as improved technology allows information to be transferred immediately. This means that in principle an efficient offshored partnership can work as seamlessly as outsourcing to a domestic partner - In 2007 the global offshored BPO market was worth over £12billion with over £7billion of that going to Indian businesses.

But the opportunities are also there for more traditional business sectors, such as manufacturing, to gain a competitive advantage. While I was in India I spent 4 days with Srikanth G P, the Managing Director of Ibex Engineering, an export-focussed company that provides die-casting, tooling and precise machining services to businesses in Europe, New Zealand, The USA and Japan. Ibex have recently set up a successful partnership with HCM Engineering, a West Midlands based SME with a UK workforce of 25 and turnover of £1m. Simon Hanson, Managing Director of HCM said "The manufacture of tooling is very labour intensive and expensive in the UK, so by establishing a joint venture with Ibex, HCM can retain control over the quality and support services but gain a competitive advantage due to the reduction in costs. Currently the JV business turns over an extra £200,000 and is expected to double in size over the next 12 months, with some of that growth coming from sales to the Asian market generated in India"

Ibex Engineering, Bangalore

While talking with Srikanth G P about the potential for UK SME's to make the most of the opportunities that India offers it became clear that many of the issues are exactly those that face a company outsourcing to a British partner, but that there are also important additional factors to consider, and while there is no reason that an SME cannot benefit in the same way as a larger company they will almost certainly have less resources available to them so will need to manage the project to a much finer degree.

So, here are my top tips for any SME that is considering partnering with an offshore company:

Make sure there is a business case:

Offshoring can bring massive benefits, but it may not be right for all companies. Don't rush in and commit yourself without being sure that it's a viable option, and think long term - the cost implications on moving business processes back to the UK in 2 or 3 years time if outsourcing doesn't work could be very expensive.

Don't just think of the savings:

Wages for workers are considerably below those in the UK, but it is important to bear in mind that the salaries of more skilled and senior managers are rising quickly. In addition to that you will have to factor in the costs of travel and possibly relocation expenses if you decide to move a UK member of staff to oversee the offshore operation.
And while outsourcing can be highly efficient, it is not necessarily cheap to set up. It will take time, and unless what you are outsourcing is a new business area, you will have to maintain your current set up until it is in place. You will also need to make a reasonable number of trips to visit the potential new partner, and a visit to India takes a little more time and money than a trip to see a potential new partner in Milton Keynes.

And of course don't just look at cost, you wouldn't automatically go for the cheapest supplier in the UK, nor should you when looking for a supplier in India. Remember that everyone in the chain from customer to outsourced supplier/JV Partner needs to be looked after, so don't be greedy.

Be aware of cultural differences:

Even though business has been done between India and the UK for over 200 years and many Indian companies are used to dealing with UK clients, there will still be some cultural differences, and it is as much the responsibility of the outsourcing company to be aware of these and to accommodate them where possible as it is the responsibility of the offshore company to adapt.

Meeting face to face can go a long way to alleviate many of these problems, indeed I have developed a much deeper understanding of how things are done in India and why they are done that way since my visit, and this in turn will help me when dealing with Indian companies.

Be realistic and be prepared:

Be clear and realistic about what you expect, Set key performance indicators and have a service level agreement in place. You will probably have to allocate resources internally to manage the outsourced process from the inside, as well as to deal with any internal conflict that might arise from moving part of the business overseas. And like any partnership while you can hope for the best you should plan for the worse, if you have no plans in place for resolving conflicts and dealing with problems then, should they arise, they will have a more serious effect than they need to.

Get as much support and advice as you can:

Offshoring an area of your business is a big step, and as suggested above the risks are greater for an SME because they cannot just throw money at a problem in the same way that a corporate body could. But there are plenty of experienced people who you can, and should call on for help. Speak to the international trade team at your bank and bring in appropriate legal support. Remember that many of the offshored companies that you will be speaking to will have a lot of experience in dealing with companies wishing to outsource elements of their business. While this is very useful once you have found the ideal partner, when it comes to the negotiation stage it can give them an advantage - make sure that you have someone equally experienced in your corner.

Offshoring is becoming a much more viable and practical for smaller companies but while going in unprepared and unsupported can lead to all sorts of problems, when done right and with the right partners it can bring wonderful results in terms of cost reductions, increased capacity and new opportunities.

Article Copyright John Cave 2008

Impressions of India 1 - A Tale of two Countries
Impressions of India 2 - The Cargo Explosion
Impressions of India 3 - The Rail Network

If you have any queries on freight to and from India, please do not hesitate to contact one of our team on +44(0)121 713 7250 or by email for advice or further information.

Impressions of India 3 - The Rail Retwork

While I was in India I wanted to make sure I really understood how freight was moved around the country, as well as how it could be shipped out of there. In the last article I talked about the expansion of the Jawaharlal Nehru Port Trust in Mumbai, but in a country the size of India, even getting things to port can be a logistical challenge. As a result of the under-developed trade and logistics infrastructure, the logistics cost of the Indian economy is over 13% of GDP, in comparison to less than 10% of GDP in most of Western Europe and North America. Rail freight accounts for 40% of freight moved around India, compared to 89% in 1951! Currently the majority of freight in India goes by road, and the improved highways being built to supply ports like the JNPT will begin to make this even more efficient (although efficient is a relative term..!)

There has been a huge investment in the road network in India over the past half century. Despite the fact that a freight train (or 'rake') can carry 90 TEU's or 3000 tons of bulk material, for journeys less than 450 miles it is still more economical to move containers by road - but the railways are working on an enormous fightback to regain some lost ground. Indian Railways makes 70% of its revenues and most of its profits from the freight sector, and uses these profits to cross-subsidise the loss-making passenger sector.

Anyone who has ever been to India or even seen a documentary about the country will already be familiar with the experience that is travelling by train, with passengers hanging onto the outside of the carriages and hawkers selling their wares whenever the train slows to a pace that they can keep up with. Trains began to appear in the mid 19th Century, set up by private companies with the assistance of the ever present East India Company, but by 1907 nearly all of the companies had been nationalised and in 1920 railway finances were considered so important that they were ring-fenced with a separate budget to keep them away from the rest of the financial negotiations that any government has to contend with. Indeed the Indian rail system is immense, it's the worlds largest employer with a workforce of 1.6m and it carries 15 million people and more than a million tonnes of freight every day over routes that cover nearly 40,000 miles - and it's about to get even bigger.

A further 1,650 miles of track are planned for the exclusive use of freight transport with an additional 3,000 miles feeder lines that will include some new construction and the upgrade of many existing lines. The plan is to provide dedicated freight lines that can isolate the freight from the passenger trains, increasing the capacity for both sections and slashing the amount of time that it takes to get goods across the country to export.

The first phase of the Dedicated Freight Corridor is the Western Corridor which will run from the JNPT in Mumbai to New Delhi. As you would expect from a line that goes straight to one of the fastest growing container ports in the world the Western Corridor is expected to carry mainly container traffic, and lots of it, with trains up to a mile long, double stacked with TEUs. The Eastern Corridor will run from Ludhiana to Sonnagar and is planned to eventually to join up with the deep water docks at Kolkata carrying coal finished steel, food grains, cement, fertilizers, and lime stone.

As well as the construction of the lines themselves there is a lot of work to be done to make sure that the tracks fit into the existing infrastructure, with the demolition of 30 Road Over-Bridges (or ROBs) and construction of another 150 with approximately 900 level crossings to enable travel across the lines.

While the Prime Minister Manmohan Singh laid the foundation for the Western Corridor in October, the Eastern Corridor may have hit a bit of a stumbling block. Both sections were due to be funded by the Japanese government, most likely through the Japanese Bank for International Cooperation (JBIC) in the form of an aid or a soft loan, and the Rs 16,000 crore deal (about £2billion) for the Western Corridor is still on track (if you will excuse the pun). But it seems that Japan is getting nervous about the spiralling costs for the Eastern Corridor (currently projected at Rs 11,000 crore, which is about £1.5billion) partly due to the increased cost in buying the land needed to lay the tracks and is looking for an opt out on that side of the project, but also because it has more interest in the fast turn around of the container freight than the industrial commodities that would be moved along the Eastern Corridor.

In response to this The Dedicated Freight Corridor Corporation of India Limited (DFCC), the company set up to manage the project, are looking into the possibility of implementing toll charges (similar to those used on highways in the country) to fund the project, the cost of the toll would vary depending on the type of goods being moved.

The entire project is expected to take 5-7 years to complete and is set to have a significant impact on many areas of Indian industry. On the Western Corridor it will mean journey times from New Delhi to Mumbai are cut from 60 to 36 hours, with trains travelling at up to 60mph, leading to a faster turnaround, and lower transport costs making Indian goods more competitive worldwide. Container traffic alone on the Western Corridor is anticipated to increase from 0.69 million TEUs in 2005-06 to 6.2 million TEUs in 2021-22.

On the Eastern Corridor the coal and steel are mostly raw materials destined for the industrial areas and power stations in the northern area or Uttar Pradesh with traffic projected to grow from 52 million tonnes in 2005-06 to 142 million tonnes in 2021-22 providing the resources for a massive expansion in capacity.

The DFC is the single largest infrastructural project being undertaken in India, at enormous public cost, but it is being backed by inward investment from some equally enormous corporate bodies. At this point I must express my gratitude to Ashok Gupta, Director of the Indian Roadways Corporation Ltd, one of the most well established and respected road operators in India, who kindly arranged a meeting for me with the CEO of ETA Freightstar, Mr Sathianathan. ETA Freightstar is an Indian Division of the huge Dubai based ETA Group, a company with 140 branches in 21 countries employing over 48,000 people with an annual turnover of $4 Billion. ETA are one of the first private companies on the scene and are extending the network where the DFC ends by providing road freight to and from the rail network an handling to get the freight onto the rakes themselves, making the Dedicated Freight Corridor all the more efficient as a way of shipping goods around the country.

By upping their game the road freight groups are going to have to try to improve their efficiency to be able to compete, and by separating the passenger and freight aspects of Indian Railways both will be able to develop at a much faster rate.

This article is copyrighted John Cave 2008