Going Global

McMarket Research -- Food for Thought or Indigestible Data?

In an earlier post I talked about some of the sources for on the ground market research and trend spotting such as trade shows.  I had not considered a foreign McDonalds hamburger restaurant, however, to be an international market research laboratory until reading a recent post on the Japanese cultural commentary blog Japundit.

Certainly one thing about a business which is both standardized and ubiquitous is it provides a basis for controlled comparisons across borders.  The Economist has been using comparisons of the price for a Big Mac hamburger as a means of indexing real exchange rates to purchasing power for 20 years.  The worldwide impact of the "Big Mac" index is such that it is translated and relied on in many languages, as illustrated by the interesting chart presentation at right from the German business news site Die Welt ("The World").  A discussion of the index can also be found on the McChronicles blog, a site not affiliated with the company but nonetheless dedicated to all things McDonalds.

The Big Mac comparison was extended a few years ago by researchers at Princeton University and Charles University to provide a measure of comparative productivity through an analysis of the number of Big Macs turned out per employee at comparatively busy locations in different countries.

But it was not until I read Japundit's review of the Shaka Shaka potato product currently being offered at McDonalds in Japan (you have to read the original post on Japundit to fully appreciate this product), that I appreciated the potential for individualized on the ground market research.  The Japundit post suggests that one can glean a great deal about reactions in a particular country to the influences of American culture, both good and bad, by seeing what aspects of a standardized franchise such as McDonalds are preserved and what aspects are changed in order to appeal to local consumers.  The argument makes sense, although I am still weighing whether I want to risk the irreparable damage to my digestion and my self image if I start eating at American fast food joints while traveling abroad just so I can add incrementally to my evaluation of a particular global market.   Then again, who am I kidding -- I have eaten in a McDonalds in at least 10 different countries on 4 continents that I can think of.

What Do You Have to Do to Get a Visa Around Here?

The comment in my last post on the impact of immigration policy on international business apparently hit a responsive chord with quite a few business people -- particularly with respect to the problems posed by the difficulties in getting a travel visa from another country into the US so that foreign employees or customers can come to the US for training and plant visits. 

I was meeting with a representative of the US Department of Commerce this week and I posed the question whether there is anything a US business can do to overcome some of these obstacles.  I can't say that he was brimming with optimism, but he did make a couple of suggestions that I wanted to pass on here given that we're all operating in an "anything would help"  mode at this point.

• The representative (he asked not to be identified) told me that the consulates receive so many forged letters allegedly supporting an invitation to visit the US for business purposes that they simply disregard most of them (his exact words were that "they throw them all in the trash").   The solution that he suggested was to find a contact in a local US government office concerned with these issues (Dept of Commerce / USEAC / Dept of State) and see if that person would be willing to  forward via the US government e-mail system a scanned version of your letter of invitation.  Having received the letter in this fashion with the local official vouching for the bona fides of the sender, my contact's belief was that the letter would be given much more weight -- or at least be spared the trash bin.
• His second point is that the consulates treat every applicant for a visa with the presumption that they will become a permanent immigrant -- and they devote less than 10 minutes to determining whether that presumption is correct or not.   Accordingly, when your customer or employee appears for their "interview", it would behoove them to be ready to present in an organized fashion as much documentary evidence as possible that they have strong ties to their home country and every reason to return.   These documents include evidence of home ownership, a wife and children, bank accounts and business interests.
• Finally, he told me that there has been an internal acknowledgment from cabinet level officials that the pendulum has swung too far toward restrictive visa approval and direction is filtering down to loosen the reins.   Having said that, however, he indicated that while he expected things to improve noticeably for countries such as Turkey or those in eastern Europe, he was under the impression that China particularly would remain a very tough place to obtain travel visas.

Hopefully that information will help somewhat -- although the ultimate solution may still rest heavily upon the voice of the business community, particularly small and medium size businesses, pressuring their government representatives over the negative impact that these policies are having on their business and the US economy as a whole.

Immigration and International Business -- Legality vs Legitimacy

At first blush, the currently raging debate over immigration may seem more a matter of domestic policy and enforcement than international business, but there is a very real connection between  the two.   A few aspects of that interconnectedness are as follows:

• The policies that the US adopts towards people from other countries seeking to live and work in the US can have a direct impact on the policies adopted by other countries towards Americans wanting to live or work abroad;
• The attitude toward alien workers here, both legal and illegal,  spills over into attitudes and enforcement policies regarding work permits and visas in many contexts which directly affects American companies doing business abroad.   I know of several instances in which American companies have been unable to get a work permit for a foreign employee whom they wish to do a stint at US headquarters for training purposes and to further the acculturation of key employees responsible for foreign operations.  I also have several small business clients who are being killed in their export operations in China because of a complete inability to get visas issued so that customers and employees can visit their plant in the US.   This, of course, is exactly the kind of restrictive trade policy that will encourage small US manufacturing businesses to relocate operations overseas in order to support export positions that would otherwise be serviced from the US -- which is the exact opposite of what anti-immigration pundits are trying to accomplish -- a classic example of an unintended consequence.
• The ultimate solution to large scale illegal immigration is economic development in the originating country (in this case, read Mexico).   One of the key drivers to this economic development will necessarily be private foreign investment by US companies, such that international business by American companies is, in a very real sense, one of the keys to resolving the current "crisis" over illegal immigration. 

I had the opportunity recently to hear an address by Hiroshi Motomura who is a Distinguished Professor of Law and Associate Dean of the University of North Carolina School of Law, and who is one of the leading authorities on immigration policy, having  authored the most widely used case book on immigration law.   Professor Motomura is also author of a new book entitled Americans in Waiting: The Lost History of Immigration and Citizenship due out in September.  (To read a currently available article by Professor Motomura on one aspect of immigration policy, see his comments published in the Boston Review).   

Among the many interesting points made in his address, Professor Motomura drew a distinction between legality and legitimacy.   His point was that while many immigrants are here without the requisite documentation and are hence "illegal", there has been a long history of affording "legitimacy" to their presence by selectively enforcing or intentionally not enforcing immigration laws in order to accommodate the reality of the critical contribution that undocumented workers make to parts of the US economy.   He noted that this history of economic accommodation and benign lack of enforcement dates back to the use of undocumented workers to construct much of the transcontinental railroad in the late 1800's -- and of course continues through the present. 

A very current example of the US providing this legitimacy to undocumented workers can be found in an article entitled "Big Cities Reluctant to Target Illegals" published in today's USA Today [Note: The paper's on-line edition will not support a direct link to the article, but search for "local police" and "immigration enforcement" on their site and the article should be the first result returned].  According to the article, many local police chiefs, mayors and city councils from cities such as Chicago, New York and Minneapolis have instructed their police forces not to assist federal agents seeking to "crack down" on illegal immigrants.  Among the rationales for this stand is a belief that participating in the crackdown would undermine some of the positive strides that police have made in combating crime through community relations based policing efforts.   It would be hard to think of something which sends a clearer signal of legitimacy than a refusal by the city government and police to enforce the law because it interferes with sound local policy and police practices.

Immigration policy is obviously a tremendously complicated problem as well as one which generates even more of the usual ideological fervor that characterizes so many "hot button" issues.  My point here is that international business has a very real stake in this debate, and while I know it is too much to hope for in the midst of the heated argument raging over immigration policy, it would be nice if business could bring a little rationality and sanity to the table before someone starts to wall us off from the rest of the world in the vain hope that the rest of the world will take their problems elsewhere.

Walking the Tightrope to Profitability in China -- Must We Work Without a Net?

China is well known for its acrobats performing stunning feats high above the circus floor without a net.   I imagine its the same feeling that many foreign business people in China have.   I am struck over and over again about conversations with business people who are pumped about the opportunities in China but who have lost money pursuing them.   With so much growth and abounding economic opportunity, how can so many companies be losing money?   I think the answer lies in part in the greatly increased importance of contingency planning when putting together strategies to enter a quickly developing market such as China.

There is an interesting article in today's Wall Street Journal about the impact of the fast growing auto industry in China ("As China's Auto Market Booms, Leaders Clash Over Heavy Toll") which illustrates the kind of tension that can whipsaw market opportunities for the unwary.  Car sales are up over 50% in the first three months of 2006 alone.   Exacerbated by the low quality / high sulfur gasoline that all those new cars are forced to burn, however, China's cities face air pollution problems that have governments such as Beijing's considering such draconian (though perhaps ultimately necessary) measures as prohibiting all private cars within the city.   One of the greatest miracles of China's growth story has been the government's ability thus far to maintain the delicate balance between rapid growth and its negative impacts.  But it is a delicate balancing act indeed and looking at issues such as the one currently being debated between the economic boon of the booming auto industry and the looming environmental disaster can give one pause in deciding where on the growth curve to dive into the market.

Another interesting factoid in today's Journal was a table of countries with the worst and best records on software piracy.   China, to no one's surprise I suspect, was near the top of the worst.  I think the real message to business people outside the software industry is that China is a country of fast adapters eager and willing to bring promising new technologies "in-house".   Any market position that you develop will be under far more serious competitive assault here than in a more fully developed market.

The moral: unless you're comfortable making like a Chinese acrobat, create a net for your business plan -- increase the time and focus on the contingency portion of your plan for China.

International Success Built on a Foundation of Trust -- The Importance of Keeping Open Eyes, Open Ears and an Open Mind

When you are doing business half way around the world, certain problems of putting successful deals together and managing people and operations become magnified.   Communication is made more difficult as people grasp for understanding in a second language or concepts become lost in translation.   Cultural nuance becomes a trap for the uninitiated.   And your ability to gain critical information from and to supervise the activities of sales agents / distributors / JV partners / operations managers becomes exponentially more difficult.   

The one viable solution to these problems is to take the time to develop a relationship based on genuine mutual understanding and trust with your foreign business colleagues.   Unfortunately this requires patience, a quality frequently in short supply in the fast paced world of the information economy, particularly for American business people used to closing the deal.   The problem is at times further complicated for Americans delving into international commerce for the first time by a certain ethnocentric view of our inherent likability and trust-worthiness.   While there is more often a healthy concern for whether we can trust our foreign would-be business partners, short shrift is given to whether they can trust us -- and that is an unfortunate mistake which leads to problems down the road and can undermine the ultimate success of the venture.

So what's not to trust -- after all, we are model business people used to operating in the world's most successful economy.   Our foreign contacts should be prepared to emulate us, not treat us with suspicion -- no?   Like it or not, many people abroad, including many business people in our allied states, have a love-hate relationship with America.  We may be envied or revered, but also frequently feared for our aggressiveness and suspected for our motives.

One principle of good business that I've always been a firm believer in is that you cannot afford to listen to only affirming opinions.   To be successful, you must make a genuine effort to hear and understand discordant information.   It is in this light that I recently added a new book to my "must read" list -- Failed States by Noam Chomsky.

Professor Chomsky's book may not be an obvious choice for a "must read" in international business.  For one, he is a professor of linguistics and philosophy at MIT and his work is generally more in the realm of political science and foreign policy than international business.   Second, he is not without controversy.   Among other things, he has the distinction of being profiled in David Horowitz's recent book "The ProFessors -- The 101 Most Dangerous Academics in America", although even Horowitz (the self-anointed arbiter of the western intellectual canon) acknowledges that Professor Chomsky is among the most cited living authors and quotes, among other sources, a New Yorker profile in which Chomsky is called "one of the greatest minds of the 20th century" (profile by Lavissa MacFarquhar, March 31, 2003).   Perhaps the greatest homage to Professor Chomsky in this internet age is that there is a Wikipedia article devoted to him and his work.

More to the point of this post, as Horowitz states, "[Chomsky's] following has grown, particularly in Europe and Asia, where his views have helped inform an inchoate anti-Americanism" (The ProFessors p. 87).   I'm not so certain that one can attribute anti-Americanism abroad to Professor Chomsky as much as to the perception of some of our government's foreign policies -- I've certainly never had anyone in Europe or Asia cite Chomsky as the basis for their concerns with America's place in the international arena.  But the point is that the mistrust and suspicion are real and widespread.

At the risk of over-simplification, the central thesis in Professor Chomsky's book is that the United States itself resembles many of the rogue nations that it has deemed to be "failed states" in that (1) it frequently disregards or unilaterally abrogates well established principles of international law and norms of conduct; (2) it has an uneven record with regard to democracy and freedom abroad in that it has often propped up ruthless tyrants when it suits its self interest better than the popularly supported alternative; and (3) policies are adopted and acted on which contravene the popular will, suggesting a systemic erosion of democratic institutions at home as well. 

Now one can easily disagree with the professor's opinions and conclusions -- I for one disagree with his extension of his thesis to condemn the globalization of commerce or his seemingly gratuitous criticisms of free trade agreements such as NAFTA.   But the book is very well written and copiously annotated with references to source materials such that a reader should at least come away understanding that his arguments have a rational foundation and appreciating how people in other countries could view America with fear and suspicion, even if we continue to be live that it is the result of a misinterpretation of our true intentions.

The good news is that business people the world over share a certain understanding of principles and language related to sales, velocity, profitability and their impact on the opportunity to improve one's standard of living.   Accordingly, it seems usually to be the case that common ground can be forged and a mutuality of respect and trust established in the context of a commercial transaction which transcends the acrimony created between our governments and their politics.   But when you go abroad in search of that common ground that will lead to success in the global marketplace, know what baggage you carry with you lest you get derailed by unspoken suspicions or hidden agenda.

(Attribution Note: The Rumsfeld cartoon appeared in Vol. 16, No. 5 May 2003 issue of Z e-magazine accompanying an interview of Noam Chomsky by V.K. Ramachandran entitled "Iraq is a Trial Run".)

The Most Amazing Display of International Statistical Data Is a Click Away

Have you ever wanted a quick place to check country statistics such as population, per capita GDP, level of international debt, etc.?  -- You have to check this Chart / Map out!   

It is an interactive display for data that allows you to instantly access these statistics sorted by country, region or national income level for any time over the past 40 years.   Some data is displayed on a changeable world map while other data can be manipulated on a bubble chart.   And however I could describe it, I can't do it justice.

The site itself is a project between Google and Gapminder.   I found it thanks to a post on Dan Harris's great China Law Blog.   I will give you fair warning, however -- be prepared to play with this thing for a while -- its literally fascinating!   When I first got on it, I wound up skipping lunch as I suddenly realized an hour had passed since I started taking it for a spin.

Is "On-shoring" an Alternative in the Fight to Maintain a Competitive Advantage?

Most of my consulting practice involves helping companies with export market entry plans, and that frequently involves development of what I call a "Phase II" plan on how the company will ultimately protect the market share it develops against rising local competition by eventually "getting on the ground".   I think developing foreign based operations to support sales in another region is different than "off-shoring", although much of the planning and execution may involve similar analyses.  But occasionally I do get the opportunity to look at a company's decision to establish foreign based operations as a means of gaining a competitive cost advantage on product that they plan on re-importing to the U.S. -- which is the classic "off shoring" model.

This is a difficult decision fraught with exposure to misestimation and miscalculation that can turn what sounded like a good idea into the sort of "money pit" that can cost a large company a bundle in wasted investment and distracted resources and can doom a small company altogether.  My last post addressed this issue from the point of view of carefully examining alternative locations for the foreign based operation -- for example Mexico vs. China or India. 

I recently read a very insightful article by independent management consultant and former McKinsey & Co. principal John Hagel on his Edge Perspectives blog discussing the alternative of "on shoring" -- that is developing a competitive advantage by staying put in the U.S.    (John is also the co-author with John Seely Brown of the book  "The Only Sustainable Edge: Why Business Strategy Depends on Productive Friction and Dynamic Specialization").

John's post takes off from an article by Louis Uchitelle which appeared in the September 4, 2005 edition of the New York Times entitled "If You Can Make It Here . . . " -- a reference of course to Sinatra's "New York, New York" played, among elsewhere, at the end of every Yankees' home game.   The article profiles the efforts of Harley-Davidson, Haas Automation and Hiwasse Manufacturing to maintain a competitive advantage while avoiding off-shoring.

The essence of the strategy is that job stability and fluid cross training opportunities can create a culture of dynamic internal innovation sufficient to create a competitive edge which more than offsets any wage cost disadvantage.   It's an intriguing notion and one which has apparently worked at least for these three companies.  I suspect that It might be more difficult to implement this kind of dynamic cultural change at a small company where the cross training opportunities are more limited and the work force is inherently less fluid.  Nonetheless, in the interests of analyzing all the options, this seems at least worth a serious look.