25
February
2017
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04:06
Europe/Amsterdam

When energy companies should go global

Entering foreign markets requires homework, careful analysis and best practice. Mull over these five UAlberta considerations.

By LESLEY YOUNG

For more than a year, Jerry Raduy researched whether to take his small, Calgary-based drilling company, Clear Directional Drilling Solutions, into the Middle East.

After travelling to a free trade zone in the Persian Gulf and investing in professional service firms to investigate what’s involved to do business in Iran—from accounting to shipping equipment to legal and insurance concerns—Raduy recently decided to put the expansion plans on pause . . . temporarily.

“We don’t know what’s going to happen yet with Canada and U.S. relations when it comes to some Middle Eastern countries,” said Raduy, adding that his research also revealed there were too many unknowns beyond the political uncertainty.

“We don’t want to be first. We want to be a close second. Let somebody else go through the pain and misery and pave the path,” he said.

So why did they bother at all? The promise of future growth—day rates for oil and gas services in some Middle Eastern countries are three to four times what they are in North America—is tempting despite the many risks, such as waiting six months to a year for receivables.

“It’s high risk, but it’s also high reward,” said Raduy.

Expanding in foreign markets isn’t for everyone

That’s all the more reason why small to medium-size enterprises (SMEs) need to be smart about their plans to enter foreign markets, said Edy Wong, director of the Centre for International Business Studies at the Alberta School of Business.

“Internationalization is not for everyone or for every business. An SME should only diversify if they have a product that is truly competitive and if they can reap benefits from economies of scale,” he said.

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“Having said that, the economy is now global. Any business should consider how the global market may become part of their business plans over time and have a long view on that.”

At the tail end of 2016, the school, in partnership with the Petroleum Services Association of Canada, hosted a two-day training program for Alberta’s oil and gas service and technology SMEs to share international strategy development essentials. Here are just a few of the tips gleaned from the program.

1. Choose your time

Don’t wait until the market turns to go global. “It’s a common mistake companies make but when the motivation is the highest, it may not be the best time to (expand),” said Wong. “You need to have significant resources to invest and be able to afford to wait, sometimes years.”

2. Make sure you have money to spend

Expect to invest money for years with little or no return, said Wong. From research to equipment shipping costs and salaries to manage, initial outlay can range from $50,000 to upwards of $200,000, he added.

3. Find a partner

Some countries require outside companies to use a local partner, such as another company or consultancy. But even when that is not the case, it makes sense to hire a local company to do the initial groundwork, said Hesham Reda, business unit director with Tenaris, North Africa. “A representative agent works to promote a scope of work,” he explained, adding that it’s vital to meet the agent in person to ensure a good fit and to test them for a trial period.

4. Investigate what’s involved

Raduy is learning all he can in advance of making the leap, such as shipping hurdles due to sanctioned materials in his equipment. “My top advice is to get a partner and do your homework. You may think you don’t know what you don’t know, but it behooves you to make sure you do. Ask lots of questions.”

5. Consider cultural differences

“Make sure you have the ability to satisfy foreign demands,” said Wong. “You may need to adjust your product or service to suit local preferences and needs.” One of the main findings out of the last program was that Canadian oil and gas SMEs should change the way they work at home by joining together. “A lot of companies overseas do not take little companies seriously and prefer to deal with one big supplier rather than multiple smaller suppliers. One solution may be for local companies to form an alliance or consortium and take that into foreign markets,”he added.