Going Global

The EU -- One Market or Many?

The EU resuscitated its drive to adopt an updated political structure this past weekend by agreeing to the terms of a proposed treaty that would control the common governance of its member countries.  By calling the document a "treaty" instead of a "constitution", the member governments hope to avoid the need to put the document up for a vote of their constituents which resulted in a messy rejection of the idea last time around.  Presumably governments can enter into treaties that govern their arrangements with their neighboring countries without a plebiscite, while a constitution, at least in a liberal democracy, requires the consent of the governed.

While this end run may allow the EU to act more effectively as a consolidated political entity once it is fully in place, the question remains for a company looking to Europe as a potential export market whether the EU operates as a single economy or as many diverse markets.  Depending on your particular product or service, it may be a little of both.

On the single market side, the EU certainly has

• a common currency
• an integrated transportation infrastructure
• a trans-national regulatory framework.

On the other side of the ledger, the EU has

• individual constituents that speak many different languages
• national regulatory requirements
• local cultural preferences.

The EU in which your company will do business may depend on the level of the market to which your goods or services appeal.  One helpful paradigm for understanding how this might play out is the Global/Glocal/Local framework proposed in a Harvard Business Review article in October 2006.  The idea here is that each country's market operates at several different levels, one being the "global"  level where consumers seek products and services that conform to global standards at global prices, a second being the "glocal" level at which consumers seek global products and services with some local features and at prices somewhat lower than the global price, and a third being the "local" level at which consumers seek products and services appealing to local tastes and preferences at prices determined by local competition.

The more your product plays in the global segment of the market, the more the EU will seem like a single market.  Conversely, the more local your product offering, the more the EU will be comprised of many smaller markets.  Understanding which of the EU's two market personalities you will encounter is critical to your company's success as it affects everything from choosing the locales in which you are likely to be successful, determining whether any product customization's necessary, the need to translate your literature, and the breadth and fluency of your sales force.  And I don't see these market dynamics being altered by a new governing document whether it's a treaty or a constitution.    

Disney's World -- Even a Global Behemoth Must Prove Nimble in the New Global Marketplace

If there is one product category that U.S. companies have been able to export where the American character of the product is itself part of the winning value proposition, it's cultural works such as movies, television and music (as well as cultural clothing such as blue jeans and slogan-bearing T-shirts).  And if there were ever a market that was begging for cultural products that appeal to the "tween" set, it's India where the population under the age of 14 is larger than the entire population of the US.

With that going for it, if there is a company that should be able to act as a global company in the sense that Ted Levitt defined it (i.e. a global company "operates with resolute constancy . . . as if the entire world (or major regions of it) were a single entity"), it should be Disney promoting family friendly movie fare in India.  As illustrated by its co-venture with Bollywood film studio Yash Raj Films to be announced today (and as detailed in an article in today's Wall Street Journal), Disney's efforts in India are in fact the latest illustration of the reality of the global marketplace discussed in previous posts on this blog.  Even a global behemoth must customize its product and service offerings in order to meet the demands presented by foreign consumers, who like internet age consumers everywhere, want what they want, when they want it and how they want it.

In Disney's case, even the tame portrayal of budding boy-girl relationships and sometimes peevish middle school behavior is offensive to the Indian film distribution companies and their audience.  Likewise, story lines based around baseball and basketball don't capture the imagination in a country where cricket is the national pastime.   Bollywood has also produced quite a few Indian movie stars who have much more appeal to the Indian audience than some of the names from Disney's stable of talent in Hollywood. 

In a clear refutation of Levitt's analysis of global corporate power to dictate what consumers buy, according to the WSJ article, Disney has had to change from its "traditional approach [which] was largely to force-feed its US products from its Burbank, Calif. headquarters."  Instead, "the company ultimately concluded the cookie-cutter approach wouldn't work, and now is going country by country."  The new global reality "means discarding Disney's historic obsession with going it alone -- and instead joining forces with local experts to produce culturally customized fare."

It's a global marketplace, but each country presents a different market segment and a different voice of the customer.  To be successful, you must make sure that your value proposition -- the story that you tell your customers -- translates well across cultural differences.

Russian Capitalism -- A Short History and Even Shorter Memories

Russia is among the hot emerging markets these days for companies exploring both export opportunities as well as international expansion of foreign operations.  There is no question but what the economy has stabilized since Vladimir Putin took the reigns of power and GDP has been growing at an enviable pace.  But while there are certainly viable business opportunities to be had in Russia, some companies that I've spoken with and read about seem to have forgotten that Russia is still a risky place to do business with a limited track record of success.

In our fast paced world where last year seems irrelevant to today's hot trends, it is easy to lose perspective on the fact that The Wall which segregated the former Soviet Union from much of the emerging global market economy came down a scant 18 years ago.  That historic event was followed by a decade of chaos during which the emphasis was on democracy for democracy's sake, leaving the economy largely in the hands of organized crime bosses. 

Putin, who came to power 7 years ago, has brought order to the chaos, but it seems to be coming at a price.  Indeed, while the economy as a whole has been growing, the European Bank for Reconstruction and Development reports that the share of the economy attributable to the private sector has actually declined.  AM Best gives Russia a "Tier III" risk rating.  With GDP (PPP) of $1.5 trillion, Russia's economy is 1/10th that of the U.S. or EU, less than 1/5th the size of China, and only about 40% the size of India's.  Given an economy propped up by world demand for its rich oil reserves, an increasing emphasis on government control of infrastructure industries and the media, and the recent saber rattling at the West, Russia in many ways resembles Hugo Chavez's Venezuela more than a hot emerging market.

Having gone from the state controlled economy under the autocratic rule of the Tsars directly to the planned economy of a socialist state without ever passing Go, Russia has one of the shortest histories with a free market economy of any country in the world.  If Russia were a stock, it would be on my watch list, but I'd be hard pressed to rate it a "buy" for any but the least risk averse investors.