It was at the celebration party for the opening of his seventh branch that Clem X pulled me aside and gave me the news.
“I’m off to conquer new worlds.” With a beer in one hand and a scotch in the other, I wondered if that meant he’d be trying to find the way to the door. I nodded and pondered how to get at least one of the drinks out of his hands before he drank both of them.
“No, I mean it. Seventh branch. Only took three years. We predicted ten years to get this far, you know…”
“Yes. You’ve done remarkably well. You’ve got the formula down pat. You planning to drink both of those?”
“You want one?” He pushed both drinks towards me, generous. Seeing my expression, he laughed. “Hey, I’m a drinker but not that much. I’m holding the beer for Mike.” He looked over my shoulder. “Mike, come here before our lawyer here thinks I’m a drunk. And tell him about our next big move…” He grinned at me, gave the drink to Mike, and patted me on the shoulder. “You’ve done international right? You negotiate in other countries?”
“Sure. Just returned from South Africa, remember?”
“Well, we need your skills on this one…and this one is going to be exciting. Really exciting…”
Mike was looking around to see who was listening and Clem saw that. “OK, OK, we can talk about it later. But this is the time to move beyond parochialism. Time to show foreigners what these particular American businessmen can do. Watch us go…”
He moved away to greet a customer and Mike shook his head slowly, looking after him. “He’s on a roll, now. Figures he can’t lose.”
“You think it’s a bad idea?”
“The numbers come out fine. But…” he grinned. “..it’s an alien world out there. We know the Bay Area. We don’t know Brussels.”
“EEC, huh? Well, lots of money to be made there. And you guys learn fast. Assuming…”
He raised his eyebrows. I hesitated, but went on. “You can’t go into a market intending to show them what American business can do. You have to go in adjusting to what they do and learning their game and their foibles. If you go there to show them how you strut your stuff…”
I stopped and wondered why I was giving this lecture to Mike. Soft spoken, thoughtful, he already knew that. It was Clem who needed to hear this and he was in no condition to hear anything. Mike just smiled, nodded, and shrugged. We both knew that Clem’s entry into Europe was going to be an interesting time.
Clem may have been a bit drunk that night but when sober he was a brilliant and effective businessman. He had moved into a market already saturated with his wholesale distribution products and out maneuvered, out thought, and out sold some very big players. When one of the biggest offered to buy him out, he just laughed and told them he would be making his offer to buy them out in a year.
And did.
They turned him down but a year after that closed their local outlet, conceding defeat. Clem sent them a funeral bouquet and earned never ending enmity from their local management.
Three branches later, he had driven another big player from the market and expanded into a related field of distribution, succeeding there within a year.
He was very good at his business, hard working, honest and confident.
He was, in short, a very good American businessman.
Who was about to discover that California is not Belgium and Kansas is not Oz.
We helped set him up to do business in Europe, using local counsel we work with and incorporated him as a wholly owned subsidiary of his American company, negotiated local warehouse space, found a good international CPA, and negotiated some vendor contracts. During that time I bored him with warnings about local methods, laws and customs and he finally interrupted one of my many lectures.
“I get it. I ain’t in Kansas anymore. The natives get restless. I risk being the Ugly American. I talk too loud, drink too much, push too hard and work too many hours. I get it.”
“Don’t mean to nag…”
He grinned. “No, you’re telling me all the right things. That’s your job. You know this locale, I don’t. And I do know what works here may not work in the USA….but maybe, just maybe, these people should get some idea of why we are getting rich and why they are stagnant…”
“Clem…”
“No, hold on. Just let me finish. They have a good life. I see it. Work six hour days. All medical paid for and the rest. But their economy is as flat as their landscape, their growth does not exist and it’s a Brave New World. They have to compete with us. The Chinese. And we work hard and know how to make money. I think once they see what we can do, maybe even these guys are going to realize what some hard work and sweat can do.”
“Maybe. Maybe. Just be careful. They were in business when the USA was a group of Indians eating acorns…”
He was impatient. “I get it. I’ll be careful. But you just watch…”
I soon lost track of how his business was going. With that set up “package” out of the way, Clem’s European subsidiary was off and running and I did not hear back from him for about a year. I knew he had had some problems with a local vendor in Germany and had told Mike who called me on it to use a good firm we worked with in Frankfurt. I had assumed that issue was long resolved.
When I first heard from Clem, himself, it was a long distance call which I was not happy to get since it was midnight.
“Sorry to wake you. I know it’s God awful late…”
“Clem? What are you doing calling this hour?”
“I’m in London and I am going to try to talk you into dropping everything to fly over here. I know it’s last minute…”
I had been sound asleep and was groggy. “Fly there? London? You mean tomorrow?”
“Not London. Wish it were. Frankfurt. Tomorrow or the day after. I’ve just been told by my lawyer that I am in real trouble and when he laid it out I can’t believe it’s like he says it is. I mean, it’s unbelievable. Just nuts…”
“It’s the firm we recommended?”
“Yeah..”
“They know their stuff, Clem. If he says you have problems, you have problems.”
A long pause. “Look, I’m a fish out of water right now. I know you warned me and all that…but it didn’t come down quite like you warned me about. It’s different and I need your guidance here and now.”
“I’m pretty tied up now. Next week, maybe…”
”We’re before some damned administrative committee on some damned law that makes no sense next week and we have to know what to do this week or so he tells me he…the lawyer… is upset because he wasn’t consulted before I signed the joint venture and seems to think it’s all my fault…and the US government will be pissed at me if I comply with what they say I have to do in the joint venture and the customer is threatening to sue as well, so I’m screwed no matter what I do…”
“Calm down. Let me make some phone calls, let me talk to your local counsel and…”
“Can you be here if you need to be here?”
“If I’m really needed, I’ll be there…”
“I’ll pay for business class…”
“You’re damned right you will. But let’s see if I need to be there.”
I did.
Because if Clem’s subsidiary, which had just entered into a joint venture with a Czech entity, complied with a contract to sell a certain product to an Arab customer, Clem would violate the Export Control laws of the United States and go to jail or pay a massive fine and if he does not supply it, then he is in breach of the agreement and his new Czech partner as well as the Arab customer will sue him for damages.
The Arab was outraged at Clem’s sudden refusal to provide the materials, pointing out that most of the materials stemmed from European manufacturers and that United States law would not apply to a European entity which is why he was dealing with Czechs to begin with and what did the Americans have to do with this in any event…etc.?
They were right that the Czechs had signed the contract…but under our joint venture, we had to supply the product. The Czechs faced no liability under American law…but, sadly, Clem’s American company did since it was American owned and subject to US law . The Arabs were threatening to sue. If they did, the Czechs were threatening to sue Clem for violation of his obligations under the joint venture to deliver the goods…and the United States government was looking on with hard eyes. Clem missed Modesto.
“Who is this Czech company, anyway?” I asked as we drank coffee at Heathrow.
“They came to me. Heard about me, they said, liked the way I was aggressive in the market place. Felt that with their contacts in Eastern Europe and mine in America, we could both triple our business.”
“Right. Now, who are they?”
He looked at me steadily over his coffee cup. “A business. What do you mean?”
“You checked them out? Found out who owned them?”
“I met the guys…had some dinners.” He saw my expression. “Business dinners. Formal things.”
“Wining and dining Americans is how many of these companies work. Go up to the local Castle and have dinner overlooking the river, that sort of thing.” He blushed. I grinned. “Don’t feel bad. All of us fall for that. Americans like the exotic. They know that.”
“They seemed like regular business guys to me. I liked them.”
“And confirmed that they were the actual owners? Hired the right people to find out?”
There was a pause. He was smart. “Who do you think they are? Think they are a front company of some sort? Think they may be owned by the Arabs…setting me up to get the product?”
I shrugged. “Doubt it. Sounds too dramatic to me. And the Arabs don’t need to play those games. They have better things to do than try to use you to buy export restricted materials. A lot of countries do nothing but sell those to them.” He looked relieved. “I just think you have to know who your partners are…that’s what you used to do back home…”
He leaned back. “It’s different here. I had good instincts at home…still learning my way here. And how the hell do you check out a Czech, huh? I don’t speak their language, know no one there..”
“With a single call to me I could have arranged it.”
“But at considerable expense.”
“Yes, perhaps…but less than you are facing now, for sure.”
“For sure. Well, you’ll get plenty of chance to judge for yourself. We’ll see them tonight.”
But we didn’t. Instead of meeting his partners in a restaurant near the train station, we watched a tall and somber man with a brief case make his way to the table. He was immaculately dressed as only a lawyer from Germany would dress and silently opened his briefcase to hand me the petition he had filed in Court a few hours earlier. He sat down and ordered some wine.
“We regret the need to commence legal action but we are deeply distressed,” he said in his perfect English. “Our client’s reputation has been besmirched by your government’s imposition of their will on your client.” He nodded towards Clem, kindly. “We do understand that he is in a …how you say…”fix?” …but we entered this transaction relying on his professed ability to deliver the product and it is clear that this will not be possible. We have thus suffered grievous damage.”
I fingered through the pages. It was in German. “Your clients had no inkling that this might turn out to be a problem, Mr. Krause?”
He looked at me blankly. “They are not Americans. They are a fine Czech company long used to engaging in international business, yes, but not with a partner who would unilaterally impose these restrictions.”
“Those export restrictions have been in place for over a decade. They never encountered this problem before? Never dealt with an American company with American export controls?”
He flushed a little. “I am not familiar with their entire business history. They are Czech. I work here, in Germany…”
“Because it occurs to me that they sought my client out. They sought out an American company to do this deal. Yet, they did not know of the export restrictions that would be imposed?”
“They chose an American company precisely to obtain the expertise to avoid the export restrictions, Sir.” he said stiffly. “If your client was unfamiliar with his own country’s laws, do not blame mine.” He sipped his wine which had arrived. “They might be willing to buy your client out and resolve the problem that way. That, quite frankly, seems the only way out of this problem.”
He saw my expression and kept his face carefully blank. I glanced at Clem who had quickly grasped the entire set up. I looked back at Krause. “We invested over two hundred thousand in this partnership, Mr. Krause. What do your clients expect to pay for our interest?”
He sighed. “I am unsure. I do not have authority as of yet. I only mention it as a possibility. Certainly with a lost profit opportunity of over five hundred thousand Euros, you should not expect any return on your investment, Indeed, my clients would expect some additional compensation, I suspect.”
I said nothing. Clem looked grim. Seeing that, Krause stood up, nodded at Clem, and left with the same dignity he showed upon his arrival.
Clem was smiling grimly. “I deserve this. Set up like a kid.”
“We aren’t finished yet. We can claim force majeure. If the contract cannot be performed due to an act of law, we cannot be required to perform it…”
“Crap. They got me. Our deal is subject to Czech law, you said. The deal I was too stupid to have you review before I signed it…”
“I didn’t say you were stupid…”
“No, I said I was stupid. So that means a German Court enforcing Czech law and us trying to use an American export restriction to save me in that forum. Can we win?”
“Yes, we can. The courts here are good and fair. They don’t dislike Americans. The fight will be uphill but we can win…we just have to explain how we committed ourselves to do it despite the law that would stop us..”
“Have to explain how we could have been that dumb…”
“Yeah, that’s going to be a problem. But you certainly cannot try to evade the law…”
“Never, “ he stated, voice hard. “Those restrictions are there for a reason. Damned if I will send the Arabs these parts…” He shook his head looking at a train through the window. “They got me fair and square.” He sighed. “I’m learning the game, counselor. Learning the game. Some lessons are more expensive than others.” He looked at me. “So, what do you think they will settle for?”
They settled for one hundred and thirty thousand dollars and full ownership of the company. It took some huffing and puffing on our part, having to hire additional local counsel and some letters from the local Embassy, but it settled. The Arabs didn’t get their parts, the Czechs did just fine with the aborted partnership, and six months later Clem and I were on a sailboat in San Francisco Bay watching a sunset.
It was my boat and I was always happy on it and was in a good mood. He was in a good mood since he had just looked over his quarterly profit and loss and had made five times what he paid to the Czechs in a single quarter. We were feeling philosophical and pontificating to each other about truth, justice and Europeans.
“I’m going back, you know…”
I looked at him. I was not surprised. “When?”
“This coming year. Figure I’ve had my three hundred thousand dollar college education in European business now and am ready to try again…” He grinned and lifted his glass at the sunset. “They got me last time. I get them next time…”
“It’s not war, Clem.”
“Oh, but it is. In a way. It’s me proving that I can do this…”
“To who?”
“To me, maybe. To you, maybe. To my bank account. Look, any real business is involved in international business. You’ve told me that a dozen times…”
“Yeah, true, but you go at it as if they were enemies and there to be conquered…”
“They’re not friends, either.”
“No. The Chinese have it right, I think.” He raised his eyebrows at me. “They have a simple ethos. You are in business to make money. If someone makes a mistake, or is a fool, you are a fool not to take advantage of him. If he is as smart as you and does not make a mistake, then just do business. Nothing personal. Those are the rules.”
Clem was silent for a while looking at the darkening sky. “Well, that’s not too different than ours, really…”
“I disagree. We see it as honorable fighting, all in the open, two mighty knights hacking at each other. A sneak attack or some maneuver behind the scenes is somehow not quite right. The Chinese just think that’s plain nuts…and hypocritical to boot. They think we are actually sneakier than they are…but fake being fair and honest…”
“Wait a minute…”
“Just telling you their theory. They are proud of their maneuvers, not embarrassed or defensive. If a Chinese company had maneuvered you into that Export Control trap, they’d be celebrating and feeling pretty good. I suspect the Czechs won’t admit they are just as happy they could oust you from the JV for next to nothing..”
We tacked and headed towards the Golden Gate and worked the boat for a while in companionable silence. It was full dark now.
“I like this…” he said, suddenly.
“Sailing’s great…”
“No, I don’t mean that. Though I like sailing. I mean learning the business approach in different countries. Adjusting. Maneuvering like they do…only better. I like that…it’s challenging.”
“Really? You looked pretty grim a year ago…”
“Got to lose some to win some. But this makes…makes life interesting….makes business interesting again. We Americans…we’re pretty good at adjusting…”
“You’re right. I think it’s our big advantage at international business. Self criticism and adjusting to new realities.”
I couldn’t see his face but I could see him nodding. “Yeah…yeah…I think you’re right. We’ll just have to see.”
He started his second European business the following year. That was nine years ago.
He lives in Tuscany now, not far from a doctor I represented who made a fortune in new medical devices.
I guess he learned the new game.