Low communication costs and improved access to global markets for talent, supply chain requirements and customers is paving the way for micro-multinational companies.
In the old days, startups were usually formed by people who’d known each other for a long time–relatives, professional colleagues, or old school chums–a small team that got together and created something they then sold to their neighbors. Most still are. However, a growing number of companies are “born global”, built from the beginning with the kind of complex cross-border value chains that were once the exclusive domain of the world’s largest companies.
Sonetel, a global low-cost telephone service, began with one person in Sweden, a small team in India, and servers in the US and the Netherlands, according to a company history. In its early years, too, the consumer research company Vast.com was reportedly large only in geographical terms–headquartered in Silicon Valley but working with 25 employees spread out over four countries on two continents and across four time zones.
These juxtapositions might sound like the set up of a bad ethnic joke, but Hal Varian, Google’s Chief Economist who popularized the term, has argued that if the late 20th century belonged to the large multinational, the micro-multinational will define the 21st.
Micro-multinational companies come into the world with some important advantages–lower staffing costs, greater access to talent and expertise, and a wider choice of markets than they might have found at home.
The most basic reason more companies are born global now can be summed up in one word: Skype (a service which itself began life multinationally, founded in 2003 by a Dane and a Swede, based on code written by an Estonian). Global communication, even video communication, is ubiquitous and free. Other new tools are also making cross-border commerce much easier, for large and small enterprises, such as Google and Dropbox for file sharing, LinkedIn for finding talent, PayPal for transactions, and eBay and Amazon for sales.
Many aspects of business are much cheaper than they were just a decade or two ago. “It’s amazing how in all the different aspects of doing business, the costs have fallen… The cost of developing, manufacturing, distributing, marketing–so many of the tools are out there now,” says Jaideep Prabhu, Jawaharlal Nehru Professor of Business &Enterprise at the Judge Business School at the University of Cambridge.
Specialized agencies are popping up too that further facilitate the micro-multinational. WORK[etc], for instance, a company with offices in Sydney, San Francisco, and London, offers IT cloud-based customer relationship management, project management, billing, reporting and collaboration tools on a cloud to 1,000-plus companies in 14 countries. Accelerance, a Redwood City, CA, consultancy, acts as a matchmaker between start-ups and small businesses in developed regions (such as North America and Western Europe) in need of IT services and 40 software development shops based in 20-plus developing countries whose quality it has certified.
As Varian wrote in 2011, “Even the smallest company can now afford a communications and computational infrastructure that would have been the envy of a large corporation 15 years ago.”
Maybe even five: one entrepreneur quoted in a 2011 report on micro-multinational companies prepared by the Lisbon Council, a Brussels-based think tank, estimated that the IT infrastructure of her business cost about one-tenth what it would have cost her five years earlier.
Offline remains essential–for now
However, as useful as such tools and services have proven to be, they have not yet replaced the need for face-to-face contact. Although one study published by eBay found that 81% of American eBay sellers use that online marketplace to reach an average of five markets, most studies suggest that more complex sales and partnerships still require an actual handshake.
“A Skype meeting is okay, but later, if you want to do business abroad, you need to travel,” says Christian Felzensztein, Director of the Research Center on International Competitiveness at the University of Adolfo Ibáñez in Santiago, Chile.
And if possible, for an extended period: “Networks are key for the internationalization process,” Felzensztein explains. Although the new technologies make business easier, he and other researchers who have looked into micro-multinational entrepreneurship have discovered that founding teams still tend to grow out of pre-existing real-world connections and take advantage of opportunities based on deep local knowledge.
Micro-multinational founders meet in a variety of ways. Professional relationships are a mainstay. Nikhil Jaisinghaniand Brian Shaad, for instance, are two American entrepreneurs who met in Nigeria and tried to build a business around capturing wasted natural gas, but ultimately failed to get all the regulatory approvals they needed for it to succeed.
When Jaisinghani’s wife, a senior advisor at the US Agency for International Development, was transferred to India, Jaisinghani and Shaad continued to work together remotely to try to think of a simpler business, and eventually found it with a plan to start an electrical company that installed tiny solar power grids in unelectrified villages.
Four years later, Mera Gao Power’s micro-grids now serve more than 100,000 people in villages in Uttar Pradesh in India, and the founders have just hired a local COO to continue the rollout. Shaad is in California and Jaisinghani, now following his wife to Haiti, is busy trying to raise a new round of equity and convertible debt.
Others meet at school. Universities are an important node for creating micro-multinational companies, particularly now that so many have become such a crossroads for the world’s technical talent, according to Felzensztein. “Let’s say if we have an entrepreneur who studied at Stanford, an MBA at Stanford, and he met friends from Singapore, he will have contacts in the United States, he will have contacts in Singapore, maybe in Hong Kong, because he was exposed to two years of an MBA program in a foreign country in a foreign language,” he explains.
The Chilean government is convinced enough about the importance of such physical contact that foreigners can apply for two-year working visas, seed capital of up to $100,000, and the support of Chile’s export agencies, according to Felzensztein.
But one European micro-multinational entrepreneur who declined to be identified believes trust in the social media age is starting to be formed differently. He points out that people used to say that online dating services wouldn’t work, but today many people actually meet their spouses online. Why couldn’t a business partnership start the same way?
Travel also seems to be important as a way to develop an awareness of the opportunity. Jaisinghani says his experience as a US Peace Corps volunteer working in an unelectrified village in Nepal helped him understand the importance of electricity. “I know what it’s like to live with kerosene lanterns,” he says.
Andy Hilliard, president of Accelerance, also credits some of the impetus for his current role to a stint as a Peace Corps volunteer in Latin America in the 1980s working on micro-enterprise development, “which I guess is the genesis for my interest in helping the little guys leverage best practices.”
Such familiarity matters. In Chile, for instance, Chilean-founded micro-multinationals tend to expand first to adjacent Latin American countries, Felzensztein says. “We found that this is because there is closer psychic distance doing business with other Latin American partners,” he says.
Developing trusted partnerships is not easy. Google and online marketplaces such as Elance and oDesk make it easier for small businesses to make new connections, Hilliard says, but they also create challenges of their own. “The complexity and chaos and the sheer white noise of all of this stuff out there in the end can be a huge risk and burden to companies trying to get things done legitimately. There’s some good and a lot of bad out there and it’s hard to tell the difference between one and the other,” says Hilliard.
Even among partners who share a common language, cross-cultural experts have noted that differences in communication styles can make success difficult: how do you know if your Bangalore project manager’s yes was a genuine yes?
For that reason, Hilliard suggests that teams spend time with each other in person, and always have status reports delivered by video conference. “When you’re forced to interact and you’re forced to tell the truth and you’re forced to share, there are few places to hide,” Hilliard says.
Hilliard argues that deep understanding matters. Much of the reports his company makes on the IT firms it vets is devoted to cultural descriptions that make it easier for the prospective customer to understand the proposed vendor. “Probably 70% of the assessment talks about culture and the uniqueness or exoticness of where they live and how they live their lives,” Hilliard says.
This level of understanding is crucial, particularly in complex digital projects. “People have so many tools… they get a false sense of security and control. But the reality is that people haven’t changed and there’s still good and bad. People tend to make big decisions that involve a lot of money and time based on that false sense of security,” Hilliard says.
Moving large sums between countries is not always easy either. One European entrepreneur argues that when larger amounts are involved, today’s tough rules to prevent money laundering are also making global entrepreneurship more difficult. Online, we may have a frontier-less world, he says; but if you cross a frontier, you’re a terrorist.
And those are just the short-term challenges. Long-term, some fear that because a growing number of online businesses compete in winner-take-all markets, the only moderately successful might be in trouble.
Winner-take-all is great if you happened to be one of the winners, such as the 55 employees of WhatsApp who happened to be on the payroll when Facebook bought the Silicon Valley company for $19 billion, but perhaps bodes less well for the other 99% of micro-multinational workers, particularly in high-wage countries.
But Cambridge’s Prabhu isn’t too worried, noting that many of his students talk less about building apps than about going to Africa or Asia to develop solar companies or pharmacies. “At least half the world’s population is outside the world’s formal economy–that’s a huge opportunity that young people from the West can tap into,” he says.