“It is hard to see sense in giving senior
management attention to a foreign business
which is 10% of the size of the parent (or less)
unless there is a real plan and intent to grow
it to a comparable size.”
T
here are more and more international rental
businesses in the
IRN
100 list these days –
defining ‘international’ as operating in more
than one country. Based on this it would seem that
internationalisation of rental operations is a key
driver of growth.
But is that a fair conclusion? This month I am going
to muse on three things that seem to work well, and
not so well, when businesses internationalise.
Go early or go big. The big successes in
international expansion are those where the
business entering the new market has either done
so with substantial ambition, taking a major market
share very quickly, or where they have entered the
market at a very early phase and been ambitious
about leading the market through a rapid growth
phase, thereby maintaining an early leadership
position.
Examples of this would be Ashtead (through
Sunbelt, NationsRent and numerous subsequent
acquisitions) in the US, where it has got itself into
a clear top three position in a relatively short time
period.
At a smaller scale Lavendon’s business in the
Middle East has grown into a clear market leader
and a major profit generator for the group as a
result of aggressive organic development from
being present at the very early stages of that
market’s development.
Dots on the map make nice pictures but
poor profits. On the other extreme there are
plenty of rental companies with numerous foreign
subsidiaries, each of which occupies a position
of low market share. The international coverage
looks impressive, but the profits usually don’t. It is
tough to be a foreign player in an essentially local
market anyway. If you add to this the difficulty
of attracting top talent to a business which
is sub-scale and struggles to get attention
and investment then you have a recipe
for a long-run drag on profits.
It is hard to see sense in giving senior
management attention to a foreign business which
is 10% of the size of the parent (or less) unless there
is a real plan and intent to grow it to a comparable
size. There are almost always easier options to
achieve 10% growth closer to home, without the
distraction of management attention and risk of
things going badly wrong in a country you don’t
understand.
Highly technical rental is a global opportunity.
If you have a particular rental service offering which
is highly technical and is quite high in the client’s
value chain then it can be successfully globalised.
The example, par excellence, of this approach
is Aggreko, which is more of an energy projects
business than an equipment rental business these
days.
It requires relatively small numbers of highly
skilled individuals to get a project established and
the project can then be maintained, in country,
at relatively low cost. In each country in which it
operates it effectively defines its own market and
so becomes an instant market leader, achieving
commensurate returns for its market leading
position. Equipment is able to be shipped globally
and for long hire contracts, ensuring excellent
utilisation and returns.
Such an approach does not work with less
technical, more widely available capabilities, such
as construction equipment, where local competition
will always be stronger.
More discipline
I am guessing that there will continue to be a lot
of international activity in rental over the coming
ten years, but I do expect it to be rather more
disciplined than in the last fifteen or so years.
There are many companies with dots on the
map that are doing nothing for them or their
shareholders. Their choices are about growing
substantially in selected markets or getting
out completely, and that should mean plenty of
opportunities for everyone.
IRN
KEVIN APPLETON is a former divisional chairman of Travis Perkins and was for many
years CEO of Lavendon Group. He is currently a non-executive director of Ramirent.
To comment on Kevin’s article please e-mail:
Go early, go big
Going international with a rental business is about more than getting dots on a map,
says Kevin Appleton. So what are the key ingredients of an international strategy?
11
THE APPLETON COLUMN
IRN JANUARY 2014
