Some of the lessons learned in a journey to build a sustainable global practice.
We live in a world that is constantly changing. Architecture firms are discovering that our work is impacting the world in ways and in places we couldn’t have imagined a decade ago. The top 20 firms in the 2012 Almanac of Architecture and Design — who all are headquartered in the United States — reported that nearly $1.6 billion of revenue came from work outside U.S. borders. That equals about 30 percent of their total revenue worldwide.
The impacts of globalization mean architecture firms of all sizes can now reach around the world quickly and affordably. We find ourselves measuring geographical distances in time, not miles or kilometers.
Here are just a few of the noteworthy highlights of the Global Construction 2020 report:
- Growth in Asian powerhouses and a cyclical rebound in the United States will fuel growth in construction from $7.2 trillion today to $12 trillion by 2020
- China’s construction market will more than double in size over the decade to $2.5 trillion by 2020, or 21 percent of world construction
- Seven countries — China, United States, India, Indonesia, Canada, Australia and Russia — will account for two-thirds of growth in global construction to 2020
- India will overtake Japan to become the world’s third largest construction market by 2018
If properly managed, global expansion can contribute astounding growth to an architecture practice. But it also requires a completely different mindset and a whole new set of rules than the one needed to do business on your home turf. It comes with many risks and challenges, from how to develop strong global resources, cultural understanding, and local knowledge to the practical specifics concerning regional and country issues such as the organization of the construction industry, liabilities, contracts, collections, and collaborations with local consultants.
HDR’s architecture and engineering entities have completed work in more than 60 countries. What follows are some of the lessons we have learned in our journey to build a sustainable global practice.
1. Global expansion doesn’t happen overnight. Remember the story about the tortoise and the hare? The moral of that fable — slow and steady wins the race — offers an excellent lesson for anyone interested in doing work beyond his or her own borders.
It was more than a decade ago that HDR began seriously exploring expansion opportunities beyond the U.S. Before that, we had done the occasional international project, including a university campus in Saudi Arabia and another in Mexico. We were dangling our toes in international waters, but were certainly not devoting extensive resources to global expansion.
In the late 1990s, though, our long-term strategic planning underscored a strong business case to turn our attention outward. Many of our clients were crossing global boundaries and we recognized a need to broaden our own reach in a global landscape that had been flattened by faster communication, shared knowledge and accelerated client expectations.
In 1998, we opened a small office in the United Kingdom. Over the course of the next decade, our work there concentrated on four primary clients located in England, Ireland, Finland and Portugal. In 2008, after HDR merged with CUH2A, our work in the London office became more robust when the two firms’ London offices combined. CUH2A had also opened its London office in 1998, following the award of a series of projects at Pfizer’s Sandwich site in the UK. It had slowly grown its corporate sector business in Europe on technologically complex research and development facilities.
We were fortunate to be selected by global clients like Unilever, Proctor & Gamble, and Bristol-Myers Squibb along with well-respected research institution such as the University of Oxford and the Roslin Institute Building on the Easter Bush Research Campus.
I provide this very abbreviated history of our European expansion in order to illustrate a critical aspect of building a global practice: it is a slow process and each step must be carefully thought out. Success is measured one client at a time. It is all about building relationships and establishing trust with the client that you are in it for the long term. And you need to be; the learning curve is steep and simply can’t be mastered quickly. With each step we took, we learned new lessons that provided sure footing for each subsequent one. Our London office is hugely successful today, but it was 15 years in the making and took patience to grow and nurture.
2. Be strategic about the countries in which you choose to work. One of the first questions you need to ask when considering expansion is whether your interests are short-term or long-term. Some architecture practices prefer to seek opportunities that result from a significant event such as the Olympics or the World Cup. Firms pursue these singular projects and establish a small project office without intending to stay in the country for the long term.
We chose to consider a more long-standing approach, expanding in countries where we can best manage the risk associated with our investment. That means we seek to expand in countries with strong GDP growth and developing economies.
For example, we chose Canada for our first significant global expansion efforts, not only for the growth opportunities it presented for our architectural and engineering services, but also because of the country’s attractive business climate and its reputation for welcoming business investment. Dun & Bradstreet’s Global Risk Indicator says Canada is considered one of the world’s safest countries in which to invest because of its stable banking system. Canada also offers low tax rates to businesses and has the lowest payroll taxes among the G7 countries. Canada’s corporate income tax rate fell from 18 percent in 2010 to 15 percent in 2012 — less than half of the U.S. rate.
We have been able to grow our business in Canada by capitalizing on the growing support there for the use of public-private partnerships to finance the modernization of its public infrastructure. P3 will continue to be one of Canada’s delivery methods of choice and we believe that our financial strength to fund more P3 pursuits will provide a differentiating factor.
Much further from home, we were attracted to China for many of the financial reasons other firms have been: the country’s industrial, high-tech and services-oriented economy which has created the most active market for architectural design services outside the U.S. China is now the world’s second largest economy (annual consumer spending has been growing by about 18 percent) and has surpassed both Germany and the United States to become the world’s leading exporter. This rapid economic growth has led to the emergence of a large and growing middle class in this country, creating a more self-sustaining economic base.
3. Demand for excellence and expertise is paramount. The demand for the design excellence associated with luxury brands is pervading many global societies, extending deeply into China, India and other markets. According to research by Bain & Co., the top three brands in China are all luxury ones: Louis Vitton, Chanel and Gucci. Estimates vary, but some say the luxury market is worth about $250 billion worldwide.
People are attracted to luxury goods because of these items’ iconic design, authentic aesthetic and their ability to last a lifetime, if not for generations.
This translates well for architecture projects. Real estate developers and end-users are willing to pay for world renowned architectural design that blends stunning aesthetics with technical excellence. In some countries, especially, industry rankings and project awards are greatly valued because they lend credence to a design firm’s global reputation for subject matter expertise and excellence.
Design firms can capitalize on their expertise and brand as leaders in a specific building type to inform decisions about global expansion. In other words, go to where a need exists and where a firm can deliver true value. The innovations needed to drive economic, human and social development in the healthcare and science and technology fields played a substantial factor in why we turned our attention toward China.
We parlayed our rankings as a top design firm in these two areas to address the changes in healthcare and research occurring in that country. Currently, China’s healthcare system is primarily composed of large public non-profit hospitals. However, as PricewaterhouseCooper’s 2010 report “Emerging Trends in Chinese Healthcare: The Impact of a Rising Middle Class” explains, the physical environment of these public hospitals is often characterized by inadequate hygiene, non-patient friendly design and a lack of privacy. These factors have generated a lack of satisfaction among middle class, consumer-driven patients, and they are demonstrating a preference for international-style medicine and its focus on patient-centered design.
As a result, China welcomes expertise from firms like ours who can help them advance these transformative concepts. They are using their wealth to import American expertise in the design of innovative healing environments that provide world class healthcare.
4. Think global, be local. There’s a big difference between being a U.S.-based company that works overseas and being a global practice that works locally in communities around the world. It is absolutely essential to have a local presence in the communities in which you are working. Clients want to know that you are invested in their communities. Close proximity to clients and projects leads to faster response times, stronger relationships and interactions, and sometimes even shortened schedules and fewer change orders. Although technology allows firms to work internationally from the U.S., nothing replaces the benefits of having someone on the ground.
So while a global perspective keeps firms linked to the latest technology, trends and information, a local office with local talent is imperative to keep them connected to the real-time needs and concerns of clients.
Many U.S. firms initially expand into new countries using talent exported from home. This is acceptable for initial work, but for the long term, a local office needs to be staffed with local talent for two primary reasons. First, exporting talent for any extended period of time can weaken a firm’s domestic practice, which as explained later in this article, puts the entire practice at risk.
Second, success at the local level is greatly dependent upon a deep bench of knowledge of local building codes and industry best practices, intellectual capital that is often acquired over time and with experience. A firm entering a new marketplace cannot gain that knowledge on the fly.
In the end, a critical part of building a global practice is investing in local communities by providing job and economic development opportunities.
5. Consider natural versus organic growth. Perhaps the most expeditious way to establish a presence in uncharted territory is to acquire a local firm versus building a new practice from the ground up. With an acquisition, a firm gains immediate talent and experience, as well as an established history, project portfolio and client relationships.
However, acquiring a firm requires careful consideration and an even more considerable courtship. Acquisitions and mergers between firms within the same country can be fraught with challenges. Merging two firms from different cultures adds even more layers of complexity. The two firms need to be compatible on every level, with shared principles and values regarding client service, design excellence, technical competence, reliability, and responsiveness to client expectations.
Both firms also need to acknowledge and appreciate their differences. The acquiring firm must be careful not to expect that the acquired firm can or will easily adopt new ways of doing business that might go inherently against local cultures or traditions. Instead, look at the successes of both companies and then create a new approach to business that blends the best of both, while complementing the local business climate.
And while an acquisition may seem like the fastest route into a new country, remember that it takes time and requires substantial resources, not just in the personnel needed to accomplish all the tasks associated with the acquisition, but also the financial capital needed to make the acquisition.
We chose acquisition as the best route for our expansion into Canada. Our initial work in the country had introduced us to Mill & Ross Architects. Our firms shared many common values, and in 2007 we merged operations. Then, in 2009, we acquired G+G Partnership Architects. This solidified our leadership position in healthcare design throughout Canada. We now have four offices in Canada and are considered one of the largest healthcare design practices operating in that country.
Once local offices are established and have talented and capable leadership, firms need to stand back and let their local experts do what they do best. All offices around the globe should approach work as self-sufficient offices with access to global knowledge and thought leaders. One size does not fit all in the global market, and each office needs to deliver services in a way that meets the needs of the local community. However, it is crucial that a firm always ensures that its brand, heritage and values stay intact across the board. You should never compromise who you are (your values, ethics and brand), but you can customize what you are (the types of services you provide in countries, the types of work you pursue, etc.).
6. Context is everything. A successful global expansion strategy must be context-dependent. A strategy that works well in a stable and mature market economy such as Germany would not work well in China. Each country must be thoughtfully considered based on the diversity of its people, geography, the heritage of its culture, and its business environment.
I think the story about KFC’s expansion into China is one of the best anecdotes to demonstrate the importance of context.
Within a year of KFC first entering Hong Kong in 1973, it grew to 11 restaurants. But a lack of understanding of the local marketplace and a poor business model forced the closure of all by 1975. Since re-entering the Asian market in 1987, Yum Brands opens a KFC store every day in China — that’s 3,900 KFCs in 650 cities! The next largest competitor is McDonald’s, with only 1,100 restaurants. In fact, Yum Brands’ KFC restaurants in China earned more revenue last year than all 19,000 Yum Brands restaurants in the U.S. — KFC, Pizza Hut and Taco Bell combined.
The Colonel is so successful in China because Yum Brand’s strategy calls for the restaurants to be part of the local community, not a foreign presence. The best ideas from the U.S. fast-food model were combined and adapted to serve the tastes and preferences of the Chinese consumer. So what can you get at a KFC in China? Sure, you can get a bucket of the Colonel’s finest, but you can also get chicken with Sichuan spicy sauce and rice, egg soup, a “dragon twister” (KFC’s take on a traditional Beijing duck wrap), all washed down not with Pepsi but with soybean milk.
Context is equally important in design. Architects must ensure that the buildings they design are appropriate for the climate, cultural, economic, social and political contexts in which they are to be built.
For example, when designing the new Roslin Institute Building in Edinburgh, Scotland, the cool climate afforded the opportunity to use natural ventilation. Open windows, window blinds, special glass coating, external sunshades and skylights that double as exhaust chimneys keep the air flowing and keep people cool during hot days. And while these strategies are ideal for this northern European climate, they certainly would not work in Dubai.
7. Give employees the training and tools they need to be successful. Culture comes in many shapes and sizes. Work ethics, social structures, even work schedules are dictated by influences in politics, history, religion, mentality, behavior and lifestyle. A respect for cultural differences must be at the heart of global business practices.
Firms expecting to succeed in global markets often must learn new ways of viewing business practices. For example, different countries have different attitudes toward time. Eastern countries, for instance, view timekeeping with a more relaxed attitude. Meetings will often run over, start late or be cancelled at the last minute without any warning.
Different countries also have different working hours and days. The work week in most Middle Eastern countries begins on Sunday and ends on Thursday so that the ‘weekend’ respects the Muslim Sabbath.
It is important that all employees who work in foreign countries, travel to foreign countries or even work with colleagues in global offices should be required to take cultural awareness training to prepare them for these cultural differences. We also require all employees who currently or anticipate conducting business in an international location to complete annually a Foreign Corrupt Practices Act (FCPA) tutorial. U.S. firms seeking to do business in foreign markets must be familiar with the FCPA. In general, it prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business. In addition, other statutes such as the mail and wire fraud statutes, which provides for federal prosecution of violations of state commercial bribery statutes, may also apply to such conduct.
The bottom line: If you want your employees to work well in a foreign country, they must be given the proper tools and training to succeed.
8. How you market makes a difference. Cultural ignorance is especially obvious in marketing materials, where a lack of understanding of language is especially obvious when it appears in black and white. Even something as simple as using American English when British English is appropriate can make a company look like an amateur in the global market. Common phrases and marketing slogans, when translated, also can take on unintended and sometime offensive meanings. For example, when Coors had its slogan, “Turn it loose,” translated into Spanish, it became “Suffer from diarrhea.”
Cross-cultural communication is inherently difficult. Companies must conduct basic research regarding the use of concept, design, shape, color, packaging, message and name in the countries in which they are doing business. This is especially true today for countries with multilingual populations. Some countries have more than one official language, and varying communication styles means the generational and cultural differences are more pronounced than ever.
It’s important to consider the communication styles associated with each company as well. While working in Canada may present fewer critical issues for U.S. firms, doing business in the Middle East is an altogether different experience. For instance, emails in the Middle East generally tend to be much more formal than we are accustomed to here in the U.S.
Non-verbal communication also requires special attention. Gestures, eye contact, proximity and posture speak volumes, and are interpreted in different ways in different countries. Sitting with legs crossed may be perfectly acceptable in Western cultures, but is considered disrespectful in countries like Saudi Arabia and Turkey.
9. Create a framework for expansion. We recognized the need to create a framework to position us as a major global player and to allow us to focus on global expansion.
In 2011, about 20 percent of our work was international. Some of our recent international project wins, though, represent the biggest wins in the history of our firm. Our goal is to grow our volume of international work by 5 percent annually, with an ultimate goal of having our international program represent 35 to 40 percent of our work in four to five years. To manage this growth, we have separated domestic marketing and operations from international marketing and operations, with experienced leaders for each of those four areas. We’ve also assigned a design and marketing leader for specific geographic areas/regions as well. We did so to ensure that one person was “minding the store” for each area of responsibility, and building the relationships needed for the long-term.
10. It is imperative to be financially stable before looking to new frontiers. Finally, I can’t stress enough that a firm has to be financially stable in its domestic practice before looking beyond its borders for expansion. Firms also cannot grow globally at the expense of their domestic operations. A steady domestic practice provides the needed capital to fund your expansion efforts and provides a sense of stability to counterbalance the risk associated with going global. It’s not uncommon that the excitement of international work captures the imagination and dominates attention. But don’t take your eye off the domestic eight ball in the process. Our domestic operations continue to comprise the majority of our business and we are working just as diligently on U.S. growth as we are on the growth we hope to see beyond our borders.
Doug Wignall started as an architectural intern at HDR 20 years ago and has been with the company since. He spent the first part of his career designing healthcare facilities throughout the U.S., and from that, started focusing more on the business development end of things. In 2006 he became the director of HDR’s healthcare program, and in 2012 he was named the president of HDR Architecture.
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