- The Washington Times - Monday, June 26, 2000

German executives help new look

Two trans-Atlantic flights helped change the face of Proxicom Inc.
The human face of the Reston-based Internet services integrator now looks a little less American and a little more European than it did a year ago. , and might appear a bit Asian by the end of next year.
In the first two months of this year, Proxicom lured Heiner Rutt and Michael Hansen, both Germans, away from Boston Consulting Group (BCG) with personal pitches from the CEO that began over the Atlantic.
Both Mr. Rutt and Mr. Hansen fell under Proxicom's spell last year while working on separate business deals in Europe. BCG was advising a European firm when Mr. Hansen linked up with Proxicom to help weave the Internet into his client's strategy from the beginning.
"Then I made the mistake of taking a long plane flight with Raul Fernandez, and we talked about the future of the company," Mr. Hansen said.
The founder and CEO of Proxicom, Mr. Fernandez had already guided the company across the Atlantic with subsidiaries in Germany and Britain, and joint ventures in Italy and Spain. But he needed executive muscle to lend depth and credibility to Proxicom's overseas push, and his work began in earnest in business class on an evening flight from London to New York.
The attraction of Proxicom, Mr. Fernandez knew, was its rapid growth in the multibillion-dollar market for consultants who push the Internet into every corner of a company's business. More than simply "going on line," companies like Proxicom have shaken up the business models of big-name corporations, including General Electric, American International Group, Merrill Lynch and Owens Corning, among others.
Mr. Fernandez and Mr. Hansen, who has worked in the United States for 13 years, developed a rapport on the plane that extended beyond the just-business relation-ship they had established while working on their joint account. With 12 years at BCG behind him, Mr. Hansen took some persuading. But Mr. Fernandez ultimately prevailed, due in no small part to the allure, financial and otherwise, of a fast-growing tech company.
Four months later, in January, Mr. Hansen, 39, joined Proxicom as its new vice president for international operations, but not before learning, to his astonish-ment, that Mr. Rutt would be his new boss. Mr. Rutt, 49, another victim of trans-Atlantic travel with Mr. Fernandez, left his post as head of BCG's Americas division to become Proxicom's president in February.
Mr. Fernandez, keenly aware that Proxicom's U.S.-based multi-national clients would demand attention overseas or seek other companies to integrate the Inter-net into their businesses, reveled in the success of his double coup.
"The ability to serve our clients globally is key to solidifying our leadership in the market," he said.
That Proxicom's two new executives were not Americans was icing on the cake for a company that needed to demonstrate its bona fides to the rest of the world. They also personified the transformation the company is undergoing.
Much news about Proxicom has focused on Mr. Fernandez, 33, the native Washingtonian done good as a pioneer in the world of digital-era services. Sports fans know him as a part owner of the Washington Capitals. Gossip hounds heard of his wedding bash in the Four Seasons Hotel, where Las Vegas entertainer Tony Bennett sang for the guests.
His company, which went public in April 1999, helps anchor northern Virginia's technology corridor. But as Proxicom expands its operations overseas, it is wrestling with a reality of globalization that generates as much anxiety as enthusiasm in the United States. That is, shedding an exclusively American identity is as crucial to a company's success as the quality of the goods or services it delivers to overseas clients.

Americans abroad

Though Proxicom was founded in 1991, it took up the Internet services challenge wholeheartedly in 1995. The company then tele-scoped its America-only phase into a remarkably short period, even by the greased-lightning standards of the technology industry.
It has ventured overseas more quickly, and with greater initial success, than comparable comp-etitors, according to analysts who follow the company. With revenues of $82.7 million in 1999, the company already had wholly owned subsidiaries in Munich and London, and it owned minority stakes in joint ventures based in Rome and Madrid.
Giants like Andersen Consulting, with revenues from similar services of $1.9 billion, might still dwarf the Reston upstart, but Proxicom's nimble moves in Europe have impressed investors.
"Proxicom has the best international strategy in the e-services sector that we have seen, especially for its size," said Andrew Burns, an analyst with PaineWebber.
Proxicom covets a top spot in the world market for integrating the Internet especially wireless technologies into the daily grind of businesses in the United States and other countries. International Data Corporation conservatively estimates this pot of gold will reach $80 billion by 2003.
"We want to continue growing in the United States and the potential there is still humongous," Mr. Rutt said. "But we have to grow internationally too."
Clients like General Electric have driven Proxicom's expansion overseas. For example, Proxicom revamped the Web site of GE Plastics to deliver information about its products and offer direct sales on line. A separate Intranet system linked different sources of data to create an internal database. This ruthlessly streamlined sales process, a microcosm of the Internet's impact on business around the world, helps cut costs throughout the company.
Winning an account with BMW Financial Services, the luxury automotive giant's financing arm, led Proxicom to establish a wholly owned subsidiary in Munich in November 1998, staffed mainly, though not entirely, by Americans.
Then, an American team worked on the European interests of GE Plastics from that same office until early 1999, when it was handed over to the Germans in the office. By that time, the Germans had also won an account with the European interests of another GE subsidiary.
"There is a domino effect from getting [into new markets] early and moving quickly," said Ken Tarpey, Proxicom's chief financial officer.
One key component of Proxi-com's success in the United States was its early strategic focus on integrating interactive services into its clients' businesses, and its entry into the European market sought to duplicate this feat.
"There is a huge opportunity to serve European companies who are trying to play catch-up to the Americans," said Mark D'Annolfo, an analyst with Deutsche Bank.
Putting down roots in Munich landed Proxicom in the southern German state of Bavaria, the closest thing Europe's largest market has to a Silicon Valley. Proxicom headed for Italy and Spain in 1999, but all these new ventures challenged the company's identity as a chiefly American company. And Proxicom chose to ride the wave, not resist it.

Picking partners

Proxicom entered joint ventures in both countries as a minority partner, with 20 percent of the new companies. In Italy, it partnered with Swedish telecommunications giant Ericsson to create Eunosia Internet Architects SpA. In Spain, Proxicom's partner in the new Kristina Internet Business Solutions was the Iberdrola Group, a Spanish conglomerate with extensive holdings in the energy sector.
Both ventures hold the promise of benefits that Proxicom could not have hoped for if it had started wholly owned subsidiaries in the two countries, company officials said. Americans were able to leave Reston and set up shop in New York and San Francisco, but Proxicom had to surrender a measure of independence to break into foreign markets.
"To expand in the United States, the organic process is best," said Richard Leggett, an analyst with Friedman, Billings, Ramsey. "But when you enter business in other cultures, you need help."
Ericsson's expertise in wireless Internet services, the next frontier in telecommunications, should help Proxicom integrate new technologies into the services it provides. The venture with Iberdrola, which has 5 million customers in Latin America, could lead to new opportunities in that region.
In Britain, putting Europeans in senior executive positions greased the way for Proxicom's first overseas expansion. The company established a London-based subsidiary in December, and began casting around for a company that would flesh out its operations there.
Clarity IBD Ltd., which had clients in most of the areas in which Proxicom specializes, turned out to be the best candidate. But Martin Chilcott, the chairman of Clarity and now a Proxicom vice president, said he worried that the acquisition might turn out to be a blatant conquest by the Americans, rather than an opportunity for Clarity's employees to spread their wings within a global company.
The clincher was the pair of Germans that the U.S.-based company had installed at the top. Mr. Rutt and Mr. Hansen were human proof, Mr. Chilcott said, that Proxicom would embrace colleagues who needed visas to work in the United States, even senior executives.
"That said volumes for us," Mr. Chilcott said. "And it seemed a conscious decision on Proxicom's part."
In Britain, Clarity was used to working in a market where wireless services, interactive television and the personal computer formed the backbone of its work. Proxicom could feed this knowledge into other projects, but only if it wanted to, Mr. Chilcott said.
"To develop strategies for this kind of world, you need to be an organization that learns from other cultures," he said.
Mr. Hansen, a German with extensive experience in the United States, can only endorse a more-the-merrier approach. Part of his task will be selling his compatriots on the benefits of the Internet, something many Germans have viewed as a techno-nerd playground rather than a revolutionary business tool.
"I'll have a bit of a translation job to do," he said.
Though it remains willing to absorb new people and ideas whatever their provenance, Proxicom has sought to export key parts of its business model without giving in to local customs. But some customs close to Proxicom executives' hearts are proving a tough sell, including that staple of American technology companies, the stock option.

Exporting options

All Proxicom employees in the United States have stock options, and the company is essentially owned by its top people. Mr. Fernandez owns roughly 27 percent of its stock, and other executives and senior managers own another 41 percent.
Granting stock options to new employees is a "core belief" of Proxicom, and the company intends to extend this practices to new ventures, Mr. Tarpey said. But outside the United States, tradition and taxation frequently combine to frustrate this increasingly ubiquitous feature of American capitalism.
"In Italy and Spain, the notion of granting options is a foreign one, let alone the question of taxation," Mr. Tarpey said.
But Proxicom will not have the luxury of waiting for other countries to improve the climate for options before setting up shop. The company's clients want services in these countries, whether or not the employees have the benefit of stock options, Mr. Tarpey conceded.
The expansion of Proxicom overseas has generally been a boon to the company's employees, who number roughly 1,000, 20 percent of them overseas. As is typical in the service sector, Proxicom's operations in another country have not resulted in job cuts in the United States.
Coburn Watson, a senior consultant in Proxicom's Paris office, moved overseas from San Francisco for a six-month stint to work on a project with a major French automaker. And what Proxicom is doing to itself, the company is doing to the 31-year-old computer systems engineer.
Before Proxicom, Mr. Watson had never been overseas. He speaks no French, though with much of the technology world fluent in English, work has not been a problem. Still, like Proxicom, he is learning about the business world outside the United States.
"I'm taking some lessons," he said. "But my wife is here, and she speaks French quite well."
Having started down the path of going global, Proxicom has little choice but to pursue the strategy to the far corners of the earth, its senior executives say. The logic of following global clients and tapping emerging markets is inexorable, admits Mr. Tarpey, who said the company hopes to break into the Japanese market next year, and Latin America soon thereafter.
This year, Proxicom will derive roughly 20 percent of its revenues from non-American operations, Mr. Tarpey said. Within five years, he added, the company hopes to take 40 percent each from the United States and Europe, with another 20 from Asia. At that point, the location of Proxicom's headquarters in the Dulles corridor, if the fast-growing company is still there, will become incidental, an accident of history having more to do with the CEO's birthplace than the business he entered only 15 years earlier.
"You have to think of [Proxicom] as an American-based company that wants to be global in nature," Mr. Tarpey said, "not a U.S. company doing business abroad."

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