Next Stop, The World

Jill Frey, president of Cummins Building Maintenance, a small building service contractor in Prospect, Ohio, never thought she'd be doing business internationally. That all changed when a large Midwest-based customer included sites in Mexico in a bid a few years ago. The customer was hoping that partnering with a cleaning company they trusted would benefit their foreign facilities, and Frey took the opportunity to branch into uncharted geographical territory with her business.

The journey was challenging; between contract pricing and the exchange rate, and the language barrier and the gulf of difference between cleaning standards, it seemed as if problems would never end. But the company kept at it, partnered with a Mexican BSC, and prevailed — and in many ways, the rewards made up for any difficulties encountered making inroads in Mexico, Frey says.

"The expansion of business is so incredible," she says, and it's brought her to a new level of doing business. Many of her clients and potential clients see Mexico in her portfolio and start discussing the possibility of more international partnerships.

"My key was, I had such a great relationship with a current client that they enabled me to grow," Frey says.

BSCs of all sizes are trying their hands at doing business in a globalized business environment. Despite the difficulties inherent in international endeavors, a group of pioneers in the contract cleaning industry are leading the way into what they see as very exciting new territory: the world.

Globalization can be defined in many ways, but in the case of industries such as contract cleaning, it indicates the breaking down of borders between countries to facilitate the flow of goods and services. The pace of globalization in the business world, and the consolidation of companies in multiple countries, has escalated, and finally the cleaning industry is getting a taste of what going global really means.

For many years, American-based industry organizations such as ISSA and Building Service Contractors Association International (BSCAI) have welcomed members from around the world. But now, the industry is seeing multi-national consolidations and acquisitions, whether it's foreign companies seizing the investment opportunity provided by the weak dollar or domestic companies looking for growth outside U.S. borders.

Customers overseas are the next natural frontier for BSCs to conquer, says Ian Greig, industry consultant and CEO of Daniels Associates Inc. in Phoenix.

"The market that we first went into in this country was the high-rise office building market and now, about 99 percent are contract cleaned. Then we went after the industrial plants and the malls and the retail stores, and a huge amount of those are now contract cleaned. And we're going after other fields — schools, hospitals," Greig says. "What do we go after next?"

Financial prospects and innovation are big drivers of domestic firms looking to expand, says Greig.

"I see us needing to look at the market outside of the U.S. for two reasons: one of them is to increase our profits, increase our revenue. The other is to increase our ideas that we can bring back here so we can take it over there," Greig says.

Opportunity Abounds

Services tend to be more difficult to execute on a global scope than goods, which can be shipped anywhere that has airports, rails and roads. What building service contractors are finding is that with the right game plan, financial backing and partners, there is plenty of international pioneering to be done, and money to be made doing it.

"What we do is not very glamorous — but it's necessary," says Dennis Jarrett, CEO of Stratus Building Solutions in St. Louis. "These types of things need to be done everywhere in the world."

While some countries, such as Canada and Mexico, present obvious opportunity because of proximity to the continental United States, the factors that dictate where BSCs decide to do business may have nothing to do with geography.

Stratus Building Solutions, a franchise company present in about 50 American cities, has recently expanded into Canada, Panama and Lithuania. Once the company had enough traction domestically, it had the strength to expand internationally, Jarrett says. Key business partners in those countries helped make that expansion possible.

"The way we've done our first three deals have actually been organic growth in the sense that we had people that were existing Stratus Masters that had relationships in Canada, Central America and Eastern Europe," he says.

Some areas seem more difficult than others to do business in, Jarrett says, including Eastern Europe and Asia, because business practices are not as Westernized as in other areas. While there can be a language challenge going into any country, most people at the executive level speak English, so that part isn't as daunting as it may seem, he says.

"Every country is different. Countries have different regulations, different factors that impact the ease of doing business, so it's a case-by-case basis and that's why it's so important to find the right partner in that country," Jarrett says.

Another global business trend is foreign companies seizing the opportunity to buy American companies, especially when the dollar is weak in comparison to other currencies, says John Barrett, president of Wayne, Pa.-based Eurest Services USA, part of Compass Group PLC, based in the United Kingdom. Eurest Services absorbed Kimco Corp., of which Barrett was CEO, after Kimco was acquired by parent company Compass Group PLC, based in the United Kingdom.

Some may argue that increased consolidation leads to reduced competitiveness, he adds, but since no firms operating in the global market have more than a few percentage points of market share, that's not true. In fact, it will likely lead to hyper-competition, as the companies competing on that scale value growth.

The trend of American companies expanding internationally is still relatively small, since few companies have what it takes to establish an international presence.

"As a practical matter, it's very difficult to do a little bit of business in other countries," says Barrett. "I think it's hard to point to a great many successes, because they tend to do it on a shoestring. It's a game of caveat emptor, or buyer beware."

With such large legal and cultural differences that affect how business is done in foreign countries, it's very challenging for most companies to make a profit, he says.

This is why it helps to have the backing of a huge company such as Compass Group, which has the deep pockets funding to support new initiatives. Compass Group is the largest food-service company in the world, Barrett says, making it a vast enterprise.

"The company's traditional focus has been food, but clients are demanding that food and facility services go be bundled together, so Compass Group has aggressively pursued developing a global facility services capability," Barrett says.

Compass Group is going country-by-country, acquiring firms such as Kimco and the Hurley Group in the U.S., which became part of Eurest Services USA, and Plural Group in Germany, to accomplish that capability.

Service-bundling is nothing new to BSCs, many of whom already provide multiple building services in addition to cleaning.

"The reason clients seek to implement global contracts is to achieve a level of scale that's not possible in a given country," says Barrett.

"So for example, a company that might only have $5-to-$10 million of potential business in a given country might have $80 or $100 million globally. When you aggregate that kind of spend, you simply do it at lower cost," he explains. "In addition, companies need to be able to offer a consistent operating platform across multiple countries. This is an important competitive advantage for Eurest Services."

The number of firms that can actually deliver on a global contract is small, however, Barrett says. Companies must be actively present on location and services must be incredibly comprehensive, and usually require partnering with firms that can provide hard services such as HVAC and plumbing.

When UGL Unicco was acquired by UGL Limited of Australia, it truly became a global company, says George Lohnes, vice president of marketing for Newton, Mass.-based UGL Unicco.

While only a small percentage of BSCs are competing at a global level, and those tend to be very large conglomerates with a wealth of resources, opportunities abound for American BSCs, he says.

"Globalization is a double-edged sword," says Lohnes. "On the one hand, you may find the decision making for a long-time client suddenly being made in another country. Your local client may themselves have little or no say in the retention of your contract or who the new service provider may be. Conversely, for those mid-to-large BSCs who embrace globalization, the available market grows significantly."

Overcoming Challenges

BSCs cite many challenges to operating in foreign countries. Part of why they say it's so important to have a good partner in that country is so that they can help navigate through uncharted waters. Understanding legal challenges is one thing; understanding cultural differences is also crucial, says Lohnes.

"With a little diligence, one can determine differences in labor law, HR practices and legal differences," Lohnes says. "What is not as clear, and often of equal importance, is the unspoken cultural practices of a country and/or region. A smart company, particularly one that is expanding by acquisition, is keenly attuned to these differences, acknowledges them and puts in place actions to capitalize or mitigate them as appropriate."

Country-specific regulations, training a labor force and the logistics of delivering equipment and supplies are some of the top challenges for Stratus, says Jarrett.

"You may have the greatest product in the world, but how do you get that into that country, from a cost standpoint, from a shipping standpoint, from a regulation standpoint? There are logistical challenges but once you level the playing field and get some traction, it becomes about quality," Jarrett says.

Peter Sheldon, vice president of operations for Boca Raton, Fla.-based Coverall Cleaning Concepts, says that a lack of standards for safety in many countries creates a big challenge for BSCs, making it important to have stringent company-wide standards for safety and service.

"Our experience is that in many countries, no standards for workplace or chemical safety exist," Sheldon says. "While they want safer conditions, their countries may not have the sophistication to have regulatory oversight of such things."

Frey believes that as more BSCs branch out into other countries, it will encourage higher standards and may eventually lead to some type of global standards in cleaning.

"When I went down to Mexico to tour the facilities, they were wringing mops out with their hands," Frey says. "So we took those standards and we increased them, which really made me happy for the employees that were down there. I think when you have an international contract like that, that's part of it: to bring the perspective of what we do in the United States to other countries and kind of standardize the situation."

While the competitive bar is raised for those who do business internationally, globalization hasn't necessarily had an effect on the development of international standards, Barrett says.

Globalization has helped Stratus strengthen its best practices and internal standards through rigorous training of employees. Training in different languages becomes a necessary challenge, and to do it in countries that may have different perspectives on sanitation and health, has only made the company's training systems more complete.

Doing business internationally should affect how companies do business domestically, Lohnes says.

"Whether it be best practices in general or areas such as safety and sustainability where many industrialized countries lead us, one should always be looking for a better way to provide services," he says.

The learning curve is huge, but it goes both ways, BSCs say.

"I think one of the keys to being successful outside the U.S. is that you've got to be flexible in your strategy but also in your tactics, being willing to adjust," Jarrett says.

Not only can customers in foreign countries learn from U.S. standards, procedures and tools, but American BSCs can learn a lot as well. In fact, Cummins had just started work in Mexico when H1N1, or swine flu, began its spread from that country in April of 2009.

"We got to experience that in Mexico, and that's something we got to bring back to the United States: how we fought H1N1 down there and what we could do here to make sure we were more successful," Frey says.

BSCs know now, more than ever, how much of a "relationship business" contract cleaning is. Without strong partners domestically and abroad, expanding services into other countries will be all but impossible.

"My friends have really helped me pull it off," Frey says.