Whether the business is construction, environmental services, architectural design or any discipline of engineering, opportunities for growth in the professional services industry are not in a clearly defined domestic market anymore. They are, in fact, across the globe.

Why are firms looking overseas? It's simple -- to grow. To expand their revenues, more professional services firms are venturing abroad to Europe and the industrializing countries of Asia and Latin America, to take advantage of the opportunities presented by design and engineering of infrastructure projects, especially related to transportation and energy, as well as a growing need for environmental services. In general, businesses -- no matter what industry -- are operating in a more culturally, politically and economically-connected environment. The reward of international work is continued promise of growth at an accelerated rate driven by greater profit margins and sporadic competition. Therefore, to compete in a global business environment, US firms are implementing business strategies that are allowing them to efficiently provide project delivery worldwide.

Nevertheless, the same factors driving growth opportunities can be the same factors that threaten a company's profits. As companies explore the world for new international business opportunities, they must also explore techniques in managing their risks to successfully manage their operations both here and abroad.

Global Growth

The domestic market for the professional services industry remains relatively flat with most firms posting no or marginal revenue gains. While the US market is expected to remain flat over the next five years, the international market, on the other hand, is offering opportunities and an anticipated growth rate of more than 9 percent per year.

For the environmental services industry specifically, a report by the University of Tennessee, entitled "Analysis of the International Environmental Restoration and Waste Management Market: An Overall Assessment," estimated the international market for environmental technologies to be in excess of $148 billion dollars per year. Japan, Germany and Central Europe are expected to have the largest overall environmental markets, while Mexico, India, Argentina and Brazil -- although their total market size is much smaller -- will have the largest overall growth rates during the next five years.

Potential growth areas for all segments of the professional service industry can be broken down into four segments of business opportunities including:

• Pollution Prevention which encompasses the reduction or elimination of waste streams by either changes in technology or in the manufacturing process. Estimated revenues in this area total $33.3 billion annually.
• End-of-Pipe technology that minimizes pollution discharge prior to its release into the natural environment. An estimated $36.5 billion in annual revenue is anticipated from this area.
• Remediation activities that characterize, manage, store, stabilize and/or destroy hazardous or radioactive wastes to generate $32.5 billion in annual revenue.
• Infrastructure work --with the potential to generate $45.7 billion in annul revenue --includes constructing systems for the treatment and delivery of water and wastewater systems, energy and transportation.

By far, infrastructure projects lead the way as developing countries -- particularly Asia -- strive to provide adequate energy, transportation, wastewater and drinking water treatment facilities. According to the Multilateral Investment Guarantee Agency (MIGA), part of the World Bank, it is estimated that Latin America alone will need approximately $1 billion in infrastructural investment per week for the next decade to meet its needs.

Japan and Germany have been identified as needing significant remediation efforts, accounting for approximately 90 percent of the total remediation revenues previously mentioned. Additionally, these two countries along with the rest of the developing industrial world are showing a growing commitment to spending money on pollution prevention, waste minimization and water quality.

Understating The Risks

There is little question that the nature of international risks differs substantially from work at home, and therefore, a different set of criteria should be used to evaluate foreign projects. Expansion abroad creates many new challenges as firms learn to deal with different cultures, governments and legal systems. Consequently, before a professional services firm contemplates work overseas, steps must be taken to understand unique exposures to liability. Items to be considered include:

• Payment: One of the biggest issues for firms practicing abroad is the ability to receive payment. If a firm does not specify the currency, it may be paid with 40,000 gallons of crude oil or two fighter jets. Specify upfront the exact method and amount of payment(s). Avoid currencies that are unstable and subject to drastic fluctuations. For example, the devaluation of the Mexican peso at the end of 1994 created major concerns for risk managers. Similarly, insurance policies denominated in pesos would not be adequate to cover replacement costs of an insured company's processes or equipment.
• Taxes: What may have been a strong profit margin could quickly be eroded by taxation based on differing laws that exact income taxes as well as business and personal taxes.
• Expenses: It takes capital and commitment to participate in the international marketplace. Travel, office expenses coupled with employees working in host countries add to the bottom line. Just winning the bid for the project can be a costly business expense.
• Legislation: Legislation differs by country with various legal requirements being imposed. "Standard of Care" or the ability to provide services at a level of skill commensurate with that of professionals who provide similar services may be defined differently. For instance, liability imposed once error is identified vs. when economic damage is incurred by a third party. Then in some instances, Statute of Limitations -- the time in which a third party can bring a lawsuit or be barred from doing so -- varies from a few months to several decades.
• Culture: Cultural differences may dictate a firm's level of success. An aggressive approach may turn off prospective international clients. Business dealings may be predicated on relationship and integrity rather than merely on qualifications and the agreed-upon contract.

Managing The Risks

Simply exporting the technology and talent that has worked for professional services companies in the United States will often not win jobs for firms abroad. In order to successfully take advantage of the growing international market, most firms need to have a dedicated expansion strategy that integrates elements of technology exportation, acquisition of established engineering firms and/or partnering or joint venture efforts, with a careful eye on risk management efforts.

It is extremely beneficial to have an established local presence that has the political connections and technical knowledge to perform the work to the standards of the particular foreign country. An American designing a remediation system to an American standard may find it very difficult win a project in one of the developing industrial countries of the world.

Insurance Considerations

For firms venturing beyond US boundaries the potential risks are numerous. Claims against US companies doing business abroad can become very expensive and difficult to manage. Therefore, firms are looking toward their insurance brokers and carriers to assist them in the management of these business risks.

Insurers with global resources of their own are often in a better position to address the unique loss exposures presented by doing work abroad. As professional services firms implement their expansion strategies, it is necessary for the risk manager first to determine whether the existing insurance program will follow the organization abroad. Many insurers providing pollution and/or professional liability coverage have the ability to provide worldwide coverage under these policies. However, there may be some limitations concerning where the suit may be brought against the insured and/or the extent of defense protection that may be provided. In addition, work that employees may perform in foreign countries may require special general liability and workers' compensation protection.

By teaming with an insurer connected to global resources, the professional services firm should be able to adequately address the liabilities that may arise. Key items professional services firms should review when considering an insurer are:

• An ability to provide worldwide coverage that includes defense protection in the foreign country where the work takes place. Many companies provide only protection and defense if the suit is brought within the US or Canada.
• Capabilities to provide employees abroad with an appropriate workers' compensation policy with the ability to provide foreign coverage.
• The ability to provide political risk, expropriation and other fringe insurance coverages to assist firms in dealing with any potential situation that could lead to catastrophic loss. The ability to provide the most comprehensive insurance program possible will alleviate many concerns that organizations have about expanding abroad.

Based on the projected size of the international market and its continued growth at a rate greater than that of domestic work, more and more professional services companies will continue to boost their bottom lines by expanding outside the US. Only those companies that develop a formal risk management strategy that integrates the political, cultural and technological elements of the country in which they are performing work will be able to take advantage of the long term opportunities that exist.

By understanding the risks and hazards that are created by performing work abroad and addressing them through sound risk management principles, including a comprehensive insurance program, companies will be able to ensure that they are able to protect the corporate assets that they have earned through their pioneering efforts in the United States and Canada over the last two decades.