Go early, go big: Kevin Appleton on the right international strategy

03 February 2014

Kevin Appleton, IRN columnist and former CEO of Lavendon Group.

Kevin Appleton, IRN columnist and former CEO of Lavendon Group.

Going international with a rental business is about more than getting dots on a map, writes Kevin Appleton. So what are the key ingredients of an international strategy?

There are more and more international rental businesses in the IRN100 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 USA, 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.


THE AUTHOR: 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: [email protected]


Receive the information you need when you need it through our world-leading magazines, newsletters and daily briefings.

Sign up

Ollie Hodges Publisher Tel: +44 (0)1892 786253 E-mail: [email protected]
Lewis Tyler
Lewis Tyler Editor Tel: 44 (0)1892 786285 E-mail: [email protected]