Shutting down offices abroad may not necessarily be the best course of action when looking to cut costs, writes Simon Cook, CEO of venture capital firm DFJ Esprit.

Shutting down offices abroad may not necessarily be the best course of action when looking to cut costs, writes Simon Cook, CEO of venture capital firm DFJ Esprit.

In times of trouble our natural reaction is to protect those close to us, whether it’s our family, friends or neighbours. This tendency can also be seen in the reactions of some voters in the local elections, with a rise in nationalism and a focus on issues at home, although this column is about business, not politics.

The worldwide economic downturn affects everybody, and as business leaders we have had to make some tough decisions. If you have offices in other countries, your first reaction will be to cut back your overseas operations – it is, after all, far easier to make these hard choices when the impact will be felt by people far away.

Closing down offices in foreign countries, or cutting back investments overseas and focusing on business geographically nearer to us is understandable human behaviour. Head office staff may not have a good grasp of the emerging opportunities in distant markets, and this lack of knowledge can impair decision-making. This approach also avoids negative press in your home market, where you and your business may be more influenced by such reports.

Slash and burn

As many of our manufacturing industries have become controlled by foreign companies, the UK has seen the impact of this type of behaviour first-hand. Sadly, some of our greatest historical industries, from cars to computer games, are largely foreign owned today, and some very talented and dedicated people will have lost their jobs recently as these industries adjust to the new market realities and cut deepest in places far from their headquarters.

Cutting off those furthest away is a huge mistake. Economies and business operate in a cycle and growth will eventually return. Prior to the recent downturn the world had globalised significantly, and many businesses in Europe and the UK were taking advantage of the lucrative new markets opening up internationally.

Consumers in China bought more new cars than their US counterparts in the first quarter of this year, and many of those will have been VWs and other makes sold by European firms that have invested over the long term in establishing this market. China may also be the world’s largest smart phone market next year, and European companies such as Nokia are developing products and distribution capability to address this opportunity.

Globalisation is not going to suddenly reverse. Increased global communication made possible by the worldwide web, increasing prosperity and education for billions of people around the world (particularly in Asia), are trends bringing us all closer together. Trends do not simply come to an abrupt end. When the cycle turns again, those businesses that have remained committed to the global opportunity will be the ones that rapidly become market leaders. Our neighbours and closest partners are no longer just those in our street or town, they are those we have developed relations with all around the world.

Britain’s got talent

Many companies in the UK and Europe, including SMEs, have world-beating products and are in potentially strong positions in the global economy. They could be very well placed to become worldwide leaders when the upturn comes.

We mustn’t take our eye off this opportunity. Our product design skills are unique and in demand globally, from cars and furniture to consumer electronics. We continue to lead in technology innovation, from efficient semiconductors and world leading ‘clean’ technologies such as solar energy to major advances in medicine and healthcare. Others cannot copy our strengths in these areas quickly as they are built on years of experience and extensive research and development.

Difficult choices do need to be made, and business leaders must adjust costs for a period of slower growth until the cycle turns again. But that most natural of choices, to withdraw from distant lands and focus back at home is not the right decision if you have world-class products or services that can be global leaders. If you are cutting costs, look to your headquarters or other areas nearer home first.

This isn’t an easy option, but those UK and European businesses that continue to invest in global markets over the coming years will be fantastically positioned for growth and leadership in the future – which will be bright again one day. It’s a small world after all.

Simon Cook is the CEO of venture capital firm DFJ Esprit and has been involved in the UK venture capital industry since 1995. He has invested in many of Europe’s most successful technology start-ups, with past successes including Cambridge Silicon Radio, Virata, nCipher and KVS. Previously he was a partner with Elderstreet Investments and a director of 3i in Cambridge.