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MARKET COMMENT
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A company's ability to control a subsidiary is inversely related to the distance of that subsidiary from the group's headquarters. That was the somewhat flippant conclusion that Robert Townsend, a former chief executive of Avis, arrived at in his book "Up The Organisation". Sadly, Townsend's amusing look at management is no longer in print. But then again, it was published some thirty years ago. It might be three decades since Townsend took a pop at companies that attempt overseas expansion, but still his words go unheeded. It should be said in fairness that there is no concrete proof that Townsend was ever right. However, there is plenty of empirical evidence that would suggest there might be some validity in his sagely words. Many UK companies that eye overseas expansion, especially those that expand into the US, tend to run a greater risk of failure. Those that have tried and failed miserably in America include Marks & Spencer (LSE: MKS) through its acquisition of Brooks Brothers. Stagecoach Group (LSE: SGC) also came a cropper when the wheels came off its Coach USA division. Emap (LSE: EMA) was another to hit trouble after buying Petersen. Failure in the US is by no means limited to UK-based companies though, as evidenced by Allied Irish Bank (LSE: ALBK), whose Allfirst US subsidiary suffered substantial losses as a result of foreign exchange fraud. Today we had further evidence that the streets of America are not always paved in gold, when Securicor (LSE: SCR) wrote off £37m from the value of its troubled US unit Argenbright. That, together with other write-offs, resulted in the company reporting a widening of second-half losses. The company's US aviation security business has lost the bulk of its passenger-screening work at US airports and has also been served with a number of lawsuits relating to the terrorist attacks of September last year. It is unclear just why UK businesses have a habit of failing in the US. Perhaps it is the cultural differences that cause the problems. Then again, it could be a case of the tail wagging the dog, whereby growth in the US operation drains limited resources from the UK parent. Whatever the reason, though, investors should be extra vigilant when their UK company talks of setting up a subsidiary in the US.