Over the last two decades, many companies have expanded their business dealings to include the international stage. Two markets of particular interest that have emerged are both culturally quite different from the North American market: China and the Middle East. China, especially, has had tremendous growth; in fact, it literally is historic, with 9% growth a year for over 25 years, making it the fastest growth rate of a major economy ever. With this growth, the average Chinese's income has quadrupled. This is a driving factor in why there has been such an increase in both commercial construction as well as in entertainment and recreation complexes. The Middle East market is not growing at such a newsworthy pace, but for companies that supply the TV broadcast markets, the region around the gulf is fast becoming home to a growing media market that supplements more established commercial work.

Considering such growth, LD spoke with six mainly American-based companies about their experiences in China and the Middle East to find out what industry professionals can expect when working in both markets.

Strand Lighting's Asia office opened 16 years ago in Hong Kong, while the Middle East is handled out of the London office, which has been there for 40 years. Since 1995, Electronic Theatre Controls (ETC) has been in both markets, opening ETC Asia in Hong Kong to cover the Pacific Rim. That same year, ETC Europe operations out of both Rome and the UK began covering the Middle East. Both High End Systems and TMB have been in Asia for years and in Mainland China around 15 years. In the Middle East, High End has sold for more than eight years and TMB for the last seven years. Vari-Lite has had a presence in both regions since 2000. And Altman Lighting is just starting to enter these markets, mainly in Asia.

Both Strand and ETC have taken note of the growth in the regions over the years. “The Chinese market is obviously expanding for our industry as the Chinese economy rapidly expands,” says Fred Foster, CEO of ETC. “The intense growth in new architecture there has resulted in new performing arts venues.”

Peter Rodgers, vice president of marketing for Strand, sees the same trend. “China is just exploding, and we are starting to see business come back all around the Pacific Rim; it has just been amazing,” Rogers says. “In China, they are building and renovating theatres at a pace that is unbelievable. Some of these places have two or three theatres, and they are popping up all over Asia. In the Middle East, it has been consistent and steady. The Middle East is primarily a broadcast market. There is some theatre, but it is mostly broadcast, and the other half of the business is architectural.”

Vari-Lite's Bob Schacherl, vice president of sales for Genlyte Controls, also acknowledges an interesting client demographic in the region for both residential markets and resorts. “The Middle East tends to be end-users that have extraordinary wealth; they want the best, and they are willing to pay for it,” he says. “They demand the ultimate in service and, again, are willing to pay for it, but the market tends to be very much on a consumer level. The Middle East really tends to rely on the West for product recommendation and design.”

China is also expanding, according to Bill Morris, vice president of sales for High End. “There seems to be a lot of growth in the architectural area for China,” he says. “Because of the Olympics, they are working really hard to dress the whole place up for it.”

TMB's CEO, Colin Waters, feels both regions are willing to invest in dressing up their structures. “In the Arab countries and in China, the scale of some of these projects is huge,” Waters says. “They really are willing to light buildings and structures on a grand scale.”

Michael Tucker, sales executive with Altman Lighting, is just entering the regions but has been pleased so far. “Everything we have worked on internationally has been very positive,” he says. “The international markets as a whole are a growing business for us. In the places we have targeted and brought somebody on locally as an exclusive, like South Korea, we have seen an incredible jump in work just by paying attention to the market and spending some time on it.”

Spending time and learning the local market is essential to success on any level in these regions. “The most obvious challenge is to understand the business practices and cultures of each marketplace,” explains Foster. “There is no single solution to any country, let alone a region such as the Middle East, as there are different markets within each territory, such as theatre, television, or architectural venues. Successful entry into a market is best accomplished by finding people to work with who are very familiar with the business and decision-makers. This can include opening a local operation with direct employees or finding the right distributors to work with.”

This was a main point of success to Rogers, as well. “You need to truly understand the local customs,” he says. “You need to have people on the ground who actually work in the region and understand the process there. It is not that difficult; the key is to have the people. We have distributors in all those countries. We have very little difficulty working there. You have to take the time to learn the rules.”

It is a lesson Altman is taking to heart, as Tucker explains. “This is a relatively new market for us,” he says. “We are trying to pick a company that will be the master distributor for us in that country — trying to get them to commit to us, and they would be able to service the customer. So far, it has been pretty positive. You get somebody who has the relationships and speaks the language. That is such a big thing, knowing the customs and how they do business. It is not always how we do business here.” Waters agrees: “You have to understand and respect the people and their culture. You can't just go over there and expect everything to be on your terms. You have to be open to how they do things.”

Morris feels that if you are open to the cultural difference in business, you often find some real positives. “There are cultural issues, but that doesn't mean that's a negative,” he says. “For example, I think it is fantastic that banks in the Middle East are open in the morning, and then they close for a time in the afternoon, but they reopen in the evening. So you can go to the bank at eight o'clock at night. That is a cultural difference that turns into a real positive, because their banks are open while we're open here. There is a cultural issue around the business itself. For example, there isn't a very big church market in the countries we're talking about. However, there is a very large wedding market for the lights. So it does take time to understand the markets, what they are, and the approach to them.”

Of course, there are some cultural differences that do cause business concerns. One of the main concerns with the international market, particularly in China, has been the risk of knock-offs, but for these companies, it is an accepted risk, mostly because it is inevitable. Frank Gordon, CEO of High End, accepts the inevitable but feels they have an edge. “Our products now are so technically advanced that it will be hard to replicate them, not that it won't probably be done eventually.” Foster also accepts this business risk pointing out, “The typically expressed fears about Asian markets not respecting intellectual property and introducing cloned products is independent of whether we are selling a product in the market or not. If your company makes a product that is successful, there will be pressure put on by local manufacturers. This is not a good reason to avoid doing business in a given market. These markets still put a premium on real products that can lead to good business.”

This premium on the real deal is what Altman is finding as well, according to Tucker. “The fortunate thing is the business we have gotten is because we are the originator of the product and have been in business so long. It is our name that sells the product,” he says. “We have found that people are willing to pay more because it says Altman on it. We are now trying to instill that into some of the markets we haven't been doing as much business in.”

However, the knock-off market does still cause concern as Rogers notes. “The other part is that you will sometimes go in and do all the development work, and some local manufacturer takes the job with second or third class equipment, and you don't get the job the first time, but you sell it six years later because they realize they made a mistake,” he says. “An example is you will get the dimming and the control, but they will buy locally made lights because they are maybe five steps down, but they are a tenth of your price, so they can afford to throw away a lot. There is some stuff they aren't going to buy because local is so much cheaper.”

Tucker agrees: “Price is always a big thing, especially in China. We can't compete at times. Something in a theme park there but that is designed here doesn't have a cheap knockoff. It is specified here, so they aren't going to get something else to be substituted for our product. But if it is regular everyday business — an LED or theatrical fixture we make that is knocked off over there at a tenth of the price — that makes it really difficult to compete.”

Waters, however, sees a change on the horizon for Mainland China in the model of Taiwan. “We demand very high standards in this country,” he says. “There is a lack of understanding of quality [in China], but I look at what has happened in Taiwan over the time of our working there. They have gone from accepting knock-offs to a 180° reversal, and now, there is an expectation of quality. We are starting to see the same thing happening in China, but it is still very early.”

As these regions embrace the technology these companies offer in their product lines, support issues must be addressed also. “The technology is really advanced,” Gordon explains. “If you go into a television station in Dubai, they really have the latest and greatest. There is no slouching; they bring in technical people from all over the world to run the infrastructure. There has been so much new investment in the area in the last 15 years that they are more modern than a lot of the US markets.”

Gordon feels that High End has found that training is key to this advancement. “A lot of the issues of technology are about teaching people, which you have to do in any language, anywhere in the world. So it is a lot of the same communication issues, just in another language. We work with a lot of local people, but we give them a lot of support. We travel into the areas and do training and send technical people in to troubleshoot major problems.”

Schacherl takes a similar approach and really believes service support is vital. “Just on an operational level, you really have to position yourself to handle customer service because of the routes to market you are dealing with — intermittently at times — where your product sometimes goes through many layers of distribution,” he says. “If the end-user has a service issue of any kind, you have to respond in a relatively quick and expedient fashion to take care of the situation, because it doesn't take much to spoil your reputation and to dramatically impact sales. You can turn a bad situation into an opportunity where people talk positively about you. That's vital wherever you are doing business but particularly in international markets with such distance between us that makes it more complex. We handle a lot of it through training, both having people come here but also sending our people to the area and holding seminars right there. It underlines that you are making an investment in the region, and it shows respect.”

As for the future growth in the regions, all six companies remain positive, but the larger world stage of politics does have an effect on the day-to-day business. Obviously, this is most evident in the Middle East market, according to Foster. “The continued strife in the Middle East, as well as the roles of the US and Europe, will continue to define the possibilities in this region,” he says. “This affects the ability to do business with whole countries. The Middle East presents challenges, ranging from political and military conflict to major parts of the region being on the US government's ‘no sell’ lists.”

Tucker finds that being an American company can have both positive and negative sides in the markets. “There are markets out there where being an American-owned and made company is not always a good thing right now, but that is who we are,” he says. “You want to be seen in a positive light; you don't want to be misrepresented; you don't want something lost in the translation. We definitely want Altman, the family-owned company that believes in their product, to come across.”

Schacherl finds that, by and large, the differences highlighted in the news are not the whole reality. “With all people, the desire is the same: to work well and grow your business,” he says. “The level of professionalism that everyone exhibits and the respect that they give us allow you to develop very strong, long-lasting relationships with people around the world as easily as with people in your own city.”

Waters agrees wholeheartedly. “In all the traveling I've done, and I've done a lot — over three million miles — people all around the world are ultimately the same. They all want the same things,” he says. “That is the really secret to trade as well as happiness in the world — recognizing that everyone is the same, minor differences only.” Waters also points out a real perk of international trade. “It's a chance to eat some really interesting food.” But to enjoy this perk, Schacherl suggests, “I have also learned to never ask what the food is. Just eat it.”

A DESIGNER'S PERSPECTIVE ON WORKING IN THE EXPANDING INTERNATIONAL MARKETS

Abhay Wadhwa is a principal with Available Light NY, a company with projects in China, Hong Kong, Thailand, India, Sri Lanka, and the United Arab Emirates. Most of the work in that part of the world is happening in Dubai. Available Light NY opened a Mumbai office two-and-a-half years ago and added a Hong Kong office a year ago this June. Recently, Wadhwa spoke about some of his experiences working in these growing markets.

LD: What sort of projects do you work on?

AW: We essentially focus on hospitality, commercial, and residential — mostly residential in India and Dubai, while commercial is in all three areas, UAE, China, and India. Thailand is mainly hospitality. They are still catching up; very promising country; very honest people. Most of India and South Asia is experiencing some serious economic growth. Thailand is yet an untapped market, except for the hospitality business, and China — well, we all know about China.

LD: What is different about working in these other regions?

AW: The adventure of working overseas is not so much about figuring out what the hardware or control choices are but more about figuring out the process with the architects. The one thing that is consistent about most firms in that part of the world is their process is drastically different from how we work in North America.

Here, we most often go through four phases: schematic design, design development, contract documents, and construction administration. Sometimes it gets tweaked a little, but in general, you go through these four phases. When you work in [Asia], you don't have the luxury of those four phases. You are working with compressing the conceptual, design development, and contract documents phases all in one.

The construction administration (CA) part is the biggest chunk of the work, because a lot of the decisions happen during construction, which is a strange concept for us [in the US]. Because of labor rates and other considerations, you don't want to have any change orders during construction, or you are going to kill the budget. It doesn't work that way in the rest of the world, where they will do most of the designing during CA. That is not because they don't know how to go through the different phase but because the time frames are so aggressive that it would be impossible to do the design development, all the drawings and finish everything off by the time we get to CA.

LD: So there are a lot of change orders?

AW: Are there a lot of change orders? Oh, yes. If we are doing a project in the Middle East or India, the change orders are tremendous. The labor rate is different than the projects done in North America, especially with a union job. In New York, you are talking $90/hour for a union electrician, where in that part of the world, it would be safe to say it is about one-tenth that number. Cumulatively, the number of hours it would take you to rewire, hypothetically, in terms of the overall cost of the project and materials, is not that much as a percentage.

LD: What about purchasing equipment?

AW: The interesting thing is lighting fixtures are not sold through the same kind of US food chain. There is no distributor or rep. There is really just the manufacturer, and there is the buyer. Contractors are usually kept out of purchasing. The purchasing department for the client does all the purchasing for controls, for lighting, air conditioning, furniture. They don't buy the sheetrock, but other than that, they are buying everything else directly. The pricing structure is drastically different. You don't have a distributor who marks it up and then a contractor who marks it up and so on and so forth; a $100 fixture is a $100 fixture to the client. Also, most of these guys work on 100% cash; they give an advance to get started, and then a week before things get delivered, everything gets paid. So there are different playing rules than here.

LD: In the end, do you always get what you specify?

AW: There was a project in Sri Lanka when we first started working there about three years back, right at the beginning, when I was still learning a lot of lessons. I was setting some levels, and I asked if we could dim something down, and they said we would have to wait five minutes because they had to go two floors down to the main to turn it off. They had no idea what dim it down meant; it was either on or off. I said to them, “The 1,000W dimmer that you put on the wall — we told you where to buy it.” They had no idea it needed to be in the space, and then they had the question, “Do we really need it?” which is a whole other conversation. So this person goes down two floors to turn the main off. That was a very important lesson to me, because what we take for granted here like a dimmer switch on the wall; all those things you cannot take for granted.