What are the arguments for Halogen Analytics going international? What are the arguments for Halogen staying focused on the U.S. market? Which of

Case for Analysis Halogen Analytics

At the age of 39, after working for nearly 15 years at a leading software company on the West Coast, Alex Schaaf and his soon-to-be-wife, Emily Rockwood, had cashed in their stock options, withdrawn all their savings, maxed out their credit cards, and started their own business, naming it Halogen Analytics. The two had developed a new software package for root cause analysis (RCA) applications that they were certain was far superior to anything on the market at that time. Halogen’s software was particularly effective for use in design engineering organizations because it provided a highly efficient way to eliminate problems in new digital manufacturing processes, including product development, software engineering, hardware design, manufacturing, and installation. The software, which could be used as a stand-alone product or easily integrated with other software packages, dramatically expedited problem identification and corrective actions in the work of design engineering firms. The use of Halogen’s RCA software would find an average of 30 to 50 root cause problems and provide 20 to 30 corrective actions that lowered defect rates by 50 percent, saving tens and sometimes hundreds of thousands of dollars with each application.

The timing proved to be right on target. RCA was just getting hot, and Halogen was poised to take advantage of the trend as a niche player in a growing market. Schaaf and Rockwood brought in two former colleagues as partners and were soon able to catch the attention of a venture capitalist firm to gain additional funding. Within a couple of years, Halogen Analytics had 28 employees and sales had reached nearly $4 million.

Now, though, the partners are facing the company’s first major problem. Halogen’s head of sales, Samantha Jenkins, has learned of a new company based in Norway that is beta testing a new RCA package that promises to outpace Halogen’s—and the Norway-based company, FastData, has been talking up its global aspirations in the press. “If we stay focused on the United States and they start out as a global player, they’ll kill us within months!” Sam moaned. “We’ve got to come up with an international strategy to deal with this kind of competition.”

In a series of group meetings, off-site retreats, and one-on-one conversations, Schaaf and Rockwood have gathered opinions and ideas from their partners, employees, advisors, and friends. Now they have to make a decision—should Halogen Analytics go global? And if so, what approach would be most effective? There’s a growing market for RCA software overseas, and new companies such as FastData will soon be cutting into Halogen’s U.S. market share as well. Samantha Jenkins isn’t alone in her belief that Halogen has no choice but to enter new international markets or get eaten alive. Others, however, are concerned that Halogen Analytics isn’t ready for that step. The company’s resources are already stretched to the limit, and some advisors have warned that rapid global expansion could spell disaster. Halogen isn’t even well established in the United States, they argue, and expanding internationally could strain the company’s capabilities and resources. Others have pointed out that none of the managers has any international experience, and the company would have to hire someone with significant global exposure to even think about entering new markets.

Although Emily tends to agree that Halogen for the time being should stay focused on building its business in the United States, Alex has come to believe that global expansion of some type is a necessity. But if Halogen does eventually decide on global expansion, he wonders how on earth they should proceed in a huge, complex world environment. Sam, the sales manager, is arguing that the company should set up its own small foreign offices from scratch and staff them primarily with local people. Building a U.K. office and an Asian office, she asserts, would give Halogen an ideal base for penetrating markets around the world. However, it would be quite expensive, not to mention the complexities of dealing with language and cultural differences, legal and government regulations, and other matters. Another option would be to establish alliances or joint ventures with small European and Asian companies that could benefit from adding RCA applications to their suite of products. The companies could share expenses in setting up foreign production facilities and a global sales and distribution network. This would be a much less costly operation and would give Halogen the benefit of the expertise of the foreign partners. However, it might also require lengthy negotiations and would certainly mean giving up some control to the partner companies.

One of Halogen’s partners is urging still a third, even lower-cost approach, that of licensing Halogen’s software to foreign distributors as a route to international expansion. By giving foreign software companies rights to produce, market, and distribute its RCA software, Halogen could build brand identity and customer awareness while keeping a tight rein on expenses. Alex likes the low-cost approach, but he wonders if licensing would give Halogen enough participation and control to successfully develop its international presence. As another day winds down, Schaaf and Rockwood are no closer to a decision about global expansion than they were when the sun came up.

Questions

What are the arguments for Halogen Analytics going international?

What are the arguments for Halogen staying focused on the U.S. market?

Which of the three international strategy options—open its own offices, take on foreign partners, license its products—would you recommend? Explain why.