Bob Gignac knows firsthand the trials U.S. companies face in trying to get through the door of Western Europe. Gignac is chairman of Bellville, Mich.-based Thunderline Corp. and Thunderline SA, its West European counterpart. For many years, Thunderline Corp. had been successfully exporting its line of pipe seal products, Link-Seal, to the European construction industry through a network of eight distributors. Business was so good that in 1990, Thunderline decided to establish a manufacturing and distribution facility on the continent.

     Believing the best way to form a European company was through a joint venture, Thunderline connected with a German holding company. Acting on the advice of the Germans, the company searched for a building to lease in eastern France, pinpointed one, then set out to hire a local plant manager. “We had very bad luck trying to find a manager,” Gignac recalls.

     Meanwhile, Thunderline and the German holding company weren’t having any luck reaching an acceptable agreement either and soon parted ways. “It just didn’t work out at all,” Gignac says, citing differences in philosophies, management style and money matters.

     France remained the country of choice, however, because of its central location in the European Community. This time Thunderline decided to take matters into its own hands and take a different approach by first hiring a French national to run the plant, then launching its search for a building to lease. Although Thunderline led its own manhunt, it had also talked to several headhunters in France as a backup measure.

     “The fellow who got the job had been selling our product for another French company,” Gignac says. The new manager also recommended a location in eastern France and scouted the provinces of Alsace and Lorraine. Alsace, however, had the edge. “We received very good industrial development assistance in locating a factory and also help in the formation of the company,” Gignac recounts.

     In April 1992 Thunderline SA opened its 30,000-square-foot office, warehouse and factory in Strasbourg. Since then the company has witnesses rapid growth and plans are under way to build its own facility in the same area. “We’ve had excellent success so far and would do it over again instantly,” Gignac says.

     In fact, Gignac regrets not having ventured into Europe sooner. “While we have growing sales and new opportunities, I believe it would have been even better had we started four or five years ago.”

     Encouraged by its success in France, the company has decided to spread its wings, this time into the United Kingdom. A company has been formed to supply ignition products to the automotive industry out of a 6,000-square-foot leased building in the Manchester area. Up until now, Thunderline has been shipping its ignition products overseas on a customer-to-customer basis. The Manchester area offers an established base of customers and support services for the ignition products industry but, more importantly, the company found its managing director there.

     “While he could have relocated, we looked at the industrial development services available in Lancashire County and, again, they were very helpful,” Gignac adds.

     Thunderline’s initial attempt to form a European company through a joint venture exemplifies the importance of learning as much as possible about the foreign players involved. That’s one area where CTC International Group’s services can come in handy. As former CIA agents, the principals of this West Palm Beach, Fla.-based company have spent a good part of their entire careers on foreign soil cozying up to influential people and solidifying contacts. What’s more, all the people affiliated with this company are agents in from the cold.

     Joint ventures especially require due diligence on the part of American companies to ensure the suitability of foreign partners. Fred Rustmann Jr., chairman of CTC, recently wrapped up a case involving a client who wanted to form an investment company with a Greek businessman. A lawyer in Philadelphia negotiating the deal for the client enlisted CTC to do a background check. According to the client, the Greek businessman had a headquarters office in Marseilles, France, another office in Basel, Switzerland, and one in Athens, Greece.

     CTC’s investigation revealed that the company in Marseilles had declared bankruptcy and had been removed from the registry in 1992. From there CTC went to the Swiss bank in which the businessman claimed to have an account worth $100 million. CTC learned the account had been closed two years ago with funds substantially less than $100 million. What’s more, the office in Basel turned out to be a back-bedroom office with just a phone and fax machine.

     The investigation moved on to Athens, where the office address materialized as a hotel room. CTC also learned that the Greek businessman’s Danish attorney/partner had been disbarred in Denmark.

     “He was really slick,” Rustmann says. “He was tall, dapper, graying at the temples and looked like the epitome of the solid gentleman.”

     Conducting background checks is just one aspect of CTC’s services. If a company has a problem that needs to be solved overseas, CTC can often handle it discreetly. In matters concerning governments, more than likely, the problem stems from cultural misunderstandings. “We intervene with our contacts to smooth [things] over and negotiate properly,” says Bob Sanders, president of CTC.

     Brad Robinson, vice president for operations and the company’s Western European expert, cites the case of a client who wanted to develop golf courses in a country where golf is popular but the infrastructure for developing high-quality courses is poor. The client wanted to develop several golf courses outside the country’s capital city.

     First the client approached the federal agencies to seek permission. After some negotiating, the client finally won approval and then went to the local authorities to seek permission. “As soon as the local leaders found out that he had gotten permission from the authorities in the capital, he already had one foot in the grave,” Robinson says. “In foreign countries, and in this one especially, local governments have much more autonomy and there’s a great deal of competition. Had he approached the local authorities first, the result would have been the same.”

     CTC enlisted one of its retired agents who possessed good relations with both federal and local officials, and he was able to push the project through.

     Although U.S. companies acknowledge cultural differences, most are unprepared to deal with them. Many companies automatically gravitate toward the United Kingdom, assuming it’s going to be much easier to do business because it’s an English-speaking country. “And it’s absolutely true,” says Francine Lamoriello, director of international trade and investment services for KPMG Peat Marwick. “There isn’t a language barrier, but there are a lot of cultural barriers just as there are in other countries.”

     When Automated Packaging Systems went looking for its first European site, it landed on the shores of England.  ”[Here] were people who spoke our language, or so we thought,” says Hershey Lerner, president and CEO of Automated Label Systems, a joint venture between Automated Packaging Systems and multinational International Tool Works. The culture shock initially unsettled Automated Packaging Systems, but the company’s employees coped by altering its U.S. mind-set, keeping in mind that the majority of Americans are European descendants. “Having realized that, we then entered with much more confidence into other parts of Europe,” Lerner says.

     Automated Label Systems is now in the process of building a 40,000-square-foot manufacturing plant in Austria for its bottle sleeves that hug such products as Pepsi and Coca-Cola. The plant opens this month with Austrian nationals managing and running it.

     One of the company’s vice presidents conducted the site search in conjunction with various Austrian agents. Austria was chosen because of its central location to the company’s markets in Germany, France and Italy, and for its well-developed transportation system. “It is also contiguous to what we regard as a future market in the Eastern bloc countries,” Lerner adds.

     ALS also looked at France, Germany and Spain. “But the productivity of the Austrian worker is good and the downtime resulting from strikes and other controversies is quite low,” Lerner says. “The currency is reasonably stable, and [the country] has a good financial-economic relationship with the EC countries.” He believes Austria will become a member of the European Community shortly.

     Other reasons for choosing Austria lean toward aesthetics. Lerner reports, “The countryside is beautiful, and you can get the most excellent smoked salami and sausages. If you want to lose weight or if you have high cholesterol, don’t go there.”

     U.S. companies are avoiding Germany these days, where reunification problems, high wages and racial tensions have put the brakes on U.S. investments. Such political instability might prompt a company to seek the services of a company like CTC.

     “That’s the kind of thing a client might want advice on if he’s planning a joint venture or opening up a factory,” Robinson says. “He wants to know how dangerous that country is to operate in, and what the likelihood is for major social or political upheaval in the short, medium and long term.”

     Racial tensions aside, the high cost of German workers is primarily driving away business. “All things being equal, Germany is not a low-cost country for production,” KMPG’s Lamoriello says. “Labor rates, cost of investments, cost of capital—everything is quite expensive by European standards.”

     On the other hand, Germany can be an important location depending on the company’s product and market. Those considering Germany must weigh the importance of labor and production costs against the skill level necessary to make a product and the infrastructure needed to support it. Eastern Germany offers investment possibilities for companies eager to tap eastern markets, but the lack of modernized facilities and the potential for environmental liability nightmares are dissuading investors.

     Germany also is prohibitive from a building perspective. “Land costs are so expensive and the construction permitting processes are so drawn out and unpredictable that they make Germany a much more difficult place to build in than some of its neighbors,” says David Hardie, director of IDI Europe Group.

     IDI, an industrial developer based in Atlanta with offices in Chicago, Cincinnati and Memphis, is one of the largest industrial developers in the United States. In 1991 the company teamed up with Gazeley Properties of England to co-develop distribution facilities in Britian, forming IDI Europe. Recently IDI Europe joined forces with three companies to co-develop distribution facilities on the continent for U.S. corporate clients: GA, a French construction and development company; Travaux, a Belgian construction firm; and Starke Diekstra, a Dutch construction and project management company.

     A native of Scotland, Hardie relied on his professional and personal European connections to investigate the companies comprising the consortium. “There is a high degree of personal connection between [IDI] and the principals of those companies,” Hardie says. “But we have picked the best companies we could find to get things built in their markets.”

     IDI’s European Group brings a new dimension to the company’s building capabilities. In this country IDI builds strictly industrial developments, but with the addition of its European partners the company’s portfolio includes R&D facilities, office buildings and project management services.

     The latter complement comes from IDI’s ties with Starke Diekstra in the Netherlands, where companies such as Apple and Compaq have recently established distribution facilities. U.S. companies are drawn to the Netherlands for its transportation infrastructure, taxes, incentives and skilled labor force, according to Paul Kleijne, head of sales support for Starke Diekstra.

     Starke Diekstra works with the Netherlands Foreign Investment Agency in assisting U.S. companies with their building needs. For instance, in 1989 Apple initially contracted NFIA for help in pinpointing a distribution site. In 1990 Starke Diekstra was called in to handle the construction paperwork and manage the project. It took 19 months to get the land rezoned, obtain building permits and design the building, and another 15 months to construct the facility.

     While there’s ample land in the Netherlands, it won’t be found in the western part of the country. Continual improvements to the country’s transportation network, however, have opened up previously remote regions. In the south, east and north land is plentiful and prices are cheap because of incentives to attract foreign investment.

     Apple was lucky. At the time it decided to build in centrally located Apeldoorn, incentives were being offered. Not so today.

     Compaq had to look to the south-western part of the country to find the amount of land it wanted to acquire—nearly 80 acres. “That’s very rare,” Kleijne admits. “But they only used half of it to build their distribution center now. The rest is for expansion later.”

     Kleijne recommends that U.S. companies interested in locating or building in the Netherlands contact the government first. “[The government] has all the answers to whatever questions you may have and can give an overview of the ways to proceed.”

     When Jabil Circuit Inc. set its sights on Europe in May 1992, it sought input from government development authorities first. Although St. Petersburg, Fla.-based Jabil had been exporting its assembled circuit boards, the exports did not constitute a large portion of the company’s business. Rather, Jabil’s customers were the driving force since many were expanding into Europe and wanted the company’s products nearby.

     George Johnston, vice president of operations, developed a comprehensive questionnaire covering all elements of the company’s criteria. The No. 1 priority was maintaining the same operating costs abroad as in this country. “We ignored incentives and artificial tax rates because they’re political,” Johnston says.

     The questionnaire also addressed such matters as government restrictions, taxes, level of unemployment, availability of labor, education of the workforce, and ease of doing business.

     Being close to its customers wasn’t imperative, as long as the company’s operating costs could be maintained, goods could be delivered on time, and the plant could be accessed easily. Johnston sent the queries to development authorities in the European Economic Community, excluding Greece, Spain and Portugal because of their lack of industry and transportation infrastructure.

     Johnston evaluated the responses quantifiably, determining such bottom-line costs in each country as the actual number of hours employees work based on the length of the work day and salary levels.

     The evaluations narrowed the company’s choices to the Netherlands, Ireland and Scotland. Johnston then visited each country and met with U.S. business there. He allowed the development authorities in each country to pick three companies, and he selected a fourth.

     “I had a whirlwind three or four days in each country—I mean a different hotel room every night,” Johnston quips. “It’s not the way to see Europe.”

     A great deal of credence was placed on the data from the U.S. companies, Johnston says, “although I did have to massage it to make sure I was talking apples to apples.”

     A location near Edinburgh, Scotland, was finally determined best, and working with Locate in Scotland, the company found a 34,000-square-foot building to lease in the town of Livingston. The building, in an upscale business development, had to be gutted and tailored to the company’s needs but it offered expansion capabilities.

     Forty employees produced the company’s first board in May, and the company expects the workforce to increase by more than 400 over the next four to five years.

     Although incentives weren’t considered important, the company did receive a grant to defray start-up costs. “But [incentives] shouldn’t carry a lot of weight, in my opinion,” Johnston says.

     KMPG’s Lamoriello echoes Johnston’s sentiments, emphasizing that incentives should not be a first-line item in the decision-making process. Instead, wage rates, production costs, industry and transportation infrastructure, and the skills of the workforce should be examined closely at the outset.

     If partners are involved or a building is being leased or both, a due diligence investigation is mandatory. Jabil’s lawyers, for example, made certain that the company was not liable for any potential environmental problems originating from the building’s previous occupants.

     A company that chooses not to conduct a due diligence investigation just might end up in a situation similar to one of CTC’s clients. The client had a cosmetics business he had built from scratch into an $80 million-a-year business. Eager to expand, he merged with a British-based cosmetics company. Following the merger, profits skyrocketed and the company went public. Maintaining his holdings, CTC’s client stepped down as CEO and allowed the British-based management team to run the business.

     Within a year the company nearly doubled its profits by pursuing an aggressive marketing program in France. The client, pleased with the company’s progress, bought a lot of stock on margin.

     Suddenly allegations surfaced that the British company had been involved in shady activities and a critical article appeared in Forbes. The stock plummeted from 28 to 4 and the client lost $20 million. In addition, the SEC brought suit against the company and CTC’s client for withholding information from stockholders.

     The client retained CTC to substantiate the allegations about the British company. In a week’s time, CTC learned that the company had indeed been convicted five years prior to the merger for counterfeiting brand-name perfumes.

     “The moral of the story is that had the client done a due diligence when he joined with this company, he wouldn’t have lost $20 million and be involved in a lawsuit today,” CTC’s Rustmann says.