Managing International Projects
Every project manager wants to manage an International Project if the questions I receive when speaking on the subject are any indication. The idea conjures visions of exotic locations, foods, people, first-class hotels and five star restaurants all over the world; not to mention strange customs and unknown environments. It also triggers a level of anxiety akin to that of the first job out of college. Having managed international projects for more than twenty years, I have experienced a few first-class hotels and five star restaurants, but I’ve also stayed in hotels that were overpriced at $3 a night and eaten meals that would make combat rations taste like gourmet food in comparison.
The company executives have a different take on the opportunity to engage an international project. First, the executive realizes that managing an international project is significantly different than managing a domestic effort, requiring not only an additional set of skills on the part of the project manager but a level of skill beyond that of the domestic project. Second, though he sees the excellent profit potential, he also recognizes that there are additional inherent risks. He may not know what the risks are, but he knows they exist. Third, she knows that there will be a significant commitment of resources prior to the contract and revenue stream that will affect other resource demands of the company.
The anxiety of the project manager and the concerns of the executive are justified. It is a fact of business life that many international projects, as well as domestic projects, fail – projects that have been underestimated, poorly planned, or poorly managed; projects in which the customer and contractor had significantly different views of what was to be accomplished; and projects that simply buckled under the weight of too many unplanned and unforeseen events.
So, you might ask, why take on international projects? The two main reasons are the higher profit potential and the significant company growth than can be realized from international business. There are other reasons as well, including the ability to smooth out the ups and downs of the domestic economy, extending the life cycle of a product, and improving the image of the company domestically.
A company that has found the opportunity to engage in an international project must consider a number of factors before committing significant resources. There are a wide variety of international projects that range from taking a product or service overseas for commercial sales to engaging in an engineering effort with a foreign customer. There are also military projects, of which I have some experience, but they are special cases. Each type of project is handled somewhat uniquely and for the purposes of this paper, I’ll discuss the considerations that are most common. A more complete discussion can be found in my book, “International Project Management” (Thomson/Texare 2005).
Cultural considerations extend throughout the business engagement into the social aspects of business – and in international business there is always a social aspect. I discuss these in another article on easyarticle.com entitled “Cultural Considerations of International Project Management.” For this paper, I discuss primarily the business considerations, though of course the business considerations cannot be separated entirely from the cultural since they are intertwined.
• Business Competition. While we might consider competition in the United States to be brutal, we actually compete on a reasonably level playing field. Overseas, American companies are at a significant disadvantage when competing with in-country companies. There are many reasons for this that are beyond the scope of this paper, but suffice it to say that only when we bring something significant and unique to the table do American companies have an advantage. Fortunately, American companies often can offer this “something significant and unique” due to advanced technologies and methodologies. Another important factor that is sometimes a disadvantage is that even in overseas engagements, we must follow the Laws of the United States, while our foreign competitors of course do not.
• Legal Issues. Any contract with a foreign entity will state which laws apply to the agreement. Often US or specific state laws will be accepted, but when they are not, the contract should specify arbitration in a neutral country – such as England or Switzerland – that has a history of legal fairness. INCOTERMS (International Commercial TERMS) is maintained by the International Chamber of Commerce as an international codification of terms used in international contracts. All countries now adhere to INCOTERMS for defining terms in contracts, enhancing mutual understanding. It would be a mistake to try to alter that codified terminology. It would give lawyers on both sides something to discuss for months at your expense.
• Labor Issues. You can get around most labor issues by hiring an in-country company to provide labor. That company employs the labor, leaving your company out of any conflicts. However there are other matters that can affect the project cost and schedule. For instance, some countries limit the work week to 35 hours instead of our standard of 40. If that is not taken into consideration during the planning phase, you could easily exceed the schedule by 12% even if the project was otherwise well managed. In much of Europe, plants close during the month of August for vacation period. In addition, an additional two weeks vacation time and up to six weeks of other-than-vacation is set aside for each employee. Then there are the local, religious, and state holidays that have to be considered in the schedule. Don’t be so naive as to believe that the Americans can go ahead and work our normal 40 hours and take only the American holidays.
• Currency Issues. Currency value fluctuation will always present an issue. Even if the contract requires payment is US Dollars, there are potentially two issues. The first is that so-called “hard” currencies, such as the US Dollar, are often controlled by the customer’s government with the result that payments are delayed while the customer seeks permission to release the US Dollars. The second issue has to do with the US Dollar gaining in value in relation to the local currency. That causes the costs to the customer to increase, possibly beyond his budget. While there are a number of ways to deal with currency issues, they must be considered and addressed in the contract.
• Product Modification. The product includes four elements: The product itself, the package, the language, and the message. Any or all will likely have to be modified in some manner. The language and message are obvious – both are cultural aspects and have to adhere to local norms. The product and package may have to be modified to meet local product regulations. Sometimes even the name of the product has to be modified. There is an old anecdote about the Chevrolet Nova introduction into Mexico, where Nova (No va) means “it does not go.” Although this story has been repeated often, I have not been able to verify it.
• Export Licenses and Technical Assistance Agreements. While there are many products that no longer require an export license, the penalties involved with those that do have become heavy since the events of September 11, 2001. Financial penalties for violations of the ITAR (International Trade in Arms Regulations) and EAR (Export Administration Regulations) have increased 10 fold over the last few years and prison time for corporate executives has been imposed in a number of instances. In addition there are some dozen or more federal agencies that require export or import licenses, besides the Department of State and Department of Commerce. This is a specialized area that companies considering international business must have, or must acquire, some expertise.
• Political Issues. Political instability in a region can make business too risky to consider, unless you’re in that business. Less onerous, but important, is the political relationship between the two countries. Certainly, that can “turn on a dime” with a speech from either country’s leader, but if the friendly relationship has a long history those incidents don’t last long. There are other aspects to consider such as political connections in country that range from moderately important to absolutely necessary, depending on the country.
While international projects can be risky, they offer significant profits and growth to companies that plan carefully taking all aspects of international business into consideration.
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About the Author: O. Jay Murphy, MBA, PMP, is a management consultant specializing in international project management and export compliance issues. He is the author of “International Project Management” (Thomson/Texare 2005) as well as other business books and articles. He can be reached at ojmurphy@transglobalconsulting.com.
