Consultant EC Harris has just completed its merger – or "marriage", as the senior directors put it – to Madrid-based firm Gabinete de Ingenieria. Like many other consultants, including commercial designer Broadway Malyan, cost consultant Davis Langdon & Everest and multidisciplinary consultant Atkins, to name but a few, EC Harris intends to become a truly pan-European organisation.
According to business consultants such as Ernst & Young, there has never been a more propitious time to set up an office abroad (see the column overleaf), and there's no doubt that flaunting a list of foreign offices is de rigueur for any ambitious consultant. The question is how to translate presence into profit.
Broadly speaking, there are three ways to create a bridgehead in a foreign market: you can merge with or acquire a company that is already there; form a partnership or joint venture with one; or set up your own operation. Each has its pros and cons.
The first option, buying a company, gets you into the market, but the cultural and operational fit needs to be just right. Partnering plugs your business into the market, but puts a premium on your relationship with the local firm. Setting up your own office on the back of a single project can work if you know clients with a long-term development programme. But it can be difficult to woo new clients.
EC Harris, architect Aukett Europe and consulting engineer Buro Happold are all companies with strong international networks. They agree that the main issues are understanding the local market, strong contacts with clients that operate there and excellent people on the ground to run the business – although each has set about achieving this in their own way. So what are their arguments?
David Lawrence, partner at EC Harris, sees merger or acquisition as the best way forward: he is fond of comparing the group's strategy for overseas expansion to marriage. In which case, the firm is guilty of bigamy: it has 22 overseas offices and intends to increase that number.
"It can take years for an overseas office to get settled," he says. "We like to move quickly and for that you need more than an association with a foreign player. An overseas office needs to be an integral part of your overall business."
It was Lawrence's responsibility to oversee the creation of an office in Madrid. The company had decided to establish a base to cash in on the Spanish market's need for risk management, infrastructure and public–private partnership advisory services.
Lawrence's first move was to make EC Harris's intentions known and seek out a Spanish partner. After a nine-month courtship with Gabinete, EC Harris offered president Ignacio de Navascues a partnership in the group.
"We spent a long time together," says Lawrence. "We needed to make sure the company fitted in with our views, and to prove to Ignacio that he would continue to have a leading role in the future direction of Gabinete."
By offering a partnership to the head of Gabinete, EC Harris was also trying to avoid giving the Spanish company the impression that it was being taken over. With any merger or acquisition, language takes on a heightened sensitivity – "takeover" becomes a taboo term.
Another sensitive area is your partner's name. On the night EC Harris officially merged with Gabinete, the directors were vague about the future of its name. It was clearly a sensitive point for Gabinete staff and de Navascues admitted to a "sadness" that the name might go.
Lawrence agrees that Gabinete is protective of its name but reveals that it will eventually go. "At the moment we're using both names to signal to our clients and Gabinete's that this merger has taken place. The market will let us know when it is ready to see Gabinete become just EC Harris."
We like to move quickly, and for that you need more than a partnership
David Lawrence, EC Harris
The key to making the merger work, says Lawrence, is to establish an open relationship with a company that has an established brand. However, not all companies like the fast, intense approach EC Harris uses. For Aukett, an equal partnership with an overseas company is as beneficial as a merger, but allows both sides to retain their own brand identity.
The partnership approach
Of Aukett's 11 overseas offices, six are held as a 50:50 equity stake between Aukett and the partner company. Charles Young, director of European business at Aukett, says this arrangement encourages a true partnership and that in each case, the company has gone into E E a new country on the back of a large project and a good client.
"The relationship between you and your client is crucial – you need their knowledge and language skills to handle local planning regulations and politicians. And, considering the minimum start-up cost for an overseas design office is about £150,000, you'll need a project that is worth at least £1m to make it viable," he explains.
For Young, setting up an overseas office has to be about more than just adding another location to the firm's literature – there are also important issues about quality control and reinforcing the brand. "Sometimes when you see an overseas location listed as a branch of a company, it'll only be indicating an association with that office," he says. "We want our overseas offices to be more than a mailing box that becomes active on a project-by-project basis; we want an overseas office to have the same kind of resources you'd find here in London. Only then can your overseas office become an integral part of the company, and have an independent income stream."
If a company does not adequately integrate and resource an overseas office into the overall business, says Young, it can become a liability. "Your client will expect you to have a proper set-up – if a client walks into a poorly resourced office in Warsaw, that will reflect badly on you back in London," he says. "For us, there has to be a minimum of 15 staff in the office, although 25 to 30 is optimal. This means you need more than occasional projects; it means the office has to establish itself in the market to ensure a constant income."
For Aukett, creating a fully operational office overseas has recruitment advantages both at home and abroad. At home, you can offer graduates the chance to work abroad; abroad, you will find it easier to recruit good people.
"Commercial firms can find it hard to recruit abroad," says Young. "Local firms won't have heard of you. For example, good Italian designers will already have good jobs. They won't give up that security for a one-off project with an unknown company. But if you can promise ongoing work, you've more chance of getting them on board."
Organic growth is best
For other companies, different recruitment issues are at stake. Buro Happold likes to set up its own office abroad rather than establishing a partnership or making an acquisition – and it is prepared to wait more than a decade to find the right person for the job.
"We had to wait 10 years to find the right person to set up our US office," says Padraic Kelly, managing partner at Buro Happold.
The engineer, which has six offices, says it sees opening an office abroad as an organic process that it will only undertake with people who have worked at the firm for many years. It would avoid partnerships and mergers in favour of setting up its own office on the back of a major project.
"We don't merge or make acquisitions because 75% of them don't work – that's an established fact in the business world.
Normally, the problem is that you are taking on a different culture and it's very hard to avoid the culture clashing with your own company's," says Kelly.
For Buro Happold, years of acquaintance with a foreign market and the clients who operate there are the recipe for enduring success overseas.