Bustling Shanghai
By Peter Klinge, Jr.
To help you understand the context for these 6 listed below let’s share perspective on what we can expect in the world.
Let’s start with what we know….In a global economy any company is exposed to worldwide opportunities.
- We are familiar with the effects of globalization. The last thirty years of growth and scale of our global society make clear the interconnected system of world economies. The Great Recession and financial system disruption demonstrate this.
- Much of the interconnected nature of our system can be attributed to growth and development of people’s multicultural skills, technology- perhaps singularly the Internet; outsourcing and off shoring of supply chain management. The 1989-91 period saw the decline of communism and concurrent development of vast new markets for consumerism.
These are baseline factors that are important background for a company to understand in their own international development.
What are examples of truly global companies to learn from…?
There are global brands such as Nestle, McDonald’s, Mercedes Benz, Intel and Apple which tend to not only trade in most countries of the world but also have significant management teams and operations that behave and run, or are recognized in much the same way as an indigenous domestic company in the market.
Increasingly companies such as these are less identified with their country of origin and more so as Global companies that are transnational.
For example, few consumers today may see Nestle as a Vevey, Switzerland HQ company, or Coca Cola as a U.S. company from Atlanta, Georgia. These corporations and their brands have been part of markets around the globe for generations both as a business, and as part of the social fabric of home life. These company examples earn the vast majority of their revenue and profitability outside their native markets.
As for smaller companies the path to a sustainable and profitable growth trajectory to a global brand company will progress along a more international expansion path, i.e. one or more markets beyond the home country. A company’s expansion success is directly tied to a thoughtful and deliberate approach beginning with who the company is as a brand, and an ability to understand how to adjust to the social, cultural, regulatory and economic openings of a new market.
Good planning is the cornerstone that enables a small company to build an adaptive and agile foundation. The result is a well managed company that is profitable and therefore sustainable.
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What does your company have to offer? What opportunities have the greatest potential in the next 3 to 5 years? Base the analysis on the market universe and landscape, and the customer target that is ready for what the company offers.
Consider the “Why” component to address the credibility or reason to believe that what your company offers in products and services is differentiated, beneficial to filling a customer demand, and that there is some customer behavior pattern the company’s sales process can tap into.
Understanding your company’s rationale is important when time to meet a nation’s trade representatives. Those representatives will reasonably ask “Why” your company is good for their country.
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Clear sense of the company’s mission and vision. Clarity around what the company does and its vision for international expansion is foundational to understanding how your values in what makes the company successful can endure to be sustainable in an expansion strategy. The outcomes of this component of a strategic review will inform the approaches to an international path. For example:
- Contract manufacturing and sourcing – an agreement to manufacture part (sub assembly) or all (finished good) of a product to reduce the cost of goods. Typically, these types of relationships are found in Asia- China, but other locales are emerging as well. This relationship is particularly helpful to small companies trying to scale product volume manufacture.
- Licensing– agreement to sell or buy the IP with another company. EG: patent rights, trademarks, technology processes.
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Joint Venture JV-an agreement with another company; typically with a strong domestic partner that complements their local knowledge with your company’s competencies. By example initially Lenovo and the IBM Personal Computing Division began a JV relationship in China before the Lenovo entity bought all of IBM’s worldwide PC business.
Cereal Partners Worldwide is another joint venture agreement example between General Mills and Nestle. Nestle provides the worldwide sales distribution expertise with local market knowledge while General Mills provides strong breakfast cereal expertise in product marketing and brand development in opening this meal segment. Both companies evaluated their comparative advantages in determining how to structure an agreement that created a new company that combined the resources of both parent companies.
Joint Ventures can be structured in various ways depending on what a company needs and can offer to be successful in new markets. They can range from sales distribution tie ups to more complex product development, marketing and management sharing.
- Direct investment– establishing operations and manufacturing where the company invests in their own capabilities or often through investment of an existing company in the target market. This has been common with capital intensive operations such as beer and soft drink beverage companies with bottling and distribution networks that can be quite different from country to country. Arrangements such as these can be developed similarly to a joint venture.
Perhaps there’s greater emphasis on a majority investment from the company wishing to enter a new market. In such situations they find a ‘buy versus build’ case more compelling to their goals.
Such arrangements can accelerate product introductions through strong distribution and sales expertise that might otherwise take a longer period to establish.
Ancient China
- Understand the alignment of the products the company offers with the market potential.
This includes the fundamentals:- Target audience/customer behavior, category development
- Competitive positioning
- Availability of distribution and sales networks
- Legislative and regulatory environment
- Societal and environmental conditions
- Understand how your current revenue generation process will need to adapt in the expansion market. For example:
- Steps to building awareness, consideration, trial, repeat business
- Both the business channel push strategies & tactics as well as for consumer pull through
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Ownership/Leadership commitment. Underpinning the 1st four points is the commitment and desire of management to pursue a medium to long term strategy for international expansion.
Ownership needs to be engaged. If the management does not possess international experience, then they need to have at least a genuine interest and passion in developing and pursuing a multicultural undertaking and study of the world.
Too often companies pursue international trade for reasons of quick transaction sales. The partners in the expansion market will reasonably look warily at you and gladly take your company’s money for setting you up in a presumably easy market entry approach.
The establishment of ecommerce gives the false impression that the market barriers have dropped. This thinking can be costly to expansion endeavors and to the core domestic business due to the costs and distractions of a misadventure overseas.
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Execution. Leadership appointment of a qualified team is critical to help drive strategy and tactics, and to engage the external resources including expansion logistics.
It is ill advised to stretch the company’s existing resources to develop and execute international expansion plans. Find qualified people to help and plan. Dedicate discrete resources for international development that won’t compete with the core domestic business.
In summary, it’s management’s responsibility to establish the strategic framework and execution direction. It’s also important to maintain a medium to long term outlook for building key relationships in the international marketplace. Balance international goals with the company’s core foundation of values, mission and profitability. To be successful expansion strategies need to be sustainable over time and therefore relevant to the company’s long term health.
Finally, with your company’s development of the ‘What and Why’ to go international, your company will be better equipped to engage the counsel and resources of your World Trade Center, and U.S. Commerce organizations.
Peter Klinge, Jr. is an advisor and interim operating executive to companies in revenue pain. He gained extensive management and marketing experience while developing global professional services firms and advising small companies to across the Fortune 50 spectrum from consumer to technology industries. This background informs his strategic and operational views.
