Week Seven – Strategy in International Business

Unless a company is among the Fortune 500, chances are that a true global strategy is unrealistic for smaller companies to pursue. While the true multinational companies leave no global stone unturned and can boast 100 country markets or more (Shell is at 144, last count), with most or all profitable, this is not a reality for the vast majority of companies.

For most companies, the globe begins across the street. The most profitable market is the one next door where the following all come together. This includes low transport costs, ease of face to face contact with customers, all employees are nearby, and, above all, the intimate and detailed knowledge on what makes that market tick. Many businesses thrive here and go no further.

However, for many, the marginal opportunities at home become less attractive than those outside of the immediate community. The next sphere of activity should remain domestic or perhaps in a nearby country. For US companies, having the good fortune of being established in the largest and most prosperous market in the world, there is a strong economic likelihood that nation-wide market coverage is the most profitable way to proceed before looking outside their borders.

After this, Canada and/or Mexico -- blessed by similarities of language, culture, proximity and NAFTA -- would most likely be the next logical step.

Then there is the world to cherry pick. This is where your emphasis lays in your term-long case studies. Keeping in mind that each market requires costly maintenance there are real advantages to concentrate on only one or two and ensure that these are profitable (or if unprofitable there is the need to move on) before additional countries are added to the list.

In picking a non-North American market, a company should not be distracted by promises of great need for their product or service. This constitutes only part of a market opportunity. One should also look at cultural differences, language capabilities, the effective rule of law, established marketing and distribution systems, infrastructure, availability of required professional services at a reasonable cost, ethics and governance issues, personal safety and the like. Here Western Europe, Australia, New Zealand, Japan, and perhaps the Asian Tigers of Taiwan, South Korea, and Singapore come to mind.

Yes, there are unique connections that may lead a company elsewhere, but these should be economically driven. It should not be overlooked that once a company has some profile in their domestic market there is a never ending flow of interesting offers to conduct business that will arrive from a variety of markets. These are usually distractions and therefore a business plan should be established and followed. It is extremely time consuming to pursue what appear as opportunities just because someone out there makes a strong pitch to form some sort of cooperative or sales agreement. Here is where a good business plan comes in. This creates a disciplined structure and the need for a serious corporate decision to reallocate resources and perhaps abandon existing plans when such enquiries emerge. Each change of direction in global markets has both real and opportunity costs.

Then there are the really tough markets of which China leads the pack. While for General Motors, China holds much promise, it is all too often a graveyard for the small and medium enterprises. It is a very complex and expensive market to penetrate where all (or at least most!) the rules are stacked against the foreigner.

On a personal note, I manage the offshore enquiries for Iogen and get a regular flow from China, India and elsewhere outside our focus countries from what appear to be legitimate enterprises wanting to form some sort of strategic venture. These are politely but firmly turned down as a matter of routine. Why would we wish to be distracted when we have the much less complex and potentially more profitable Canadian and US markets with nearby with Western Europe waiting in the wings.

There is another approach to going it alone. Strategic alliances are an important element of achieving a broader market reach. The development of such arrangements should be part of any marketing plan with the type of partner, geographic location and the like as a fundamental for such deliberations. Regarding where to look, start close to home and then move out into the world, again with some sort of practical business plan. However, once a strategic venture has been forged, then incremental markets may open up where the new partner has already made the substantial investment in a particular country or region.

Yours,

Maurice Hladik

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