The How-To's of Becoming a Successful International Business
A successful product in one country does not guarantee success in another, so what does it take for a business to succeed beyond domestic borders? Although there is no one answer as you will see below - what works for some, does not work for others - the following is a starting point for any business who is planning to go global. Below are seven lessons encompassing what to (fill a need, innovate, customize, etc.) and not to do ( underestimate your competition, not know your market, etc.) to take a business global.
Lesson #1: Pinpoint and Fill an International Need
A product/ service will not be needed or demanded to the same degree in all parts of the world. Demand is dependent on a myriad of circumstances, such as GDP per capita, culture, climate, etc. An international unfulfilled need is required in order for a business to be successful in more than one nation and businesses need to capitalize on new needs as they emerge. Therefore lesson #1 is to pinpoint a need in another nation which your business can fulfill.
Vodafone, a British telecommunications company, has found a need in Africa. As nations in this region grow increasingly wealthier, demand grows for telecommunication services and products. According to Bloomberg, Vodafone Africa has become a "profit machine". Vodafone’s biggest African business, Johannesburg-based Vodacom Group Ltd., surpassed the company’s U.K. unit in 2010 by profit, and it outpaced the Spanish division the following year. With earnings expanding at 50 percent annually in some countries, profit from Africa could overtake that from all of southern Europe in as little as three years, said Nick Read, the executive who heads the region (Thomson).
By the same token, luxury brands have found a home in developing or emerging markets as well. Due to the increasing success of these nations and subsequent increase in wealth of their populations, there are large pockets of their people who demand luxury items. A need has emerged with the rise of newly affluent consumers in fast-growing metropolises such as Hong-Kong, Seoul, Shanghai, Mumbai, and "ultra-luxury brands like Chanel, Louis Vuitton, Cartier, Ferrari, Hermès, BMW, Prada, and Rolex are aggressively expanding their physical footprints and shifting their marketing strategies to reach this new audience", according to Russ Banham, a veteran financial journalist and contributor to The Wall Street Journal, Chief Executive, CFO, and many business publications. The French conglomerate LVMH recently reported that it now generates more revenue in Asia-Pacific ex-Japan (28 percent) than it does in the U.S. (23 percent), with 670 stores in Asia-Pacific ex-Japan and 644 in the U.S. Similarly, of the 28 stores Tiffany opened in 2012, two were in Mexico, one in Brazil, five in the United Arab Emirates, and eight in the Asia-Pacific region (Banham). Prior to the rise in wealth of lesser advanced nations, sufficient demand for luxury items and services only existed developed nations, however that is no longer the case and as a result, a new need has emerged and successful international businesses have capitalized.
As these companies have been able to pinpoint and expand to areas which present a need for their products and services, they have reaped the rewards of a widened market and thus greater sales, profits and global market share.
Benedicte Desrus/Sipa USA, via AP Images
A customer at an M-Pesa service outlet in Gatina slum, Nairobi. M-Pesa, Vodafone’s mobile payment system, is used by 15 million people in Kenya and moves the equivalent of 31 percent of the country’s gross domestic product through its system (Bloomberg).
Lesson #2: WHen in rome, do as the romans
When businesses attempt to operate in parts of the world foreign to them, it is important to tailor products and services to the needs and wants of the potential consumer base if needed.
For example, when Seattle-based coffee mega-chain, Starbucks, first opened its doors in the highly conservative kingdom of Saudi Arabia, the company altered its logo to fit the customs and preferences of the particular nation and its consumers. Starbucks removed the woman from the logo, as it was not in accordance with Saudi Arabian standards and kept only her crown (Quinn). When asked about this alteration of Starbucks' trademark, Peter Maslen, president of Starbucks Coffee International in Seattle, said in a statement: "As a company that is entering many international markets, we are very sensitive to, and highly respectful of, local religious customs, social norms and laws." He declared further that Starbucks won't impose its will and values in countries where it does business (King). Other major companies as well, including McDonald's and Pizza Hut, have also changed business practices in "deference" to Saudi customs, including maintaining segregated seating in their restaurants and having separate entrances for women and men (Manning).
Similarly, international banks have also adopted various policies which allow them to be more successful in foreign environments, tailoring their products and services to meet the criteria of international customers. For example, Citibank Malaysia, Citibank UAE, etc. have options which conform to Islamic banking guidelines in order to better serve their customers. A checking account with Citibank Malaysia, for example, "honours the Islamic banking principle of guaranteed safe custody. Funds deposited will be placed in investments approved by the Shariah body. The bank will, at its discretion, distribute part of the profits gained from these investments in the form of hibah to you (Citibank)"
These highly successful companies each succeed, in part, due to the fact that they are willing and able to customize their businesses to best provide for their international customers.
Starbucks logo altered to fit the needs of their Saudi Arabian customers.
Lesson #3: Protect your assets
When doing business in foreign nations it is also important to understand the potential security risks one might face in any part of the world. Businesses must proactively deter security threats for the safety of employees, investors and customers.
For example, PricewaterhouseCoopers, a multinational professional services network has not achieved a network of firms spanning 157 countries by leaving its assets unprotected. PwC already uses anti-virus, laptop whole disk encryption and "aggressive" patching to secure its large percentage of employees who move between locations, but last month, the Swiss arm of PwC installed Privilege Guard security platform on its thousands of laptops to further secure its digital assets (Dunn).
Beyond digital asset risk, for certain industries there is the potential for physical security risk. Maersk, Danish business conglomerate primarily in the transportation and energy industries, has had its security risks immortalized in film. Captain Phillips tells the tale of the very real danger of piracy for international businesses in these industries. According to Maersk Group however it is continually and aggressively pursuing methods of protection and thus has become a successful international business. Through the Danish Ship Owners Association, they are involved in a number of UN, EU and NATO working groups and meeting devoted to dealing with this threat. They continuously update their comprehensive set of security instructions for ships that transit the Gulf of Aden or Somali Basin, maintain a policy of not arming crews or allowing armed guards, keep on-land security officers which continuously monitor and asses areas of political unrest, etc. (Maersk Group)
These are just a few highlights of the extensive security protocols the aforementioned companies maintain. They would not be the highly successful international businesses they are today if they did not effectively protect all assets of their businesses.
Lesson #4: innovate
To achieve enduring success it is important that your international business is focused on improving and adapting to the ever-changing world. Innovation is required to maintain or gain competitive advantage, build or retain your consumer base and ensure long-lived success.
For example, IBM, the American company which reported $22.5 billion in total revenue last quarter, has been focused on continuous innovation for more than a century. Patenting is an important barometer of that innovation, and IBM has topped the annual list of U.S. patent recipients for the 20th consecutive year. From 1993-2012, IBM inventors received nearly 67,000 U.S. patents, and in 2012 alone, received a record 6,478 patents, exceeding the combined totals of Accenture, Amazon, Apple, EMC, HP, Intel, Oracle/SUN and Symantec (IBM Research).
Daimler, which credits itself as the inventor of the car and truck, has assumed responsibility for their future. For example, a particularly interesting innovation they are currently working on will revolutionize the relationship we have with our automobiles - the car may become "a friend and a concierge" (Heuer). The company calls this innovation Predictive User Experience, as it turns a modern passenger car into a learning system. “This is no longer a pipe dream – within the next ten years, consumers can look forward to a vehicle with contextual intelligence that will know their habits and adapt to their wishes and needs as if by magic”, explains Johann Jungwirth, President and CEO of Mercedes Benz Research and Development North America in the heart of Silicon Valley (Heuer).
Technicity DaimlerPredictive User Experience prototype by Mercedes-Benz Research & Development North America.
Lesson #5: Nice Guys Don't always finish last
In a world where word of mouth is the number one driver of sales and competitive advantage, businesses need to focus on building strong bonds with stakeholders due to the strong correlation between a company's reputation and consumers' willingness to recommend it (Smith). Although companies should of course strive to earn the trust and admiration from consumers of its native land, international businesses really need to be well-liked everywhere else too.
Reputation Institute, a global private consulting firm based in New York, recently ranked 100 businesses that have successfully established strong international names for themselves. The firm invited about 47,000 consumers across 15 markets to participate in a study of those 100 most reputable companies, all multinational businesses with a global presence. “In today’s reputation economy, what you stand for matters more than what you produce and sell,” says Kasper Ulf Nielsen, Reputation Institute’s executive partner. “People’s willingness to buy, recommend, work for, and invest in a company is driven 60% by their perceptions of the company and only 40% by their perceptions of their products." (Smith).
For example, BMW, the German automaker is in the top 10 for all seven dimensions (workplace, governance, citizenship, financial performance, leadership, products and services plus innovation) on a global level, and in the top 10 in 10 of the 15 markets, earning the title of world’s most reputable company for 2012. “BMW has earned the trust and respect of consumers all around the world though its consistent focus on delivering high quality in all of its actions,” says Nielsen (Smith).
No. 2 Sony earned a 79.31 global score. It earned a 76.15 in Japan–which shows that it was able to overcome the challenges that all companies face when trying to build trust and support among consumers in foreign markets. The Japan-based multinational electronics company has the broadest reputation profile of all 100 companies, with a top 10 rank in 13 of the 15 markets. Sony has its strongest reputation for its high quality products, but also ranks in the top 10 on all the other measured dimensions (Smith).
These highly successful international companies have built a strong and enduring reputation of being trustworthy businesses. It is this message which travels from existing customers to potential customers and eventually to a global good feeling about the brand. This translates to more customers, more profits, greater brand recognition and greater success.
No. 1 BMW
2012 RepTrak Pulse Score: 80.08
Lesson #6: Know Your Market
Prior to expansion, it is important to thoroughly research and understand the customs, buying habits, likes, dislikes, etc. of who you are trying to sell to. By understanding what and how these foreign consumers buy, you will be more equipped to sell to them. Without knowing your market, even the best of them may fail.
For example, Best Buy had huge plans to move into Europe and China. So far, it failed in both markets — mainly because consumers don't like mega stores. Best Buy CEO Brian Dunn recently told the Financial Times “…we got too far ahead of the Chinese consumer in how business is done there.” (Groth). Best Buy is also botching expansion plans in Turkey (Groth). The "Big Box" concept was thriving in the U.S., but Best Buy should have considered a new strategy for Europe. According to Yahoo, "closing the 11 British stores would be the biggest admission of failure so far in the U.S. retailer's overseas expansion strategy." (Groth).
WalMart is another example of an extremely successful company who failed in global expansion as a result of not knowing the market well enough to fine-tune the shopping experience to the local culture. For example, in South Korea, the company did not heed local preferences of buying a few things at a variety of local stores, the presence of native discount chains and aesthetic preferences among shoppers (Landler, Barbaro). Similar problems contributed to its closures in Germany.
Furthermore, WalMart's low prices campaign does not have the same appeal in Japan, as it does in the United States or Canada, because customers associate this with cheap quality, making them reluctant to shop there (Roweley).
Wal-Mart is a predominant retailer in the world, with an estimated 35 million shoppers per day, but has yet to dominate the nations it does not adapt to.
Lesson #7: Do not underestimate the competition
When expanding to any new nation, there will already be businesses which provide the same or similar goods/services - do not underestimate their business prowess or hold on local consumers. Doing so has resulted in various otherwise successful and thriving companies to fall flat attempting to go global.
For example, eBay, the San Jose based auctioning giant, entered China in 2004. It expected to sweep China as it had the rest of the world. However, only two short years later, they shut down their portal and abandoned the Chinese auction market. A local competitor, Taobao, went on to take over 95% of the local market share (Carlson). The problem was that eBay had no mechanism for simulating "guanxi" - or social connections, while Taobao. Guanxi drives business deals and government contracts. It’s the invisible glue that ties people together (Carlson). It’s the sense of connection and mutual obligation that Chinese society prizes in personal relationships. According to a study conducted by researchers in the United States and Hong Kong, this was a crucial error. While Taobao allowed buyers and sellers to chat over instant-messaging, giving them a chance to establish a personal connection, eBay did not (Carlson).
Home Depot also could not recreate the success it has had in the Western world in China, yet IKEA has managed to take the same DIY principle and make a fortune. "The furniture retail juggernaut from Sweden is killing it in China, and it's famous for making its customers put everything together themselves," says Kim Bhasin at Business Insider (The Week Staff). The difference? Ikea understands that the Chinese consumer is relatively new to a Western style of home improvement. The company's meticulously decorated showrooms teach consumers "how to decorate their home, and thereby experience Western culture." Home Depot, on the other hand, only offers the tools and know-how for isolated, mundane tasks, like installing a ceiling fan (The Week Staff).
IKEA thrives in China, while Home Depot is force to close its doors.
A global expansion is never easy and takes several steps in order to do so successfully - even giants cannot always make the journey, as mentioned above. To begin with, there must be a substantial need or demand for a business's product/service - without demand, success is not likely. If there is a need, do not underestimate the businesses already attempting to fill that need - learn from them. Prior to expansion, learn about the your market - their customs and preferences, tastes and habits - adapt to the differences, tailor make the business to fit societal variations. Adapt, not only to different countries, but to changing times - do not shy away from innovation, strive for it. Protect your assets - this includes monetary and physical capital - and lastly, build a clean, strong reputation and make it last.
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