by Alan Royal
Feb 17 2015
For more than 20 years I have heard companies and consulting firms articulating the guiding principle “think global, act local.” While in principle this guidance seems reasonable, it has often turned out to be disastrous for companies. This is due to a lack of clear direction and strategy for globalization when company leaders decide to make it a strategic priority. With this historical mind-set engrained, one tends to see international deployment strategies fail to meet expectations. Below are a few specific examples I’ve observed from 12 years of international experience.
Resources and Costs Still Local, Not Global
As the US went into economic recession, and sought to expand their broader set of services globally, the global offices were mostly managed on a country by country basis. As the US firms tried to deploy their incremental service additions to each country, they often found that these service offerings had far less value globally than in the US. In addition, for countries that were interested in these new service offerings, they found that these services would be delivered by US employed resources with cost structures virtually impossible for these countries to bear.
To this day, these firms have largely had to limit their business expansion activities to countries like the UK, Hong Kong, Japan and Singapore, which can bear the expense associated with these new value-add offerings and absorb US cost structures.
Expansion Strategy Still Local, Not Global
As many Fortune 500 companies established and executed global strategies, they have often maintained senior international management in the US. This has resulted in a number of these companies entering emerging markets like India and China with a deployed management team from the US driving US business practice into these markets. These companies have found that their US-deployed resources could not generate enough business to result in a cost-viable business model.
Another strategy undertaken by US companies was to purchase in-country established businesses, with the assumption that they could take these newly owned foreign companies, and use them to successfully drive material expansion. One Fortune 500 company that comes to mind bought their way into a number of emerging markets, and decided the key to best practice business expansion was based on their ability to develop a global system for their international operations which would be the key to generating a material increase in profitability of their international investment. This company spent seven years and over 100 million dollars to develop this global system with no success. As a result they exited the international marketplace.
These examples highlight the fact that many US companies that have undertaken globalization strategies have followed globalization with a US-local mind-set. Thus, this proves that they’ve been focused on the operationalization of the “think global act local” mind-set.
Change the Model: Think Global Act Global
The new paradigm for success is “think global, act global.” This paradigm shift, at its core, reflects the fact that US companies have to work within cultures that are often hundreds of years old, along with their unique economic models, and the associated cost structures available to foreign companies.
Regardless of the country, there is a consistent mismatch of expectations that needs to be overcome in the best of circumstances. New US entrants to a market are focused on generating profit; while virtually all developing countries, especially, are focused on learning best practices from the work executed by US companies. Knowing this will help strike a balance where both parties can have their expectations met.
Specific, additional actions to improve developing country entry strategies include:
- Conduct detailed research on countries where penetration is desired. Pick those countries, where, with a new product offering or marketing wrapper, and value proposition, there will be product and or service demand.
- Determine how to leverage local resources in order to lower offering cost profiles, while still maintaining US-based subject matter expertise.
- Perform proof of concept meetings with target customers in each market to validate that the product and or service has market traction.
- Generate a country-specific profit and expense model along with the strategic synergies created for further market expansion and gain the approval of key US senior executives.
- Invest in necessary local real estate and equipment along with local resources in order to execute along with going through new business formalities in each new country entered.
- Execute against a pre-validated plan, closely monitoring success in the early days, and as a result make adjustments as necessary.
The above might seem simplistic, but these basic steps, required to enter new markets with a country-relevant business strategy, are often bypassed. Just because a US company enters a foreign market does not ensure business success. Far too often, US companies enter international markets without adequate planning, which most often results in sub-optimal results.
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