USA: Brits in the USA.

USA: Brits in the USA. - Expanding across the Pond has signalled the beginning of the end for some UK businesses, while for others America is proving to be a land of plenty.

by Mark Tran.
Last Updated: 31 Aug 2010

Expanding across the Pond has signalled the beginning of the end for some UK businesses, while for others America is proving to be a land of plenty.

Back when Hanson was a hungry conglomerate, it used to advertise itself as 'a company from over here ... that's doing rather well over there'.

'There' was, of course, the US and the implication was that across the Atlantic, they played hardball: Brits who could prosper 'there' were obviously made of pretty stern stuff.

To be fair, there is more than a grain of truth to this - some of Britain's best-known companies have come a cropper in the US. Midland, once the world's biggest bank, never recovered from its disastrous purchase of Crocker Bank in 1980; indeed, so traumatic was the experience that Midland was eventually bought by HSBC. Imperial Group's acquisition of the downwardly mobile Howard Johnson's chain of restaurants and motels in 1980 is another cautionary tale. Imperial went into a tailspin and was eventually gobbled up by Hanson. First prize for monumental misjudgment probably goes to Ferranti for buying the infamous International Signal and Control (ISC) in 1987. ISC was caught up in a fraud and its chief executive, James Guerin, wound up in jail. Guerin's imprisonment must have been pretty cold comfort, though: Ferranti went into receivership after buying ISC. More recently Laura Ashley's long tale of misery (Ann Iverson's acrimonious departure included) is due partly to its ill-judged American forays. Nor is it just the Brits who have found their noses bloodied by an unforgiving Uncle Sam: Japan's Matsushita eventually retreated from Hollywood after dallying with MCA, now Universal and part of the Seagram empire. Renault stumbled with American Motors and Bull, another French company, rued its involvement with Zenith, the consumer electronics firm.

Yet America retains a powerful allure for British business. It is the world's biggest and most aggressively capitalist market: for companies with global aspirations, it's simply the place to be. 'There are two big advantages of going to the US beyond the numbers,' says Jacques Cesar of consultants William Mercer. 'First it's a very good laboratory and an excellent place for trying out best practices which you can cross-share with the rest of your company. Second the costs of capital are lower, because of the high value of leverage.' Brian Rafferty, a partner at Taylor Rafferty Associates, a New York financial PR company with British clients such as Diageo and Tate & Lyle, agrees: 'Foreign companies feel they have to be here because in so many businesses the US leads the world,' he explains. 'They have to be active in the US to spot trends and they have to be meaningful in the US or be a bit player.' Globalisation, he adds, has fuelled this trend: 'Ten years ago, companies came here much more for growth opportunities. Now it's as simple as having to be here or else on the sidelines.'

America's pre-eminence in information technology was the reason that British expatriates Tim Gocher and Maxwell MacLeod started their internet consulting company, Virtual Frontiers, in New York City three years ago.

The business specialises in helping Fortune 1,000 companies use the internet and its clients have included telecommunications giant Lucent. As with many hi-tech businesses, Gocher more or less started the company in a bedroom. He chose to set up shop stateside because companies there are more open to the idea of electronic commerce. 'The cutting edge is here so it was a good place to start,' he explains.

America is a good place to start for other reasons too - the country that produced Ford, Rockefeller, Morgan and Gates is one that, unlike Europe, champions the self-made man and sees capitalism as its own just cause. 'There is a general understanding of a tryer,' says Gocher. 'People are willing to try things here and there is an amount of venture capital to tap into. People are willing to listen and there is respect for Brits.

In the UK people are slower to listen and accept businesses which try to introduce new concepts.' Likewise William Travis, president of Attik, a hot graphic design business that epitomises Blair's Cool Britannia, says that being British helped in the firm's expansion in the US. Travis moved to New York in January 1997, just in time to set up the studio before the first client meeting with Kodak. Since then, the firm has expanded at breakneck speed and now aims to open an office in San Francisco. But both agree that competition is fierce. The market changes every half an hour, says Gocher only half-jokingly. Travis concurs: the second you take your eye off the ball, he adds, someone else is there.

Don't imagine, however, that UK investment in the US is confined to small, hip and with-it companies. Some 7,000 UK companies do business in the US and British direct investment totals over $142 billion (£87.6 billion) - a figure which does not take into account the unrecorded hidden investment built up over the centuries-long association between the two countries.

Britain is America's biggest foreign investor and vice versa. The key area of British investment interest is manufacturing - a sector which attracts over 40% of Britain's direct investment in the US.

The biggest deal on the cards this year is international media group Pearson's proposed $3.6 billion acquisition of the US-based Simon & Schuster education, reference and business and professional publishing divisions. Last year, however, British companies actually spent considerably less in the US than they did in 1996 - though they did acquire more companies, according to UK & USA, a British-American Chamber of Commerce publication. In 1997, for the first time in years, Britain failed to make a mega-deal in the $1 billion-plus category (the most costly acquisition was Misys' $900 million acquisition of Medic Computer Systems). In fact, spending by UK companies in the US dropped more than 50% in 1997 to $9.2 billion - the lowest since 1992 - but the number of UK purchases rose from 153 to 172. 1996 conformed more to the usual pattern - British companies invested over $16 billion in the US, representing more than a fifth of the total direct foreign investment and double that from any other country. The most frequent takeover targets last year were software makers. UK companies spent almost $2 billion to acquire a dozen in the US, while American corporations spent a relatively paltry $232 million on 30 small UK software firms. Significantly, a greater percentage of deals by both US and UK firms involved outright acquisitions than minority investments. 'As the economies of both countries got healthier, companies went for the whole acquisition instead of just dipping their toes in the water,' says Steve Blum, a partner in corporate finance at KPMG Peat Marwick. As for the apparent lack of interest shown by the Brits: the rampant bull market in the US is largely responsible.

The high valuation of US equities provided American companies with the means to shop abroad, while making it significantly harder (despite a strong British pound and a pretty healthy Stock Exchange of our own) for UK firms to find bargains in America. That said, the US is a vast market and small companies like Virtual Frontiers and Attik can find a niche as long as they are good enough, which partly explains the rise in the number, if not value, of the deals.

For such vociferous exponents of unfettered capitalism, Americans have an odd patriotic streak which can run counter to their normal free-market instincts. This was something the late Sir James Goldsmith found to his cost when he tried to buy Goodyear. Goldsmith was forced to defend his move before a hostile congressional hearing with dozens of Goodyear employees present. Although the nimble-minded Goldsmith danced rings around the congressmen, his proposed acquisition stirred up so much resentment he walked away. Similarly BTR called off its bid for Massachusetts-based Norton in 1989 because of strong political opposition. Norton employees burned a Union Jack and greeted BTR chief executive John Cahill with signs that read: 'Baseball, Motherhood and Apple Pie. To Hell with Tea and Cricket'.

The state government then intervened and passed a law thwarting BTR's ambitions. However, if outright acquisitions are out, an alliance may be the way forward. BA is waiting for the US government to approve its partnership with American Airlines and BT is to form an alliance with AT&T after losing out to WorldCom in the bidding war for MCI, BT's previous American partner.

Discretion can certainly help smooth the path of transatlantic co-operation.

BAA, the airport company, with operations at Pittsburgh, Indianapolis, Newark and Harrisburg airports, found it had to tread delicately when making bids in order to avoid wounding national pride. 'You don't want to say our airports are better than yours. Even when they know it, they don't want to be told their airports are quite bad,' cautions Mike Bell, president of BAA USA.

'You have to be very careful, you don't want to hurt their psyche.'

Similarly GrandMet (now Diageo) avoided a political backlash through meticulous planning that included sessions with key political contacts to lay out the group's strategy for acquiring Pillsbury, then a well-known but struggling baked-goods company. It was still pretty tough, though, for Paul Walsh, the man GrandMet put in charge. Walsh had to endure a hostile environment for two years; his son experienced problems at school from classmates whose parents had been laid off by the new boss. Walsh believes it is imperative to move quickly in the early days of an acquisition: 'Lots of companies pretend in the early days "we love you," when both parties know it's not the case.' His advice for any company making a hostile takeover in the US is to be clear as you can be early on, build a local cadre as fast as possible and convey the notion that the best jobs will not go just to Brits but to the best executives regardless of nationality.

'You have to have one or more people that you trust who have their feet in that market,' he points out.

For him, the key to success is sound strategy and solid business practices and he believes that the cultural differences between, say, the UK and France can be just as great if not greater than between the UK and the US. When GrandMet took over Pillsbury, based in Minneapolis, Minnesota, the British parent axed 600 of the 2,400 headquarters staff and sold non-strategic businesses such as Van de Kamp seafood, Steak 'n' Ale restaurants and Alpo pet foods. It even sold the flour mills, the company's original business set up on the banks of the Mississippi in 1869. The company now concentrates on growing its four core global brands: Pillsbury, Haagen-Dazs, Green Giant and Old El Paso. The aim is to use the same basic technology for products that can be tailored for specific foreign markets. For instance, when Haagen-Dazs is sold into Japan, (a country which consumes more ice cream than the US), the product is packaged in tiny containers for the small freezers in Japanese homes. Such attention to detail has transformed what the Wall Street Journal once described as the 'bedraggled Minneapolis food and restaurant company' into a flourishing concern and Walsh is tipped to succeed John McGrath when he retires as Diageo's chief executive. Last year, Pillsbury contributed 23% ($727 million) of Diageo's operating profit and 30% ($6,031 million) of turnover.

GrandMet enjoyed a similar success in transforming Burger King from a moribund company that had lost its way into a success story, making McDonald's - over twice its size - look vulnerable. 'GrandMet was derided for buying Burger King and yet it has turned into a monstrous success,' says Rafferty, 'If you had told anybody that Burger King would be kicking McDonald's butt, they would have laughed in your face.' Burger King followed the same turnaround recipe as Pillsbury by focusing on its core strengths. In the early 1990s, the business had tried to diversify into products such as pizzas and shrimp dinners, without much success. So it went back to basics and improved its core products, a move that went down well with the public. Surveys showed that Americans preferred its burgers to Big Macs and that the new fries are a notable hit. BK cannot afford to sit pretty though; McDonald's is already revamping its operations to deliver more customised food and the company also faces strong regional competition from Jack In the Box and Carl's Jr, not to mention Wendy's, the original champions of the bespoke burger.

As for the much talked about cultural differences between the US and Britain, Gocher observes: 'In the UK, work is part of life, woven into the social fabric. In the US, work is life.' In America, two-week holidays are the norm and the month-long allowances in Europe are regarded as anathema.

Another much remarked upon (and despised) feature of business life in America is the ubiquity of lawyers. It may prima facie seem like an easy-going place but the reverse is true when you read the fine print. Business life in Britain still relies largely on social trust, a remnant of the 'old ways' whereas, in America, litigation long ago usurped this quaint nicety. American companies are used to seeking legal advice sooner than their British counterparts and think nothing of approaching their lawyers very early on in the game. The norm in the US is to follow the letter of an agreement, rather than its spirit. And this has often cost the gentlemanly Brits. One UK engineering business had its executives spend a week in New York negotiating a $30 million contract, similar to other deals they had done around the world without lawyers - and without trouble. Just before signing, someone asked what their lawyers thought of the deal. They hired one at the last minute and within days, the deal unravelled.

Gocher experienced something similar, albeit on a smaller scale. When Virtual Frontiers got off the ground, it did some work for a company that declined the product and refused to pay up. Virtual had no legal recourse because it had agreed to do the job without signing a piece of paper.

This may not sound like cricket to the British ear but, let's be honest - British companies have been doing business in the US long enough for newcomers to have little excuse for ignorance. And for those unsure about what Uncle Sam may have in store for the unwary, British trade officials are more than happy to give free advice on common pitfalls. 'If a British company goes to the Middle East, it will expect cultural differences,' explains David Drake, commercial consul at the British Trade Office in New York. 'But because British executives feel familiar with the US, it can be hard to realise that there are significant differences. We use the Jerry Seinfeld ad for American Express to get over what we perceive to be cultural differences.' The commercial in question ends with a British audience laughing at Seinfeld's jokes as he confides: 'I don't know what I'm talking about.'

Cultural considerations aside, there are also real and significant economic differences. A common mistake is to look at the US as a single, homogenous market. Like Britain, the US has regional and social variations though these are heightened by the country's sheer size - the differences between Carlisle and London are small compared to those between Oklahoma and Washington.

Throw in the different ethnic groups - African-American, Hispanic, Asian-American (far more sizeable in percentage terms than their British counterparts) - and you get the picture. US companies approach their home market on a region-by-region basis for marketing, sales and distribution purposes and it is not unusual for products to have widely varying levels of acceptance in different parts of the country. Walk into a store in Charleston, West Virginia, and you will see brands of crisps you will never set eyes on in New York. The size and variations in the US market make it difficult for an agent and agency to represent any product for the whole of the US. Insufficient or ineffective product support is another potential pitfall.

Americans have long been used to high levels of service which are only now appearing in Britain and UK companies must be in a position to support their products on the same lines as domestic competitors.

Replacement parts for industrial equipment must be delivered the next day, if not sooner, and customer service operations must be prepared to answer calls at night and weekends.

But even those good enough to cut it in the world's toughest market cannot rest on their laurels. As Mercer's Cesar says, 'The situation in America is less stable and the power of incumbency is less. If you have something very powerful it is easy to roll it out but you are also more at risk.' It is a point aspirant US operators would do well to heed: America may be the land of opportunity for British businesses but it is the land of opportunity for everyone else, too.

Mark Tran is the Guardian's New York correspondent.

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