How Gensler maintains quality, culture while expanding globally
We are frequently asked: how do you maintain a strong design culture, consistent delivery quality and sound business practice as you expand globally? The short answer: it’s hard work! The long answer involves sharing some things we’ve learned along the way.
At Gensler, our interests in growing globally are simple: take care of our clients wherever they are, provide our employees with professional growth opportunities, and pursue the world’s best design opportunities, regardless of location.
Since the firm was founded in San Francisco in 1965, Gensler’s basic approach to office expansion was to go to the places our clients needed us to be. This was true when the firm open its second office in Houston in 1974: from a strategic perspective, the city may not have seemed like an obvious choice, but Houston made perfect sense once Pennzoil awarded Gensler the interiors for their new downtown headquarters. It was also true in 1998, when Gensler opened its first non-U.S. office in London to support the expansion of our financial services clients to Canary Wharf. Indeed, most of Gensler’s office openings can be traced to one or more clients who encouraged us to expand there.
This responsive approach has served the firm well: it provides organic growth opportunities for emerging leaders, it is relatively low-risk, it avoids the integration pain of acquisitions and it remains true to our client-focused design culture. Typically, each new office is seeded with experienced Gensler leaders who leverage the larger network while growing local client relationships and delivery capacity.
Several years ago, we also recognized that our responsive approach was not necessarily keeping pace with the global expansion of our clients and the complexities of global markets. We adapted not by acquiring other firms, but by becoming more pre-emptive in our expansion plans: skating to where the puck is going to be, as Wayne Gretsky famously said. The risks are often higher, particularly as we enter new emerging markets, but we believe that our ability to anticipate and meet the needs of our global clients is greatly enhanced.
Over the past five years, Gensler has more than doubled the number of countries in which we have offices, opening new locations in Singapore, Abu Dhabi, Toronto, Hong Kong, Seoul, Bangkok, Sao Paulo, Doha, Bangalore, Mexico City and Sydney. The intent of this article is to share a bit more about why we are doing this and lessons we have learned along the way.
A Many-to-Many Global Network
Most firms that expand outside of their home country follow one of three basic models: export, local or hybrid. The export model is simpler, concentrates leadership and operations, and emphasizes the pursuit of global work to bring back to the home country. In contrast, the local model establishes self-sufficient practices, and builds local client relationships, market expertise and the capacity to deliver work locally. In reality, many firms utilize a hybrid approach, combining elements of both in varying proportions. For most U.S. firms, regardless of the model, the U.S. remains home to the primary centers of expertise and/or delivery capacity: a one-to-many network.
Global Fortune 500 Trends
The continuing shift of the Global Fortune 500 away from the US is worth noting:
- Between 2001 and 2014, the number of North American companies in the Fortune Global 500 fell from 215 to 141.
- At the same time, the number of Global 500 companies based in Asia (excluding Japan) increased from 30 to 109.
- By 2025, 46 percent of the Global 500 are expected to be headquartered in emerging markets, up from 23 percent today.
- By 2025, China alone is expected to host 24 percent of the Global 500.
In a truly global design practice, however, the one-to-many network is supplanted by a many-to-many global network. Two trends are driving this change. First, in many developing markets, the inclination of local clients to rely upon foreign expertise tends to diminish over time as local talent pools grow and mature. Remaining too dependent on ex-country resources to support any market becomes a competitive disadvantage over time.
Second, the most successful companies in developing countries are continuing to expand into the U.S. and other markets and emerging as leading global brands. For example, India’s three major IT consulting firms (TCS, Infosys, and Wipro) are today among the largest in the world. Brazil’s Embraer is now one of the world’s largest aircraft manufacturers and the leader in mid-size passenger jets. China’s Lenovo, which emerged as the world’s largest PC manufacturer after acquiring IBM’s PC business in 2005, also acquired Google’s Motorola Mobility division earlier this year. Jaguar Land Rover, after its purchase by India’s Tata Group in 2008, is flourishing once again as a premium brand not only in emerging markets, but also in the U.S. and Europe. (Remarkably, Tata is now the UK’s largest industrial employer.) Even in their home markets, design firms need to tailor their approaches to providing services to this new generation of global companies.
As developing markets continue to mature, these multi-directional trajectories of business and investment will continue to influence how design firms organize themselves to deliver projects globally. Going global no longer means “exporting” U.S. expertise to other markets and/or “importing” work home. Instead, supporting global clients requires a robust, tightly connected many-to-many global network of design professionals.
As a firm, Gensler continues to help many U.S.-based clients grow and enhance their facilities in the U.S. and countries around the world, but increasingly we are also helping non-U.S. clients expand and invest in the U.S. and other markets.
Opening a New Global Office
Compared to new domestic offices, which typically incur lower marginal costs and exploit economies of scale more quickly, new global offices incur disproportionate startup costs. While a new domestic office can usually leverage many business systems and processes already in place, an office in a new country typically requires a new legal entity, new banking relationships, business advisors, standard agreements, tax reporting and filing procedures, payroll systems, etc. As those offices grow, the inverse economy of scale fades away, but it is important to anticipate the costs beforehand. The costs can be subsidized or simply built into the new office’s P/L forecast, but either way, the costs should be understood and recognized.
Clients Without Borders
When building a global practice, it is helpful to understand the distribution of client work across multiple offices and multiple countries. During the past year, Gensler’s projects for our Top 20 clients (which generated 24 percent of our total revenue) include some revealing statistics:
- The projects of our Top 20 clients were located in 44 different countries
- 38 different Gensler offices worked on those projects
- On average, 8 Gensler offices supported each client during the year
- One client was supported by 24 separate Gensler offices
- Another client had projects in 31 different countries
These numbers continue to grow annually and underscore the importance of integrated global delivery platforms — including high-speed connectivity, shared processes and digital design tools — to support clients whose project work is so broadly distributed.
A host of due diligence issues for new global offices should also be carefully explored beforehand. At Gensler, we undertake comprehensive due diligence on all proposed new offices and share the findings before a go/no-go decision. This not only reduces risk, but also communicates the anticipated costs, opportunities, challenges and tradeoffs. Along the way, we also leverage the knowledge of our clients and partners already on the ground — they are often our best sources of guidance and advice.
Our due diligence process includes four basic components:
Political risk, regulatory environment, economic stability, social conditions and security.
Taxes, currency, agreements, collections, payroll, employee benefits, immigration and general business practices.
Allowable scopes of work, licensing rules, delivery models and practice requirements. (Business and practice regulations may collide when scopes of practice are restricted for firms not majority owned by local partners.)
Who will lead? The best candidates are often next generation leaders who already understand the firm and its culture, and who have a strong combination of business, practice and client relationship skills. The initial commitment should be 2-3 years.
A general rule of thumb is to never make assumptions based on prior experience in other markets. The legal system and regulatory environments in many developing countries, for example, are much less settled than in the U.S. Regulations often conflict with one other and resolving them takes time. The power of the contract can also vary in different markets: in China, a written agreement is sometimes considered an understanding at a moment in time and subject to renegotiation, while in some Middle Eastern markets, when disagreements arise, counterparties may look away from the agreement and instead seek out what they perceive to be fair. The U.S. legal tradition of arguing the four corners of a contract simply does not carry the same weight globally. These are not net negatives, as long as they are understood ahead of time and strong personal relationships are in place.
Similarly, never assume there are consistent approaches to business and practice within a country. Like the U.S., regulations and licensing requirements can differ by region or province within the same country. Allowable scopes of services may also vary. Social conventions are often not uniform within a country, and geographic proximity does not always equate to cultural similarities.
Compared to the U.S., building relationships can take more time in many countries, requiring more personal interaction and conversation. In Spain, for example, talking business usually happens at the end of the meal, when the coffee comes — the meal itself is about the relationship. Instead of chasing big local projects out of the gate in such markets, it is often necessary to start small and grow the relationships over time. Although they mature more slowly, the good news is that the relationships are often more trusted and valuable once developed.
Other considerations that deserve special attention:
In some markets, labor rules are tighter than the U.S.; in other markets, looser. They may include minimum quotas for certain categories of employees and/or limits on others, and the distinction between “consultant” and “employee” often differs from the U.S. definition of those terms. In Latin America, labor unions for design professionals are commonplace and compensation laws include additional benefits such as meal tickets for lunches. In the UAE, there are relatively few restrictions to which firms must adhere, but there are also few protections for non-Emirati employees. For employees who travel frequently, tracking the aggregate time spent in individual countries is also important to avoid triggering additional income taxes and/or filings — for most employees, the magic number is 183 days. The ways in which design professionals represent themselves to clients — in terms of titles, memberships or accreditations on business cards or correspondence — may also be subject to scrutiny by local agencies. Titles based on country-specific licensing or accreditation usually need to stop at the border.
Currency and Taxes
Some countries have complex invoicing and receipt processes to facilitate tax revenue tracking and collections. For example, the only invoice/receipt officially recognized by the tax authorities in China is the “fa piao”, while many Latin American countries require the use of electronic receipt tracking systems. Market protectionism can also create tax challenges; in Brazil, for example, taxes for importing professional services can reach as high as 40 percent, depending on the structure of the agreement.
Laws and regulations in developing markets are often dynamic and change frequently — the regulations in place last year may not be the same ones in effect this year. Take the time to choose your outside advisors well, and don’t assume that a branch office of a multi-national consulting firm will provide better advice than a small, local firm — sometimes the opposite is true. Indeed, it is not unusual to get two different answers to the same question from two different advisors, so never be shy about seeking second opinions.
A clear understanding of ethical behavior is essential to global business culture. At Gensler, strict adherence to FCPA (U.S.) and Anti-Bribery Act (UK) requirements is non-negotiable. Is it a constraint to business opportunity in some markets and circumstances? Yes. But as a long-term strategy that protects the firm’s global reputation and brand, it is a no-brainer. No firm wants to be a part of the recent contra-examples in recent news publications.
Think carefully about how you establish your legal structure in the context of your long term plans. One structure may help you get to market faster but could have unintended consequences in the long-term, including handcuffing your allowable scopes of service.
Election cycles can accelerate or stall development decisions in many countries, so understand the timing of national and local election cycles prior to opening a new office in a country.
Translation: Don’t skimp! Proposals should budget extra time and fees for translation costs involved with cross-border projects. Speaking and writing in a client’s native language, of course, is always preferred, and never underestimate how fluency in local language and social convention helps build credibility and trust.
Gensler invests in a number of formal programs and shared resources to facilitate the startup of global offices, sponsor the exchange of global knowledge among Gensler design professionals and accelerate leadership development across multiple countries:
- Global Support Studio is a dedicated team that undertakes due diligence for country-specific business and practice issues, and coordinates the planning and operational startup of new global offices.
- Knowledge Exchange is a firmwide exchange program that facilitates short-term employee exchanges (typically, 3-6 month project assignments) between global offices.
- GU Global Leaders, part of Gensler University, is a learning program focused on accelerating global awareness and understanding among next-generation Gensler leaders, including sponsored travel and research activities in emerging market countries.
- Country Profiles provide online country-specific information to all Gensler employees worldwide, including the firm’s portfolio of work in each country, preferred partners, practice and delivery guidance, tax and currency issues, travel and cultural considerations, etc.
The Studio as Building Block
Clearly, global firms need to calibrate their approaches to business and practice to satisfy local market requirements. At the same time, when it comes to the firm’s vision, design culture, organizational structure and employee engagement, consistency is equally important. One organizational building block that has worked well for Gensler over the years is the design studio.
Although considered a relatively large design firm, Gensler is actually built as a collection of relatively small studios, most of which have 25-55 employees and one or two studio leaders. As successful studios grow and reach the upper size limit, they are typically split into two new studios, each with its own leadership and practice expertise. This organizational mitosis not only supports the firm’s growth, but also creates continuous new leadership opportunities for our design professionals. Studios frequently collaborate on projects, both within and between offices, but are also intended to be relatively self-sufficient: growing client relationships, winning work, building expertise and developing next generation leaders.
Every new Gensler office, regardless of location, is initially organized as a small studio and grows from there. Our newest offices in Sao Paulo, Sydney and Mexico City each operate as a single studio, while our Toronto office, opened in 2011, has grown large enough to house two studios. Our London office has 240 employees in eight studios, while our largest office in New York has 520 employees in 17 studios.
The studio as organizational building block has proven to be both durable and highly portable around the globe. The notion of studio self-sufficiency also tightly aligns with our strategy not to establish global outpost offices whose primary mission is to bring work back to the U.S., but instead build self-sufficient, local practices that are fully integrated into the Gensler network and design culture.
The Sustainable Global Practice
Gensler strives to be a self-governing, self-perpetuating design firm. In preparing this article, we reflected on the firm’s scale as a global practice and the amazing people — employees, clients and partners — that have brought us here so far. Today, the firm has over 4,600 design professionals working in 46 offices in 16 countries, and the collective breadth and depth of their talent and expertise inspire us every day. We are proud that each of them has the opportunity to not only make the world a better place, but also build a successful, rewarding career.
We also believe that our ability as a firm to connect, integrate and synthesize the talents and expertise of our design professionals — through collaboration with each other, with our clients and with our partners — is an essential component of design innovation. Importantly, as we continue to open new global offices and build the infrastructure to support them, we pay special attention to preserving these values and strengthening our client-focused design culture.
While building a global design practice may seem complicated or even intimidating — and it is hard work, for sure! — we strongly believe that our many-to-many global network, along with the incredible diversity of ideas, creativity, sharing and learning that it sponsors, continues to enhance the energy of our practice, the quality of our work and the value we provide to our clients around the world.
Ken Sanders, FAIA is a principal and managing director at Gensler. Ken leads a team of 150 professionals responsible for Gensler’s global operational platform, including finance, risk management, marketing, communications, public relations, technology, software applications, research, talent development and human resources. He is a member of the Gensler management committee and has also served on the firm’s board of directors. Ken has a passion for global delivery, sustainable design and the intersection of digital technology and design innovation. Ken is a senior fellow and board member of the Design Futures Council.
Meredith Ludlow is director of Gensler’s Global Support Studio, where she focuses on supporting the firm’s growth and global expansion. Prior to joining Gensler, she worked in Asia for the U.S. Department of Commerce, where she counseled U.S. businesses on international market entry, export and expansion strategies, and for Ernst & Young, where she consulted for the World Bank and Asian government clients.