Timberland: "you could pick out our people." (management of foreign operations)(Little Big Corp: The Smaller Company Goes Global)(Adventure Capital)

Adventure Capital

By going global, these five companies have learned about the world - and more importantly about themselves.

In 1979, an Italian businessman showed up at the Timberland factory in New Market, NH, with an idea: Sell Timberland boots in Italy. "We thought the guy was crazy," says Jeffrey Swartz, Timberland's CEO. "Why would you take boots made in New Hampshire - these were work boots, rugged hand-sewn American-looking things - and sell them in Italy, the home of Ferragamo, Botticelli, and all those magnificent brands?"

But the man from Italy was willing to take the risk, and Swartz' father, Sidney, who was then CEO, struck a deal with him. As it turned out, the visitor wasn't crazy. He became the company's first international distributor, and successfully sold Timberland boots and shoes to the sophisticated Italian market for the next 14 years - and then retired, a wealthy man.

For Timberland, that experience triggered several years of what Swartz calls opportunistic "adventure exporting." "When international customers came to us, we were glad to take their business, but we didn't do anything more than say, 'this is our product, these are our terms, please buy it.'" And the "adventure" part of this approach? "As people kept coming back and buying more shoes, my father decided it would be an adventure to travel and see where they were sold."

On those trips to Europe, the elder Swartz saw there was a solid market there for Timberland's products, and so the company began to actively court overseas distributors. "We found that, sure enough, if we did our research carefully, country by country, we could find individual entrepreneurs who would risk their own capital and provide their own expertise to develop Timberland's business in these other countries," says Jeffrey Swartz. Through the early 1980s, the company set up relationships with independent distributors in several European countries.

The next stage in the company's international development, says Swartz, "was when a couple of those guys failed miserably, either because they weren't the right person or because economic circumstances worked against them." Those failures left Timberland with markets where there was no way to reach retailers clamoring for product - so the company quickly decided to set up its own subsidiaries.

Today, Timberland products are sold in 90 countries through a "mixed model": In most of Europe, business is handled by subsidiaries; in Asia, the company goes through an independent distributor. International sales make up about 30 percent of the company's $796.5 million in annual revenues. "We have evolved a lot over the years, going from being completely unaware of international markets, to a stage where we worked exclusively through third-party distributors, to a point where we feel we have enough competence to actually work in the local markets," Swartz says.

That competence has not always been easy to come by, says Carden Welsh, the senior vice president overseeing Timberland's international business. "With a subsidiary structure, you get potentially higher rewards, but you also have higher risks. One area where we stumbled was in foreign-exchange management." When using distributors, Timberland dealt only in U.S. dollars, and the local agencies took care of the various currencies - a responsibility that shifted to Timberland when it set up subsidiaries. "We were fat, dumb, and happy as long as the dollar was weak," says Welsh. "But then when the dollar strengthened, we were caught in a direct margin squeeze. That hurt. "So the company instituted a foreign exchange management program to help protect profits.

Another stumbling block, says Swartz, was finding the right people to run operations in local markets. Timberland began by looking for candidates with experience in the European shoe business - an approach that brought mixed results. Now, the company looks first for a fit with its culture. "It took awhile, but now we are clear about what we want. Instead of rigidly accepting that this is how it's done in Germany or in France, we've adopted the model of finding people who are competent, but who also understand the Timberland ethic." As a result, the company's European managers tend to be younger and more environmentally and community-oriented than their counterparts at European shoe companies. "Although they have accents relative to the American ear, they are Timberland men and women. If you lined up the sales managers of the top shoe brands in say, the U.K. or Germany, you could pick out our person every time."

Swartz has also learned to see for himself when staffing overseas operations. "I think the CEO has got to go there. Also, if you are going to select a distributor or hire somebody, don't do it in their office. Get out in the field and pound the pavement with them. It's important to walk in the marketplace and see how he or she sees things." That's a lesson the company has learned the hard way, he adds. "In one country, we originally found a guy who was competent, who had expertise and experience. But I did not travel with him in the marketplace. The way he saw things turned out to be very, very different from the way we did, and it was apparent six months into the relationship that it just wasn't going to develop."

In addition to the lessons it has learned about international business, Timberland has learned much about itself, as well. "We were a company whose central competence was manufacturing, not sales and marketing. Our Italian distributor taught us how to take this product and brand it. And as we partnered up with other distributors, we just keep learning more and more about how to brand our company and how to market, and we took those lessons back to the U.S."

Overall, Timberland's international growth may not have been easy, but it has been highly valuable. "Financially it's critically important; it is a very profitable piece of our business. But it is more important in terms of brand-building. I know that our market place in America is definitively influenced by our European business. Americans, including the department-store people from Saks Fifth Avenue and Nordstrom's and Dillard, go to Europe and see our brand prominently displayed. And they think, 'This is a good brand.' The influence of the European market on Timberland has been very important, and will continue to be very important. So I rate our international effort as one of our most important business strategies."