The Mindset of
Internationally Successful Companies
Risk management for going global requires a delicate
balance of detail-oriented preparation and openness to uncertainty.
Back in 2013, U.S.-based retailer Target had what many thought was
a brilliant strategy for its first international expansion. By purchasing the
leases of failing Canadian discount chain Zellers it could open more than 100
stores in the country within a matter of months. The expansion plan seemed
straightforward but it didn’t take long for things to unravel. The inherited
urban locations turned out to be an awkward fit for Target’s middle-class brand
positioning, while the company’s hasty expansion left key supply chain issues
unsolved, causing too many shelves to sit empty. By the time Target pulled out
of Canada two years later, the venture had incurred approximately $2 billion in
net losses and left nearly 18,000 people unemployed.
Cross-border deals are an increasingly
popular choice for growth-seeking
companies, but failure
rates remain high and
the fallout can be catastrophic. As the Target example illustrates, even the
most successful firms are not immune; just ask eBay, Starbucks, and UK supermarket giant Tesco. Poor preparation, inflexible mindsets and
over-reliance on historical tried and proven formulas all too often thwart
internationalisation efforts.
The risk management aspects of going global was
the theme of a recent panel
discussion co-sponsored
by RSM
Chio Lim LLP (the Singapore arm
of accounting network RSM International), and the INSEAD
Risk Management Breakfast Series, in which panelists drew on their experiences overseeing
successful (and not so successful) cross-border expansions. Here are their
takeaways:
Does the opportunity fit the strategy?
Rationalising the business proposition should
begin well before any contract is signed. Managers must first answer the
question, “Why are we going there?”
Dominique Lecossois, Distinguished Fellow at
INSEAD’s Emerging
Markets Institute insists that
companies should only proceed if and when the answer is both compelling and in
alignment with their larger strategy. If the strategic objectives don’t add up
they should be prepared to turn down the proposal, no matter how alluring.
Robert Coles, co-founder and chair of the Centre
for Alternative Leadership & Management, agrees. “Most companies
internationalise on the back of opportunity rather than strategy…But if your
objectives aren’t clear, one thing will happen, you’ll achieve the wrong
objectives.” This is a fundamental error that many multinationals
make. From time to time, businesses need reminders that the alignment of
expansion plans with strategy and objectives has to take centre stage.
Building and strengthening brand presence, pursuing sustainable growth and
profits, and improving market share need to remain top of mind.
How well do you understand your new market?
Once management decides the opportunity and time
are right, the next step is to become better acquainted with the culture
concerned. According to Lecossois, even when working with a local partner,
internationalising companies need to actively engage if they are to avoid
bringing inapplicable assumptions into the new market. Moderator Gilles
Hilary observed that in
reality, there are very few truly ‘international’ companies; most MNCs have a
particular culture that reflects the place they came from. This can be either a
strength or a weakness when entering new markets, depending on how self-aware
managers are, and how flexible they are willing to be while refusing to
compromise on the essentials.
Being a cultural expert isn’t required. The most
important thing is to cultivate an open, empathetic attitude. Moderator Tay
Woon Teck, a partner at RSM Chio Lim LLP, notes that this is a goal some Asian
companies would do well to work towards. “In this region things are seen to be
either black or white, good or bad, right or wrong. With international
business, you need to understand the grey, and that is very challenging.”
A certain amount of touristic zeal and
wanderlust can also help bridge cultural gaps. “You have to develop affection
for the country you engage in,” Lecossois insists, adding, “You can’t go to
China or Indonesia if, in your mind, you already dislike the country, food, and
people.”
Does the local team understand your company?
With cultural due diligence done, it’s time to
scrutinise every aspect of the deal. Taking a highly detailed approach to
structure and governance is essential to the risk management process. When
companies lack the vision or the patience to hammer out a workable deal,
failures can occur, as Lecossois illustrated when describing a company he
worked for which rushed into a 50/50 joint venture with a Taiwanese firm. “No
one had control, and it became very ugly. We eventually had to withdraw from
the country, it was a failure.”
Another pertinent risk management concern is
that internationalising will cause a company to lose control of its essential
identity. This is where leadership is truly put to the test. According to
Coles, “It’s not a full-time job to go around waving a mission statement”.
Leaders must enter into close collaboration with overseas managers and partners
to ensure core values and identity attributes are upheld. At the same time they
must not give in to the temptation to become a long-distance micromanager. “You
need [your partners] to be entrepreneurial about establishing the what, how and
why of your business, not defining it”, Coles said.
One danger of an internationalised workforce is
the formation of cliques based on cultural identity. Left to their own devices,
employees may come to identify more with their cultural clan than with the
organisation as a whole. Managers must take the time to ensure that there is
cross-border cohesion among the workforce, and that employees are working productively
in teams that cut across cultural lines. Again, there is no substitute for a
highly detail-oriented approach.
Be prepared for uncertainty
The need to internationalise successfully has
become even more urgent with the onset of the digital revolution. Before the
internet, a young company’s stumbles were hardly visible outside its local
environment. Today the moment your website goes live, you are a global business
in a very real sense; although you may not feel it until you get that first
perplexing email or phone call in a foreign language, and by that point it may
be too late. Before you press play, make sure the current face of your business
is the very best one you can present to the world.
In the end the inexperience of today’s digital
startups may be their greatest advantage from a global perspective. With no
historical successes to make them complacent, they’re forced to become
comfortable with uncertainty and ambiguity from Day One. That’s a mindset Coles
identifies as central to any successful cross-border expansion: “You never know
everything you need to know, but you have to make decisions anyway. Until you
can do that, it’s unwise to go into an environment you don’t understand.”
Conclusion
The rapid pace of change in the global economy, compounded by the
impact of disruptive technologies, makes it imperative for any serious business
to undertake some form of internationalisation. However, before jumping
on the bandwagon, know what you are there for, be flexible and understand the
new market and its people, and finally, accept the notion of having a flexible
mindset towards change. To draw from a famous quote from Georg
Dennis Lee, Director, RSM Chio Lim, and Benjamin Kessler
Read
more at
http://knowledge.insead.edu/leadership-organisations/the-mindset-of-internationally-successful-companies-4271?utm_source=INSEAD+Knowledge&utm_campaign=6f331ee2cf-8_Oct_mailer10_8_2015&utm_medium=email&utm_term=0_e079141ebb-6f331ee2cf-249840429#8BjzPIMRRQUsH8ic.99
No comments:
Post a Comment