Going Global

Responding to the Earthquake in China -- Global Companies, Global Customers and Global Responsibilities

One of the things that great companies have in common, or at least companies that are great at product development, marketing and customer service, is that they have a genuine empathy for their customers.  This inherent customer centric view allows them to anticipate and respond to customer wants and needs even before the customer has asked.  Talking with the leaders at these companies, it becomes clear that they care about their customers as people.

As a result of this, another phenomenon you can observe at companies such as this is that they tend to be active in the community in causes that are important to their customers.  One can be more or less cynical about this, but my observation is that at truly good companies, their sense of social responsibility is not a contrivance to ingratiate themselves to their customers but stems from a genuine desire to have a positive impact on their customer's lives.  As a result, they naturally support the good works that are important to their customers -- they raise money for the childrens' hospital, they sponsor the community little league, their employees organize crews to work on habitat for humanity houses.

One of the things that happens when a business goes global, of course, is that your customers become international, and if you are as genuine about your customers abroad as you are about your customers at home, you will find the call to grow beyond just being good citizens in your local community to being good citizens of the world.

Now I would think that anyone with a conscience feels for the victims of the recent earthquakes in China, but if you have a company or you individually are doing business in China, and you aspire to be great in that endeavor (and if you don't aspire to be great at it, what's the point -- to be mediocre at it?), then you should feel a particular pull to respond to this need.  So here's my suggestion -- go to the China Esquire China Law and Business Blog.  Read its ongoing coverage of the earthquake and more importantly go to the specific post entitled "More Ways to Help in the Aftermath of the Earthquake - Updated".  You will find numerous ways to help out including links to a host of charities supporting the relief efforts, at least one of which should appeal to your sensibilities.  I used the site yesterday to navigate to the American Red Cross where I was readily able to immediately make a donation specifically to its efforts directed toward the China earthquake victims.

Now that your business is international, the community that you should give back to is a little bit bigger.  And there are lots of opportunities to give back -- starting now.

Can Today's Mis-educated High Schooler Become Tomorrow's Global Leader?

Among the concerns with secondary education today is that in teaching to the lowest common denominator dictated by standardized tests, the average American high school student is woefully undereducated in subjects critical to the world of the future (and today of course), particularly math and science. Add international trade to the list of subjects in which a good education is lacking.

I have the pleasure of serving as a mentor in a program for students attending one of our local large urban public high schools.  We were catching up this morning on how things were going in his geography class.  When I asked what they were working on, I was momentarily pleased to hear that they were studying international trade.  My pleasure turned sour when I asked what he was learning about global trade.  His answer:

Basically we're learning how international trade is good for rich countries like the United States, but that it's really hurting the poor countries in the world.

I guess I should have seen that coming.  I asked whether there is much class discussion or whether it was primarily lecture from the teacher.

There's discussion . . . but since we don't really know anything about it other than what our teacher tells us, basically what we discuss is how harmful trade is to the poor countries in the world.

My mentee's teacher is not alone of course in substituting a belief in a political ideology for a grounded understanding of international economics and business.  An example of this school of thought is found in Antonia Juhasz's book "The Bush Agenda, Invading the World One Economy at a Time"  in which the author argues that the only country benefiting from globalization is America to the point that she believes that globalization itself is a conspiracy between the U.S. government and its large corporations to use global economics as an express arm of foreign policy enabling the U.S. to assert its hegemony on the world without having to resort to strictly military means.

There are a number of aspects of this view that strike me as odd -- not the least of which is that in this presidential election season the two liberal candidates are bashing international trade and calling for the renegotiation of agreements such as NAFTA claiming that international trade only helps other countries while harming the U.S.   And in the strange bedfellows department, this anti-trade chorus is joined by right wing pundits such as Lou Dobbs who in his utterly wrong headed diatribe entitled "Exporting America", argues that the only people benefiting from globalization are foreign countries which are taking advantage of what he sees as a conspiracy of greed driving American corporations to export jobs and to undermine the very existence of the American way of life.  It seems that quite a number of ideologues outside of this teacher's classroom think international trade is bad for exactly the opposite reason -- that it is bad for the U.S.  [The coexistence of these contrary ideological views of the role of the United States in world trade is discussed in a slightly different context in an earlier post entitled "Ben Bernanke on the Benefits of Globalization".]

I also wonder how my mentee's geography teacher addresses the real world juxtaposition of the experience of countries such as China and India when contrasted with countries such as North Korea or Myanmar.   Not too long ago, both China and India had nationalistic policies that isolated them from world markets.  They were also among the world's poorest countries.   Since fully embracing international trade, of course, they have become shining examples of the ability of expanding markets to produce widespread economic opportunity to a previously destitute population.  Meanwhile countries such as North Korea which have regimes that continue to isolate their people from world markets in order to keep the citadel walls around their autocracies remain countries with the most abject poverty.

My student told me that his teacher particularly focused on poor countries in Africa as examples of how international trade keeps poor countries under the boot heels of wealthy nations.  As discussed elsewhere in this blog, interestingly the problem many countries such as those in Africa have with making headway in a global marketplace isn't international trade, but the lack of free trade.  The principal products that many of these countries could naturally export in order to gain the currency necessary to participate in international trade are agricultural.  But it is in agriculture that the wealthy nations are most protectionist both in terms of subsidies to their domestic agri-businesses and tariffs on the import of agricultural goods from elsewhere.  This is exactly the problem that the Doha round of trade talks is trying to address -- talks repeatedly scuttled by the wealthy nations' insistence on protectionism, not the existence of free trade.

I suppose it would be too much to ask that a teacher broaching the subject of international trade begin by imparting an understanding of the theory of comparative advantage and then allowing students to examine case studies of how the theory plays out for better or worse in the real world and then see where an objective discussion on the subject leads from there.  In any event, global commerce is a significant part of the world dynamic that future leaders need to understand and be comfortable with, and if our education system in this area concerns itself with political ideology rather than established trade theory and practice, our future in this regard will not be so bright.

So here's a few suggestions:

• Business organizations (chambers of commerce, World Trade Centers) and individuals engaged in international business might volunteer time and resources to support secondary education in the area of global trade and economics;
• College degree programs aimed at future teachers might include more substantive education in international economics and business as a core subject;
• Secondary schools might offer a course in business and economics rather than leave the subject up to ill-prepared geography and social studies teachers to cover as an aside to other topics such as the comparative wealth of nations. 

If suggestions such as these were to be implemented, I would be saved from having to dispense the wimpy advice that I ultimately imparted to my mentee this morning -- since my role in this particular program isn't to provide an alternative education, but rather is to help the kid get through high school, after suggesting some alternative ideas on international trade, I counseled him that usually with teachers such as this, the way to get a better grade is to parrot the teacher's political view point.  My charge was happy with that advice, particularly since the only information he has on the subject is what he was told by his teacher -- which is where the problem starts in the first place.

What It Took for an American Icon to Become #1 in China -- Another Lesson in Global Marketing

Regular readers of this blog know that from time to time we've examined whether global companies have the power to impose standardization upon foreign markets (ala Ted Levitt's original conception of globalized business), or whether the most successful global competitors are those that can adapt their products and business models to work in the face of divergent cultural tastes and norms.  Looking at global behemoths such as Disney and Wal-Mart, leading edge product platforms such as My Space and industry trends such as micro brews and the beer industry, the conclusion seems to be that the modern world of information driven consumerism has changed the game since Professor Levitt's seminal article in the Harvard Business Review.  As with everything else in the internet age, customer specific customization seems to present the winning formula.

The latest example of this that I've seen is the experience of Kraft Foods selling it's iconic Oreo cookie in China.  The Oreo has long been my personal favorite store bought cookie -- so much so that when my kids were little, Oreos were called "Daddy Cookies" in our house.  Particularly dunked in milk, they are almost the perfect snack food.  If there were any product I can imagine that should sell itself anywhere in the world just by getting people to try it, this would be it.

Alas, in the world of global consumer tastes and preferences, such is not the case.  Kraft, the world's second largest food seller began marketing the Oreo in China in 1996 (84 years after it was first introduced in the U.S.).  Like many "can't miss" products, it in fact struggled.  It was too sweet for the Chinese palate.   The packaging offered too many at too high a price to be seen as a good buy.

Kraft's efforts under CEO Irene Rosenfeld to become more entrepreneurial in its market approach is highlighted in an article in last Thursday's Wall Street Journal entitled "Kraft Reformulates Oreo, Scores in China."   As profiled in the article, a team led by Shawn Warren who took over Kraft's push in China in 2005 completely reworked the product to the point that a Chinese Oreo would be virtually unrecognizable in the U.S.  It is a reduced sugar concoction rolled around a combination of vanilla and chocolate creme and dipped in a chocolate coating.  The thing that it shares in common with its American namesake is that it is now the country's number 1 selling snack cookie. 

As I think about this story, it seems to me there are two distinct approaches for a company looking at entering international markets -- are you trying to find foreign markets for your existing U.S. products, or are you trying to expand and diversify your company into global markets.  If it is the former that you seek, then you need to be careful to vet the wants and needs of consumers in particular markets to be sure that they align with the value proposition used to sell your current products.  If you are seeking to accomplish the latter, however, aspiring to be a truly global company instead of an American company with products that are sold overseas, then you need to be flexible and innovative in designing products that are right for the markets you are seeking to enter.   Understanding this critical difference may require some initial soul searching that in my experience most companies don't do an adequate job of before taking the plunge into international markets.

Three Simple Rules for Success in Going Global

I have some catching up to do -- blogwise.  The first order of business is to get back to a post on China Law Blog from last month entitled "The China Ready Company -- The Basics".  In the post Dan Harris does his usual astute job distilling the critical points from an article on China for American business people -- in this case a piece from Upsize Magazine by Kent Kedl, founder of Technomic Asia. 

In the underlying article, Kedl advises almost any company to get into China, even if it's "kicking and screaming".  He dispenses some essential advice, however, to make sure that a company does it correctly.  First, he insists that the market analysis that leads a company into China must go beyond the number of people who live there.  As quoted in China Law Blog, Kedl bemoans the company that "went in thinking 1.3 billion people is a market. It's not. It's a population." 

Both Harris and Kedl make the important point that, while large companies might have the wherewithal to lose millions experimenting with the best way to implement an international strategy, small and medium size companies "have one shot".  As Dan Harris puts it, if done incorrectly, small companies can "lose their entire business, not just their new foreign operation. . . [They] have far less room for error."

The second critical piece of advice in the post is that there are more than one way to go international. There is a wide range of vehicles for entering international markets including sales through export facilitators or existing U.S. distributors with international channels, independent sales agents, sales reps and other employees on the ground, partnerships or joint ventures with local distributors abroad, and wholly owned foreign manufacturing and distribution operations.  Foreign operations may also open up different alternatives for technology deployment that don't exist in a company's domestic market.  As Kedl points out, "a company might have an old technology sitting on a shelf that is obsolete here but not necessarily there." 

All of this leads to Kedl's third piece of advice -- "Don't latch onto one particular tool and call it a strategy."   At the risk of being repetitive, it's worth repeating Kedl's descriptive analogy as to why this is so critical.  Regarding a client who had latched onto the idea that he wanted to do a joint venture in China without first doing the analysis as to how his particular business might best enter the market,Kedl concludes "that's like my saying, 'Where are you going on vacation?' and you say, 'I'm driving a Buick."   Sounds pretty dumb when you put it that way.

So the reason I wanted to do a post keying off of the China Law Blog post (aside from the fact that parroting Dan's material can't help but to make one sound more insightful than they otherwise would be), is that while Kedl focuses on the right way to enter the Chinese market, there is in his advice the nugget of a more broadly applicable set of rules for any company thinking of going global.  I would summarize those three simple rules as follows: 

1. Do the market analysis and due diligence up front in order to select the international market which is most likely to be a success for your company's product or service;
2. Once you've decided what market you should enter, go about it in a way which is most likely to achieve your sales diversification and growth objectives in the most profitable way possible; and
3. Let your international market entry and development tactics be driven by your overall corporate strategy for sales growth and profitability -- not the other way around as seems to happen so often.

After all, if in the end your foray into international markets does not make your overall business more successful, then it is unlikely that your international ventures will be deemed a success.  Whether your first inclination is China or India or Mexico or the EU, abide by these three simple rules and you will greatly increase your odds of finding success abroad.

Presidential Primary Edition -- The Candidates, the Parties and Their Positions on Global Trade

This will be my only post for February, but the truth is it has taken all of February to research and write and it's been a moving target.  I started before Super Tuesday when each party had at least 3 candidates whose positions needed to be evaluated.  When time got away from me, it turned into an analysis of where we stood with the candidates still standing after Super Tuesday.  Well it's time to get it done for better or for worse, so having evaluated the candidates' positions on their official websites, as quoted in news stories, and as revealed in their voting records as public officials I've shortened up the analysis. In the end this is probably a good thing anyway -- let's face it, if you're looking to an international business blog to get a handle on where the candidates stand on global trade, you're looking to shortcut some of the detailed analysis anyway.

I should stress at the outset that this is not a political blog, but a blog about international trade and business -- and while I feel that international trade and relations is a critical issue for the US and its soon to be new president, there are certainly a great many other issues that can drive a legitimate difference of opinion over who is the best candidate.  Accordingly, this is not an endorsement column, but I did think it might be a good time to at least look at the remaining candidates' records and stands around international trade.

First off, as a general matter, it used to be that the Republican Party was pro-trade and the Democratic Party tended to be more protectionist given its traditional base of support among labor unions.  On the one hand Bill Clinton, the first Democrat to have been elected to two successive terms as president since FDR, was very much a free trade supporter having spent considerable political capital championing the passage of NAFTA.  At least among Democrats who share Bill Clinton's perspective, there seems to be a realization that the US needs to lead in the world and that exercising that leadership role requires active engagement with the world, and that global commerce is the principle platform on which the engagement will take place -- you need to either play or get out of the game, and they seem to realize that getting out of the game is not an option.

Conversely, the Republican faithful seem to have gone in the other direction.  While I can't lay my hands on the reference, there was a poll reported in the Wall Street Journal last year indicating that over two thirds of Republican's now feel that international trade disadvantages the United States, putting Republican's perspectives on an equally negative footing as the traditional Democratic protectionist view.  As discussed in previous posts, this perspective seems to rest on an unfortunate ignorance of the reality of global trade, but it is this ignorant perception that will nonetheless be forging the GOP platform going into the general election.

Bill Clinton's pro-trade policies notwithstanding, the fact also remains that a great number of the current Democratic leadership are still hostile to free trade. In a post last month on the Economist's View blog, there is a great quote from Alan Blinder in a piece from the NY Times entitled "Stop the World (And Avoid Reality)" in which Mr. Blinder writes:

Opinion polls show that Americans are both weary with and wary of the rest of the world. It’s as if they wish it would all just go away. Naturally, this sentiment is reflected in the current presidential campaign. Among Democrats, it may manifest itself in attitudes toward international trade that range from lukewarm support to outright hostility. Among Republicans, it shows up in attitudes toward immigration — and most things foreign — that border on xenophobia.

So the bottom line is that party affiliation is no guide as to where a particular candidate stands on free trade -- which brings us to the individual positions of the 3 remaining serious contenders and what I can now only describe as a couple of hangers on.

Given the general mood regarding global trade described in Alan Binder's article, I suppose it should be no surprise although it is still disappointing from an international business perspective that none of the candidates address free trade as an issue worthy of consideration on their official websites.  International issues are pretty uniformly cast in terms of the war in Iraq, combating global terrorism, support for Israel, and calls for reform and enforcement of immigration policies.

On the Democratic side, Hillary Clinton comes the closest to suggesting a stand on her official website, labeling one of the substantive issues "Restoring America's Standing in the World".  The discussion it turns out is more around engaging the world on social issues, but her emphasis on the need for America  remaining a "preeminent leader for peace and freedom" through cooperative alliances seems to echo Bill Clinton's view of the need for the US to be affirmatively engaged with the world, avoiding the protectionist jargon that colors so much political rhetoric on international issues.  As discussed more below, however, with the make or break primary in the industrial heartland of Ohio looming, Ms. Clinton's own position on international trade seems to be taking a sharp list on the road to nowhere.

On the Republican side, Mitt Romney (who unfortunately from an international trade standpoint has suspended his campaign effectively dropping out of the race) came the closest to addressing global trade issues on his official website, casting a part of his "Strategy for a Stronger America" as "Winning the Global Economic Competition."  Again, the discussion itself didn't exactly hit the nail on the head, focusing almost entirely on domestic tax policies that Romney promotes as a means of ensuring the competitiveness of American business, but the fact that he sees the issue in terms of competition in a global market of privately held businesses was at least encouraging.  Governor Romney is quoted as follows: "Are we going to stay ahead of the world, are we going to lead the world, or are we going to instead pull up the drawbridge and try to hang on to everything we've got and say we can't compete with the world" -- language reflective of arguments made elsewhere in this blog.

Given the critical importance of global trade to international relations and security and its increasing impact on our own economy, it is both a bit surprising and more than a little disappointing that none of the candidates are willing to address the issue head-on on their official websites other than the somewhat round about indicators on Ms. Clinton's and Mr. Romney's sites.   One would surmise that if the candidates truly believed some of the rhetoric that they use to pander to the protectionist rank and file, they would have no qualms about heralding those positions.  One possible explanation is that being leaders, they in fact recognize that global trade and engagement are real, inevitable and necessary, but rather than antagonize their party base they have decided the better part of political valor is to say nothing at all and hope no one probes too deeply on the question.

Given the paucity of clear positions on their official sites, we can examine their records on the issue.  With respect to voting records, unfortunately Mssrs. Romney and Huckabee (also pretty well out of it at this point), having been state governors but never having held a national office with responsibility for foreign trade issues, do not have any easily identifiable record.  I have not taken the time to this point to investigate with any state trade officials in Massachusetts or Arkansas what positions if any they took on trade related issues as governors.

From his public remarks, one would have to sum up Mr. Huckabees expressed positions as a bit out in left field.  On the one hand he expressed a pastor's compassion for immigrant families, but on trade itself, he has advocated the use of trade sanctions against countries in the Islamic world as retribution for what he sees as their discrimination against Christians.  Somehow further escalating tensions in the middle east and Asia by imposing faith-based and religiously motivated trade sanctions sounds like a step in a very scary direction.  The fact that it looks like we won't really have to answer for that is probably a good thing.

On the other hand, Senator McCain -- the "presumptive" nominee for the Republicans -- has the longest national public record of any of the candidates and therefore has established perhaps the most definitive positions on trade.   If one is pro international trade, McCain has a record to be admired.  According to OnTheIssues.org, the Senator has a near perfect voting record in supporting free trade agreements including NAFTA and even the recently defeated CAFTA.  Last October he gave a speech making the point that "every time the U.S. went protectionist, we paid a heavy price."  Just this month he gave a speech calling for a continued reduction in barriers to free trade, recognizing that "globalization is an opportunity."   

Of the 3 U.S. Senators in the race, Barack Obama has the shortest tenure and therefore a somewhat truncated voting record.  He was firmly against CAFTA.  Although he wasn't around to vote on it, he has made it repeatedly clear that he thinks NAFTA should be reopened and amended to provide more protectionist labor provisions.  In his one departure from a fairly consistent anti-free trade record, he voted in favor of a free trade agreement with Oman.  I'm not sufficiently familiar with the provisions of that agreement to understand what it was that distinguished that agreement from other FTA's in the Senator's mind, but at least it does indicate that he's not anti free trade all the time under all circumstances.

If I had completed this post closer to when I started it, I would have suggested that Hillary Clinton was the most pro free trade of the Democratic contenders including those that have dropped by the wayside.  In addition to the general comments cited from her campaign website above, although she voted against CAFTA, she has voted in favor of quite a few other free trade initiatives including most favored nations status for China, normal trade relations status for Vietnam, free trade agreements with Singapore and Chile, and the removal of many common goods from export restrictions.

Unfortunately, now that she has been forced to fight for survival in the remaining big primaries, she has had to veer back towards the partisan extremes that drive political debate leading up to a party's nomination, and in the case of Democratic activists in an industrial state like Ohio, that apparently means NAFTA bashing.  Although Ms. Clinton applauded NAFTA when her husband championed it during his presidency, and despite the fact that it is probably the single most important free trade initiative ever undertaken by the U.S., she now not only professes to be against it, but seems to feel the need to express shame and remorse for ever having supported it.  At the risk of saying too much, I like Ms. Clinton and think she would make a very good president, and I can think of numerous reasons why it's just plain time to have a woman president, but I do find the backsliding on NAFTA to be disheartening.

So to sum it all up, although Republicans as a group have become increasingly isolationist and protectionist, the party's apparent nominee seems to be very much a free trader, and is willing to go even further in staking out what I think is a sensible but apparently unpopular stance on immigration as well.  Among the Democrats, their records would suggest that Ms. Clinton has a more favorable view of international trade than Mr. Obama, though their pitched battle for the nomination is forcing both of them to skew their rhetoric to play to the protectionists in the labor movement bloc of the party.

Fortunately, each of the 3 remaining serious candidates seem to be bright worldly people.  I have to believe that whatever they may say in the nominating process to appeal to their party's extremes, when faced with the responsibility of leading the free world, they will recognize the benefits to the US of being fully engaged in international commerce and global competition.

Global Interdependence and the Challenge of Risk Diversification Across Markets

The stock markets are in turmoil.  I've been too busy searching for the great Oz in an effort to find out how to best invest in such a volatile environment -- too busy to blog in fact.  The answer has not been forthcoming.

One dependable theory of investing used to be that one could mitigate risk by diversifying across companies, industries and, yes, across markets.  With respect to markets, the thought was that the political, social, economic and other market influencers at work in one part of the world were not the same as were at work in others.  As a result, if the market were to decline in the U.S., there was an excellent chance that it would be still be going strong in Europe or Asia.

The performance of various broad stock market indexes over the past month of upheaval in the U.S. market suggests some problems with the efficacy of the latter part of this diversification theory.  For the month of January before the up-tick of the last 2 days, the broad U.S. market as measured by the Wilshire 5000 index was down 12.4% -- a pretty dismal month by anyone's reckoning; a month in need of some portfolio diversification away from such a bearish market.

Unfortunately here's the hook: over the same month, the performance of other key world stock indexes were as follows:

• China CSI 300      -- down 13.9%
• Russia MICEX       -- down   9.4%
• U.K FTSE 100       -- down 18.1%
• Japan Nikkei 225 -- down  14.8%

Thus far in 2008, it would appear that the worst place in the world to invest in stocks was the U.S., except for all the others.  It would seem that global financial markets are becoming so interdependent and that the information that shapes perceptions of market risk travel so fast and seamlessly that risk mitigation by diversifying across markets is no longer a viable strategy.

So what's the answer?  Investment and business decisions should not be based on market generalities, but rather on specific companies or opportunities.  If you're looking to export to Thailand for example, the question isn't so much whether Thailand's economy as a whole is good or bad, but whether the market dynamics regarding your product or service are good or bad.  Decisions shouldn't be based on the latest hot marker fad, but  rather on the following types of questions:

• Is there real money being made?
• Do the market dynamics make sense in terms of supply and demand?
• What market forces will allow the opportunity to be sustainable?

Of course this approach sounds like the lessons learned after the dot bomb meltdown a few years ago.  When investing, at a minimum one should avoid coupling a bad short term memory with a belief that globalization hasn't already happened.

[Note of attribution: The statistics on changes in global stock indexes from January 1, 2008 to January 23, 2008 taken from the Wall Street Journal -- Chart accompaning story entitled "Stocks Show Classic Bear Signals, And This Time, Impact IS Global"]

Our Space, Their Space and MySpace -- A Paradigm for the Challenges of Going Global

Moving from one's home market into the realm of selling abroad presents a number of unique challenges, even for a company with the backing of a well capitalized conglomerate like News Corp and a dominant position in its domestic market.  From understanding the cultural differences that impact product design and placement, adapting to a more limited availability of complementary infrastructure, facing an array of additional stronger competitors, and overcoming challenges to the company's very business model that can directly impact profitability and investment time horizons, an international business can look very different from the one you have at home.   

Which brings me to the article in last week's Technology Journal section of the WSJ entitled "My Space Aims for Trickier Markets" as it highlights every one of these challenges.  On the one hand, few companies would seem to be better positioned for an easy move abroad than a totally internet based business since there is no bricks and mortar to relocate.  But the obstacles here certainly begin with the need to customize the product to align with differing needs and preferences in foreign markets -- after all, it's not our space, but My Space.

The need for customization includes of course the language of the new target users, but that's only the tip of the iceberg.  Accommodating lesser and greater degrees of complementary infrastructure, in countries with slower internet speeds such as India, the site had to be changed to disable some of the automatic downloading of streaming video.  Conversely, in countries with much faster internet speeds such as South Korea, the content had to be changed to meet the much higher expectations of users.  In countries such as Turkey where social networking is still a developing cultural phenomenon, the site needed seamless tutorials to get people started.  Culturally conditioned to hold the interests of the group over those of the individual, users in Japan were hesitant to list their personal preferences that are so much a part of the U.S. MySpace page profile, but they were more than happy to select from an upgraded array of fan clubs.  Contemplating a move into Israel, the company is developing an internet software platform that will easily accommodate text running right to left for the expected group of users networking in Hebrew.

Does everyone hear the sound of costs going up?  To further challenge the business model, there are obstacles on the sales side of the income statement as well.   While internet use is becoming widespread in many of the new markets MySpace is entering, the idea of internet advertising hasn't caught on to the degree necessary to replicate the revenue streams My Space depends on in the U.S.  This seems to be particularly true in countries that are still moving along the path toward consumer driven capitalism such as Russia.

Overcoming higher costs and the need to develop different revenue streams is easier, of course, if you can go into a new market and own the territory, but the reality is that when a company enters new international markets there is frequently more competition, not less.  In this case, it's not MySpace but their space.  As much as MySpace is the market leader among social networking sites in the U.S., Facebook has already surpassed it in many foreign markets according to the Wall Street Journal piece.  It also faces a roster of additional competitors with names like Orkut, Fotolog, Bebo and hi5. 

So what do all these challenges do to the company's strategic vision for its new market ventures.  According to the Wall Street Journal, executives at MySpace "say launching in these countries won't generate much revenue anytime soon."    Placing what are described as "strategic bets", Travis Katz, managing director of MySpace's international business is quoted as saying "we are looking at places where there is not a ton of money to be made in the next 5 or 10 years."   That may or may not get the CFO of a multinational conglomerate pumped up about the impact of going global on the operating plan, but it can be a particularly tough nut to swallow for a small to medium size company that doesn't have 5 or 10 years to wait before getting a payback on its international business.

Is there a path forward to meeting all these obstacles?  Each market can present unique challenges to a company on both the cost side and the revenue side of the income statement.  Launching into new foreign markets warrants the same type of carefully thought out plan as you should develop for launching and selling a new business idea or product platform.   A detailed and realistic assessment of the size of the opportunity, the costs of capturing that opportunity, your means and costs of financing the venture, and the time horizon from launch to profitability will allow you to optimize your chances of a successful expansion abroad.

What English Shop Stewards Understand About Global Business that Ford Motor Company May Not

It's hardly news that Ford Motor Company has been struggling along with the other US car makers.  Actually, "struggling" is putting it mildly, having reported a net loss of $12.6 billion in 2006.

As part of it's strategy to turn the business around, Ford is exploring the sale of its Jaguar and Land Rover brands.  The company's announced intent is to focus on its North American operations and the Ford brand.  This strategy was highlighted in an article in today's Wall Street Journal reporting on a vote by shop stewards representing the Jaguar and Land Rover manufacturing operations in England on Ford's plans to sell those operations.  The labor leaders would prefer that Ford keep the operations itself, but, failing that, they voted to favor a bid by Tata Motors Ltd., part of the Indian conglomerate, Tata Group.

I think both the labor and management sides of this dance are instructive on the realities of the global market place.  What may be most interesting here, however, is that labor may have a better handle on where to cast one's hope for the future.

It's not surprising in the general that a company faced with major financial challenges would want to rein in its horns and focus on its core competencies.  Ford's case is interesting, however, if one drills down into their financial statements.  In 2006, the company sold over 3.5 million vehicles outside of North America, including almost 2.6 million in Europe, compared with just over 3 million in North America.  Thus, on a unit sales basis, by focusing on North America, Ford has decided to focus on less than half its business.   What's more, from 2005 to 2006, Ford's unit sales in South America grew 14%, its unit sales in Europe grew 2%, and its unit sales in Asia grew 9%.   At the same time, its unit sales in North America declined 11%.   So it has also chosen to focus on the part of its business that is shrinking over the part of its business that apparently has real growth potential.

According to management's discussion, the problems accounting for the losses in North America include unfavorable volume and mix and unfavorable net pricing -- i.e. bad business.  Conversely, management attributes increased earnings in South America to favorable net pricing and favorable volume and mix, and the company's improved results in Europe to favorable volume and mix and favorable cost changes -- i.e. good business.

I don't pretend to understand the automotive industry or the complex challenges facing Ford better than the company's management who is wrestling with these issues day in and day out, but looking at the company's own assessment of its business from the outside and given the advantages of being able to move in a global economy toward those markets in which you can grow as leverage against markets in which business is declining, it seems that Ford might want to focus on its international business as the source of its future success.   

The English shop stewards understand that they already work for a global company with ownership abroad.  They seem content to keep it that way.  In favoring Tata's bid over the other potential suiters, the labor leaders were looking for a company with an established presence in manufacturing and the willingness and financial muscle to return the brands to global competitiveness.  While their official position remains that they would prefer not to have any change in ownership at this point, they are evolving toward the reality that, with no domestic British acquirer in the mix, an Indian company focused on international growth and expansion might be better for them than an American company on retreat.   After all, it is a global marketplace and retreat is not an option. 

Do You Have a Long Tail Business?

I think the concept of the "long tail" is one of the most powerful business model descriptors to come along in some time.  It's why Chris Anderson's book "The Long Tail: Why the Future of Business is Selling Less of More" is on my list of "Must Read" books.  I've discussed the concept in previous posts on this blog, but it surprises me sometimes how little known this idea is in many business circles.  For example, I teach a regular course in strategic and tactical planning for export market development to business people in companies who are looking to expand their international market presence.  In most of those classes it seems as if one or two people at most know what the long tail is about.

In general terms, the long tail is that portion under a normal distribution curve which stretches endlessly out to the extremes past a couple of standard deviations from the mean.  As a business concept, the model of the long tail was first used by Anderson in an article in Wired magazine to help explain the success of companies such as NetFlix and Amazon.  In a nutshell, the idea is that companies with large decentralized distribution centers that drive up inventory costs (think Blockbuster or Barnes & Noble) necessarily have to focus only on products (book or movie titles) that are going to sell enough copies in a given period to justify the costs of stocking the merchandise.   While the few titles that sell thousands represent a huge market, because of the near endless length of the long tail, the thousands of titles that sell one or two copies presents a market opportunity that is as large or larger.  The key is that in order to exploit this opportunity, the company's cost structure must be such that they have highly centralized decision making coupled with a very low cost of distributing small quantities. 

The concept has been used in international marketing to this point to describe why micro-credit works as a business model.  This has been applied predominantly in the extension of very small loan amounts to a widely dispersed rural population in India -- indeed, as a result of this effort, Muhammad Yunus and his Grameen Bank were awarded the Nobel Peace prize last year.

My own interest in long tail theory in exploring international market opportunities goes beyond this however.  Most companies, it seems, are understandably and automatically drawn to the obvious mega-market opportunities in China, India, Brazil and other large markets.  These are the markets under the mean area of the bell curve -- the part of the market where the Barnes & Nobles and Wal-Marts play.  If you are a small or medium size company, there are certainly opportunities here, but you're going to be competing with the same behemoths you face everyday at home. 

So my question is, does your model meet the low cost-high speed /centralized decision making- decentralized distribution framework necessary to exploit the markets in the long tail -- the many small country markets that aren't on the radar of most companies because they can't make money there?  If so, by understanding how to apply this concept to your export market entry strategy, you could own a very large market opportunity.   

If Wal-Mart Can't Impose a Global Standard, Can You?

Even as it faces new challenges to its business model, Wal-Mart remains an entity with considerable market power and global reach.  As chronicled elsewhere in this blog, at $315 billion in sales (or gross company product if you will), if Wal-Mart were its own country, it would be the 21st largest economy in the world ranked by GDP, ahead of countries such as Austria, Argentina and Indonesia.  And the company has global reach -- with $63 billion in revenues derived from foreign markets, Wal-Mart's foreign sales alone would be sufficient to make the company number 21 on the Fortune 500. 

But among Wal-Mart's challenges is its ability to impose its business model in international markets.  The company is struggling in Japan and recently folded up its tent in South Korea and in Germany, moves that the Wall Street Journal attributes to the retail giant's failure "to adapt to local tastes."

Certainly one would think that if any company has the ability to act as a global corporation imposing standardization wherever possible to achieve economies of scale, one would think that Wal-Mart would be such a force.  But apparently even Wal-Mart needs to adapt to local tastes, cultural preferences and parochial market forces to succeed in its international efforts.  I think this underscores the reality that a small to medium size company seeking to enter global markets needs to go into it with an eye toward flexibility and customization, using the agility of its size as a competitive advantage.  One great thing about foreign markets is that they provide an entirely new playing field in which beating the Wal-Mart's of the world is a very real possibility.