Going Global

The Importance of Change Management

I haven't dropped off the face of the earth -- just extremely busy, mostly managing change.  It's a constant, ever more important part of our business success.   It's the reason that Ann Michael's excellent Manage to Change blog is on my "blogs of interest" list.

When companies go global for the first time, they frequently get appropriately focused on the cultural traps that await them in new potential markets abroad.   There is an entire industry of worthwhile consultants who help coach and prepare business people to make their first encounters with potential international business partners a success.  Paradoxically, my experience is that new global ventures frequently fail due to cultural conflict -- but the conflict is not with the cultural norms and demands of foreign lands, but rather the impact that the dramatic change of going global can have on the internal culture of the company itself.

In one of the classes I teach on international market entry planning, before we even begin to examine how a company can begin to look outward to identify international markets in which they can be successful, we spend some time focusing on the internal changes that an international strategy will bring to the business.  Operations has to deal with product changes to meet foreign standards, size limitations, color preferences, electrical compatibility, etc.  That may require retooling.   It may require sourcing new inputs.   It certainly generates additional sku's and inventory to track, store and account for.

Which of course gets finance on the case.   Increased inventory means increased working capital at a time when a principal management focus is on reducing working capital.  That trail leads to a discussion of credit terms implied when goods spend 3 to 6 weeks tied up in ocean freight transit, and the resulting impact on receivables.  Does the strategic benefit of your international opportunity make up for the increase in working capital?  Does the new operation require a different set of financial metrics to be measured fairly?

Meanwhile the nice people in customer service are wondering about all the new shipping terms and documentation requirements, and converting prices to other currencies or sizes to metric -- and can we really provide decent customer service when someone calls with a question in a foreign language?

Legal is justifiably concerned with keeping its arms around the company's IP . . . and tax consequences and export controls and foreign corrupt practices and the impediments to terminating a sales rep or distributor in a foreign country.

HR, if they're on the ball, are thinking about travel policies and the trade offs between productivity and expense -- should the people charged with developing these international markets fly business class or be squeezed into a coach seat for a 12 hour flight?  Are there adequate processes for monitoring the safety of employees traveling to potentially volatile markets?  And how do we hire and train personnel in a distant market, to say nothing of the challenges of supervising remote operations?

As if those details are not enough, when a company starts exploring foreign markets for the first time, there is a murmuring on the plant floor and around the cubicles.   Upper management may be too busy being strategic to hear it, but the anxiety can be palpable.  "What's next -- outsourcing?  I hear they're looking for a manufacturing partner in China."  Grist for the rumor mill.  What could be worse than the ultra-conservative accountants in finance fighting an overt war from the top over working capital while the troops in the trenches are sabotaging your efforts through more subversive tactics from below?

Have a plan.  Make sure the international team is cross functional.  Get buy-in.  Be flexible without being afraid.   Master your company's cultural differences before worrying about a foreign faux pas.  Manage change.  Start with Ann Michael's "Manage to Change Manifesto" and build from there to success.      

Same Model / Different Result

Today's China Law Blog contains a short but pithy post reporting on remarks by GE's chief patent counsel on strategies for protecting IP in China.  While I commend the post to you for a concise list of points to consider in filing for patent protection in China, I was most struck by Dan Harris's comment at the conclusion of the post to the effect that

The decision making model to be used in deciding whether to file a patent in China is really no different from that in North America and the European Union.  However, because the facts on the ground with respect to patents in China are so different (in particular, the rampant counterfeiting and the low damage awards for infringement) the actual decision itself will often be very different.

In previous posts here, I've made similar observations regarding what customers want ("Foreign Customers -- Same or Different?") and what constitutes good communication ("Cultural Differences and Good Communication").  When it comes to meeting the challenges of international business, companies are often looking for new models or paradigms to guide their decision making.  The fact is that in most areas that I can think of, the model is the same.  The critical variables that need to be understood are the demographic and cultural dimensions that dictate the different results that those models can produce in any given market situation.  Business is not so different, but you must understand your customer.

The Long Tail and the Forseeable End of Global Standards

In an earlier post I raised the question whether Ted Levitt's original conceptualization of the global corporation as one which strives to impose standardization on its markets regardless of where in the world they are found had survived the changes that the information economy has wrought.  One doesn't need to look very deeply to see the impact that the ability of small businesses to reach consumers and the ability of global consumers to find prices and availability from small far away companies has had on the increase in the number of enterprises that are able to compete in international markets.  But the ultimate answer as to whether the standardization of product remained the predominant path to global success remained obscured by the intricacies of sub-markets and differentiation of business models.   

There is still much to be said about these two subjects (sub-markets and business model differentiation).   But even while I wrote a post about at least one company's reasoning as to why standardization was hard to achieve and perhaps even not competitively desirable, the pull of Levitt's original argument seemed inexorable.  The more I study and think about the impact of the long tail, however, the less inexorable standardization seems.

I had seen Chris Anderson's original October 2004 article in Wired magazine, referenced in an earlier post, not too long after it came out, but at the time it struck me as an interesting article limited in applicability to the delivery of modern media.  Over the past year, I've read more and more references to it as a concept with broader applicability in explaining innovative business models.

Just this summer, we finally got "the book" - "The Long Tail: Why the Future of Business Is Selling Less of More".    With this post, the book also makes my must read business book list at right.  Anderson has now fleshed out his arguments, thinking and analysis to the point that it provides a powerful explanation of universal forces changing the face of markets everywhere and how companies can and should be reaching them.

Early on in the book, Anderson tells an anecdote that finally pushed me affirmatively off the "standardization is still possible" bandwagon that I had been clinging to if only because Ted Levitt was Ted Levitt and I certainly am not.   Part of the formative process for Anderson's long tail conceptualization involved giving presentations about the idea and building on the feedback.  In the course of those presentations, he reports that he was routinely asked to give some examples of products or industries where the long tail had no impact (Google, Amazon and Netflix being three of the most prominent examples of companies which have employed long tail thinking to their strategic advantage).

His answer to this question was "some undifferentiated commodity where variety is not only absent but unwanted."   As an example of such a commodity, he suggested flour -- his not unreasonable assumption being that once you get past white versus whole wheat, flour is pretty much flour.  He then describes a visit to Whole Foods after one of these presentations and finding "more than twenty different types of flour ranging from such basics as whole wheat and organic varieties to exotics such as amaranth and blue cornmeal."  Go to any grocery store and you'll see that it's true.  And of course it's not just flour -- check out toothpaste varieties or yogurt brands, flavors, styles and packaging. 

When all is said and done, companies no longer have the market power over consumers to standardize product offerings in a single aisle in a grocery store.  That concretely observable fact has convinced me that the notion that companies can impose standardization on a global market place is officially dead.  Long live the Long Tail!