Imagine trying to build a company amid disease outbreaks, political unrest and a completely unfamiliar culture. Indeed, it sounds like the stuff of C-suite nightmares.
But for Frederick Davidson, managing issues such as these are just part of doing business.
That is because his company, Vancouver-based specialty drilling firm Energold Drilling Corp., operates in some of the roughest and most precarious locales on the planet, including remote areas of developing countries in South America, West Africa and the Middle East.
"Malaria, typhoid, dysentery, cholera are all part of what we deal with," chief executive Mr. Davidson explains. That is in addition to dodging crooked local officials, navigating complex government bureaucracies and tax regimes, and overcoming seemingly insurmountable cultural differences that would make the average Canadian CEO abandon their overseas operations and head straight for the familiar business confines of the Great White North.
In Energold's case, however, overseas market diversification was critical to the company's growth and success.
Even though it possessed unique rigs that could be disassembled and transported off-road to drill holes more than 1,000 metres deep – and was one of only a handful of companies worldwide that could do this type of specialized drilling – Energold was a relatively tiny company generating a modest $2-million in annual revenue in the early 2000s.
It wasn't until the company changed its approach, expanded its drilling services – now including everything from oil and minerals, to water – and tapped new markets in red-hot, resource-rich developing countries that its bottom-line growth began to soar.
Case in point: The company's revenue peaked at $141-million in 2012 before edging back to $101-million last year due to the global slump in natural resource development.
"We wouldn't exist if we hadn't [diversified our markets]," Mr. Davidson says.
But building sustainable operations within developing countries can pose problems for Canadian companies, particularly small and medium-sized businesses that may lack the resources to properly establish local operations from the outset. That challenge is exacerbated when they attempt to do business in remote areas.
The upside is that, when done right, expansion into even the most difficult business environments can deliver major bottom-line results.
The trick is getting there.
As Mr. Davidson explains, Energold's expansion into Brazil alone cost more than $2-million in legal fees, customs duties and related startup fees.
"The learning process costs more than lost earnings until you figure out exactly what you can do and how you can do it," he says. "That adds value once you've done it because we're now in 23 other countries and we know what questions to ask."
Some challenges are harder to predict.
When Energold expanded into Colombia, for example, the fast-growing nation's complex bureaucracy proved difficult to understand, but paled in comparison to hurdles the company faced in simply transferring funds into and out of the country. Due to its legacy of drug-related crime, Colombia has strict money-laundering regulations that make it difficult for a foreign company to move even legally earned revenue across borders.
Then there was the issue of basic information getting lost in translation. A major international bank in Colombia mistakenly decided that Energold was a diamond drilling firm – and they wanted nothing to do with a company that they considered was mining "blood diamonds."
"That was because we described our rigs as using diamond drill bits," the CEO recalls. "Although we dealt with this bank in eight countries, they still turned us down flat."
That's not to mention the times when Canadian legal standards and corporate governance obligations come into play, requiring companies such as Energold to adhere to the same ethics standards abroad as they would at home.
Mr. Davidson estimates that Energold loses about $20-million in contracts each year because it complies with corporate governance requirements under the Corruption of Foreign Public Officials Act, which makes it a crime to bribe foreign public officials when doing business abroad.
He recalls one incident in Asia where an official refused to release Energold's drilling rigs from a sweltering hot customs warehouse until he received a customary envelope stuffed with cash. Mr. Davidson and his team refused to comply. They stubbornly waited until the official, practically suffering heatstroke from the 45-degree temperatures, finally relented and released their drills.
"[Bribery] is part of the culture in most other countries," Mr. Davidson says. "We can afford to be sanctimonious, but we're also liable to [the anti-corruption laws of] Canada, the United Kingdom and the United States, so we're cautious about that."
His recommendation is to price the cost of these challenges into your business plan when expanding overseas, and expect delays of a year or more before generating any significant revenue.
Most important, according to Mr. Davidson, is to seek local representation such as a business partner, a sales representative, a lawyer with experience in the region or even a specialized consultant with knowledge of the local business environment to help your firm overcome the many corporate and cultural differences that can make success difficult to achieve.
"The cultural differences are there, and in many cases, you're not going to change them," Mr. Davidson says. "There are certain things we insist on, such as safety, environmental and hygiene [requirements], but other aspects you can't change, such as work ethic."
To deal with differences in productivity levels, Mr. Davidson and his team will sometimes double crew sizes and boost the number of spare rig parts they bring to a drill site.
He recalls one incident in South America where he visited a remote job site and noticed a shed full of oil filters, one that should have been half empty at that stage in the project. He asked the rig's operator – a local farmer with little or no previous machinery experience – to explain why.
The Energold staffer said that, despite his training on the machine's use, he didn't have the time to replace a filter because he needed to focus on drilling. He felt that using, not maintaining, the modular equipment was his sole responsibility, despite the need to replace those filters periodically.
For reasons such as these, Mr. Davidson encourages other Canadian CEOs to do their homework before expanding into a foreign market. Once startup and other costs are factored in, some overseas opportunities may be far less lucrative than they first seem.
"There are a lot of markets where we've gone in and thought it would be strong, but it wasn't as strong as we anticipated. There are also some countries where you think it would be relatively easy to set up and get established, but many require local ownership, so you end up with a local partner who's irresponsible or incompetent. You need countries that are easy to work in."
But Mr. Davidson is quick to acknowledge that, despite the many hurdles, international expansion across developing regions has been key to Energold's success – and the approach has given him more than his fair share of interesting stories to tell.
"You could write a book on [our experiences]," he says, "but nobody would believe half of it. They'd put it in the fiction section of the library."