Going Global:

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.

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.