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U.S. VARs Tap Overseas Markets

U.S.-based VARs are tapping a hot, new emerging market: the world. In growing numbers, American solution providers are rapidly moving to establish global footprints.

"You have to look at the global market," said Warren Mills, vice president of sales and marketing at Camisa Technologies, a $3 million, Tempe, Ariz.-based solution provider. "A VAR sooner or later takes the application or vertical he is most comfortable with and takes everything out of his market that is available. He may have a great solution, but there are only so many customers in his area he can sell it to. And then he has to find new areas, and that might as well be global."

That's the sentiment spreading through a U.S. solution provider community hungry for growth.

"There is a whole, new untapped market that lies out there," said Bruce Geier, president and CEO of Technology Integration Group (TIG), a $300 million, San Diego-based solution provider. TIG purchased a German solution provider early this year to serve the European and North African markets, and it's exploring partnering with Latin American solution providers to establish a presence in Central and South America.

"The local solution provider gives us feet on the street, local knowledge and he overcomes the language barrier," Geier said. "We give technical insights and skill sets, and we can fly people into Latin America a whole lot easier than Europe. There's a huge upside to this."

Mills agreed that a local partnership is key to going global. Slightly more than a year ago, Camisa struck a deal with the Sonora state government in Mexico to hire Mexican software engineering graduates from local universities in Hermosillo to do CRM and ERP development work. Early next year, Camisa plans to spin off its Mexican operations into a separate business unit called Tiempo.

Camisa will use Tiempo engineers in Mexico to do custom development work for government and large corporate accounts in the western United States and sell application and data migration outsourcing services to other VARs nationally. "There's no reason that, if we're successful, we can't have development operations similar to Mexico in different parts of the world," he said.

Mills cited Russia and Eastern Europe as places where there is a lot of local engineering talent but a shortage of in-country job opportunities for highly skilled people. He said U.S. solution providers could provide sales and marketing expertise and use local developers to solve business problems.

NEXT: VARs taking the overseas plunge. "There's a lot of communication with the client during development," Mills said. "You can do some things online. But phone calls still have to be made and questions have to be answered that don't fly well in e-mail when it's eight or 10 hours time difference. Customers want that instant communication, whether by phone or IM. That's what makes these projects work, and that's the advantage we bring to the marketplace."

Managed services is what is pushing FusionStorm to set up a data center in Ireland next year, said John Varel, CEO of the San Francisco-based solution provider.

"We've seen the opportunities," Varel said. "But now the clients are driving us there. In order to do deals, we need to be there."

Those customers, Varel said, are typically European businesses with a base in the United States. "We're doing a lot of bids with customers who need international hosting," he said. "They need a disaster recovery facility or a main facility overseas."

FusionStorm has yet to open its own international office because the company has been distracted by several recent acquisitions of other solution providers in the United States, according to Varel. However, he said he is considering acquiring or leasing a data center in Ireland from which to base a managed services practice for European customers.

"We want to offer them all our services, except going into the code of their applications," he said. "This includes everything from phone support on the front end to storage on the back. We can manage it and monitor it remotely."

One solution provider that's already well-established in Europe is GlassHouse Technologies, a Framingham, Mass.-based storage consultant that two years ago acquired two U.K.-based solution providers. That move has paid off, with about one-third of GlassHouse's revenue coming from contracts signed overseas, a figure expected to hit 40 percent next year, said Mark Shirman, president and CEO. About one-third of the company's personnel are based outside the United States.

The key to successfully expanding overseas, Shirman said, is to move slow and not try to quickly impose the U.S. headquarters' corporate culture on staff dealing with local issues several time zones away. He said that integrating an overseas office into a solution provider's business is a step-by-step process similar to any IT integration project.

"Don't think you can come overseas and think you know it all from an American point of view," Shirman said. "It's all in the culture, the customer and the business models. There are business models that can be applied overseas, but it takes time to adopt."

Dealing with customers differs from geography to geography, Shirman noted. For instance, European business clients tend to be smaller than in the United States, so it takes longer to establish a relationship with the key personnel. It can be even more different in Asia, an area where Shirman said his company has no current plans to set up an office.

"In Japan, you don't walk into a company and find a big IT team," he said. "Often, the CIO is the temporary head of the business unit, with IT often outsourced to a large integrator. So in your move into Japan, you need to work with the outsourced integrators. If we want to do business there, we will develop relations with the integrators, not set up an office there."

NEXT: Gauging the cultural and business climates. GlassHouse plans to expand its European business and move more into the Middle East in the near future, Shirman said. Plans call for the company to set up operations in Eastern Europe, where English is commonly spoken, and possibly into Turkey, where Arabic is a common language. "Both offer cost advantages and have well-educated personnel," he said.

Still, it's not a move that Shirman plans to do without his step-by-step approach. GlassHouse has been close to making several acquisitions that eventually were stopped after due diligence, not only because of the financial aspects but also the cultural aspects.

"Due diligence squares off not only the financial side, but also marketing and operations," Shirman said. "In the end, they will be part of your family, and if it looks rough in due diligence, it will be rough in the execution. We've walked away from many opportunities that were financially attractive but that we couldn't do from the cultural side."

Distributors, too, are beefing up their global operations. Ingram Micro is actively pushing alliances between solution providers in Latin America and its U.S.-based VentureTech Network VAR members, and the Westcon Group announced the formation of Comstor Middle East, a Cisco Systems distribution arm that will be based in Dubai, United Arab Emirates. Westcon Group's European operations division will oversee the group.

"What we want to do with the multinational representation of product lines is to build more strength in the relationship that we have with the vendor, in this case Cisco," Westcon Group CEO and president Tom Dolan said.

"I think most of the IT industry recognizes that's a very high-growth area. There's a lot of spending on IT infrastructure. There's a lot of building. In the Middle East, in general, there's a lot of opportunity for IT vendors," he added.

Another solution provider has found success in Asia. HPM Networks, a Fremont, Calif.-based Hewlett-Packard and IBM solution provider, set up a branch office in New Delhi, India, in March and has already recorded about $250,000 in revenue from the country, said Romi Randhawa, CEO and president.

The move came about when Randhawa, who was born in India and visits the country two or three times a year, noticed that many of his U.S. customers with operations in India started shifting from setting up outsourcing operations to actually doing business in the local market there.

Multinationals in India doing export-only get tax exemptions that those doing local business don't receive, according to Randhawa. In addition, Indian-based solution providers can't do business in U.S. dollars, he said.

"These companies that are expanding overseas like the comfort of working with us," he said. "When starting a new operation, there are too many things to worry about. They need help [from] a VAR like us."

HPM's U.S.-based customers get another advantage: global pricing. "We can offer our customers the same price in India as here, plus a couple points, but with local delivery, deployment and warranty," Randhawa said.

HPM is adding one or two companies to its list of clients looking for help in India. One of those clients is VMware, which uses a branch office in Ireland to handle all of its European, Middle Eastern, African and Asian purchases, Randhawa said. "We work with VMware for their Indian purchases," he said.

Despite the potential for substantial new growth from going global, solution providers caution that you need to make the move with your eyes open.

"You can't do this causally," Camisa's Mills said. "You have to have a good capital structure in place, and you better have a solution that's unique enough to attract the right kind of talent and customers wherever you go."

JENNIFER LAWINSKI contributed to this story.

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