The best businesses without borders
CHRIS SHEEDY, CONTRIBUTOR | SEPT 2019
It’s difficult to deny the fact Starbucks is a superstar of globalisation. Having begun as a small café in Seattle, the business has made big, hot drinks such objects of desire it now delivers 85 million ‘Starbucks experiences’ every week, from over 28,000 stores in 76 countries.
Yet a decade ago Starbucks struggled on entry into Australia, eventually closing 61 of its 84 local stores, causing the loss of 685 jobs at a reported cost of $A143 million.
Academics and pundits put Starbucks’ plight down to a variety of reasons including an unsustainable pace of growth, high-priced product and lack of research into a local market which boasted one of the most mature and sophisticated coffee cultures in the world.
The Starbucks story in Australia goes to show one of the greatest challenges in modern-day business management is globalisation – even the very best can struggle in what is now an increasingly fickle international market.
So what are businesses doing to improve their chances of success when they take their offering offshore?
ANZ Finance & Treasury Forum 2019
At the upcoming ANZ Finance and Treasury Forum on October 4, Distinguished Fellow at the Asia Research Institute, former diplomat and prolific author Kishore Mahbubani will be discussing the challenges of business in a global environment, as well as the opportunities.
ANZ’s forum brings together business, political and thought leaders to share their perspectives on trends shaping the region and the practical implications they will have on finance professionals.
The forum showcases practical experiences, transformation journeys and successes shared through real-life case studies which bring new technologies, business models and solutions to life.
“One of the greatest challenges in modern-day business management is globalisation – even the very best can struggle in what is now an increasingly fickle international market.”
Checking the research
Professor Elizabeth Maitland, ex UNSW and now Associate Dean, MBA Programs at the University of Liverpool Management School, spent much of her career studying the skills required to make successful cross-border business plays.
During her time at UNSW, Maitland co-authored a paper titled Managerial cognition and internationalisation. In it she identified seven knowledge domains important to those whose job is to manage globalisation projects. The domains represent a map of the global mindset.
• Location: deep knowledge around what territory/ies we are considering;
• Value proposition: deep knowledge around what’s in it for us;
• Operational aspects: deep knowledge around what we need to do to make it work;
• Overall opportunity: deep knowledge around why it is important;
• Firm-specific advantages: deep knowledge around what we are very good at;
• Capacity: deep knowledge around whether we have what it takes; and
• Governance architecture: deep knowledge around how everything must be structured
Each, in its own way, is obvious. But as a group the domains highlight the enormous level of research, expertise, experience, resources and local knowledge that must be in place before a tilt at a new territory is considered.
As economic growth in China sees a surge in international expansion from groups originating in the Asian giant - particularly via the Belt and Road Initiative - Chinese businesses are banding together to share lessons on how to enter specific territories.
These insights, including advice and consultation services, are shared by firms that have already experienced global success, as well as representatives of commerce groups from target nations.
“They certainly value privacy in their own sectors but in general businesses work together to share their experience in specific markets to help other Chinese businesses find their way into that market,” Cecile Wu, ANZ’s Head of Local Corporate in China says.
“They develop a valuable community that shares stories and knowledge. Businesses making their way offshore also hire international consultants who offer a deep knowledge of the local market.”
“That is a lesson from the way things were done in the past, when Chinese businesses were not experienced with handling particular details such as culture and behaviour. This has been significantly changed.”
Research by Dan Caprar, a senior lecturer at The University of Sydney Business School, warned managers heading into foreign territories against the assumption all of their local staff will fit an expected model of belief and behaviour.
He identified four distinct cultural profiles of locals working in a business’s foreign offices. They are:
• Infatuated. These employees hold a favourable point of view toward the business/brand, and may have an idealised perception of what it is like to work in a multinational. They’re likely interested in anything that offers them status over employees of local businesses.
• Converted. Still boasting a healthy attitude toward their employer and the lifestyle represented by its home country, this employee is slightly more detached than the infatuated one. This is not a negative – it means they tend to be well adjusted in their perception of the employer. However, they may somewhat limit interaction with their own culture, preferring their employer’s culture.
• Reconciled. Here is the employee of choice. They are comfortable with the differences between their own culture and that of the organisation’s home country and appreciate the positives of both.
They’re knowledgeable about both cultures, either through the education offered by the business, or from their own research. Most importantly, they retain a powerful connection to their own culture whilst working in the foreign-owned business.
• Conflicted. This staff member is typically dissatisfied and feels somewhat exploited by their foreign employer. Interestingly, they feel shame about their own culture, too.
Prior to its entry into the vast Chinese market - one not known for its consumption of bread - George Weston Foods first launched its Tip Top bread in a single territory – Wuhan.
This test bed, a university city, would provide valuable local knowledge before the business scaled up its Chinese operations. Numerous focus groups were set up to develop a powerful understanding of how consumers think about bread.
One takeaway, for example, was Chinese consumers don’t tend to make sandwiches or toast bread but instead eat bare slices, plain buns or unfilled rolls, typically for breakfast.
The business also conducted a deep analysis of competitor products and, as a result, changed its own products’ flavour profiles, eventually building a production facility in Wuhan that was 99 per cent staffed by locals.
At some stage, every growth business has to look to foreign markets. Depending on the level of preparation, this can either be a powerfully transformative experience or a painfully expensive lesson.
There is no single set of ingredients in the recipe for success. Lessons learned from businesses that have made it internationally include deep research into every aspect of the foreign experience, from local culture to government regulations and governance. Setting up a test bed – a market that is big enough to provide valuable lessons – is an excellent way to start.
Also required is a clear vision of the types of personalities required to make the foreign office a success.
Finally, seek advice from other businesses that have already broken into your market of choice and from local consultants. There is no substitute for experience.
Chris Sheedy is a contributor at ANZ Institutional
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