In the second article in his series on international business, Tony Grundy looks at how to develop strategies
First published in the July/August 2014 UK edition of Accounting and Business magazine.
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With mature Western economies groaning under the weight of sluggish GNP per capita growth and with their government debt akin not just to the film The Hangover but also to follow-ups The Hangover Part II and The Hangover Part III, it would be foolish not to consider the opportunities presented by the ‘other world’, which is growing fast.
Take my own business as an example. Five years ago it was all based in the UK. In 2014, by contrast, most of my orders for executive development come from Egypt, Europe, Dubai and the US, and there are possible consultancy projects in Israel and Russia. I have already chosen my office in Dubai - The Four Points Sheraton (I wish!).
If your board isn’t thinking about this dimension yet, then at the next board meeting, wake them up! There is a myriad of options to explore, as I will now explain.
At the most basic level, the key choices available for international strategy are:
- which countries to sell to
- which market segments to sell to
- which products to sell (along with any local adaptations)
- how to sell them.
Obviously, subsequent choices might arise from these, such as whether to make product over there, and about distribution.
Options for international development are a bit like the shape of the branches of a tree. So we also have different options branching out in terms of simple exporting and setting up local operations.
The export choice can be between having your own sales force, selling through agents, selling through distributors or engaging in a joint venture (JV). Equally, setting up your own operations triggers other options to decide on, such as whether to have an organic startup, take part in a JV or acquire a local business. A JV can then have many possible structures - organisationally and legally.
In addition, there is the decision to be taken on location. In some countries this may not be about determining where to locate a single base as, in effect, there are a multiplicity of regions; in the case of China or the US, for instance, the whole country is too big to be served realistically from a single base.
As highlighted in last month’s article, there is also the question of timing. For instance, you might enter multiple countries/locations in parallel or through a dynamic cascade.
There are also phasing options. You might begin for instance, with an export strategy selling from the UK, then setting up your own sales force, before entering a JV or expanding via acquisition. Even if you don’t know exactly how and when it is all going to pan out – which would be a well-articulated ‘deliberate strategy’ - then it is sensible to have at least worked out scenarios for some broad shapes and possible sequencing of international development.
Strategy evaluation involves an assessment of:
- the market’s inherent attractiveness
- the potential competitive position
- country attractiveness.
The first two of these were covered in articles in my earlier series; country attractiveness is peculiar to international strategy evaluation and has two aspects.
The first of these is that different countries will have different general economic growth rates and market growth rates, display different levels of competition, and present different difficulties of trading and doing business. Social, political and economic stability may be different too.
The second aspect of country attractiveness is there may be different levels of difficulty in competing. A particular country may be hostile to your operating there because you are from another country (the ‘liability of foreignness’); conversely, coming from a certain country may give you an advantage, such as British origination in Anglophile countries.
When UK retail giant Tesco decided to move into the US it thought its superior grocery retailing skills would be sufficient to outweigh both the problem of having an unknown, new or British brand, and the difficulty of not having perfect familiarity with that market. I wondered at the time whether Tesco had looked at the track record of UK companies entering the US, and of UK retailers entering the US (neither good), and at the critical success factors in the US.
With hindsight, the failure of Tesco’s entirely new Fresh and Easy brand in California makes it look like such high-level questions were never addressed. Tesco did carry out extensive market research and piloted prototype sites in the US, but sometimes the competitive and cultural odds can be just too stacked against you.
Contrast that with the huge success of Dyson Appliances in the US.
There was no need for a manufacturing plant and it was possible to stick with an existing and established brand. The US is a natural home for Dyson, especially given the quirky appeal of British inventor James Dyson. That may be less true of India - although the country has a large and growing middle class, home-cleaning routines are different from in Europe and cultural differences generally inhibit sales.
Where and how
Coming back to structure and international strategies, a start can be made by drawing up a matrix of countries (the ‘where’), against the ‘how’.
The ‘how’ might be split - as mentioned above - into simple export versus local operations, and these of course may need subdividing.
A simple next step is to score the cells of the matrix out of 5 - with 5 being very attractive indeed, 4 very attractive, 3 average, 2 below average and 1 weak.
Next, take a sample of the higher scoring strategies and maybe some 3s you think you could improve on, and then run them through the strategic option grid explained in my first series of articles on strategy, distinguishing between the five criteria of:
- strategic attractiveness
- financial attractiveness
- implementation difficulty
- uncertainty and risk
- stakeholder acceptability.
Score each individual cell of the matrix as a 3 (highly attractive), a 2 (medium attractive) or a 1 (less attractive), and then add the total up out of 15. Remember that the strategic attractiveness score is based on thinking about both market and country attractiveness – an assumed future competitive position.
Do not assume a steady-state position in the marketplace. For instance, one service company that entered a central European country established itself well but a low-cost rival opened up with pricing way lower than the UK company’s worst fears, stealing considerable market share and sales. In international markets - even more than domestic ones – you can’t assume that other players will do nothing. It is much like a game of football – attack and you can be hit on the counter. Competitors doing little or nothing may be just ‘playing dead’.
Attack a rival in its home country and it might even counterattack you in yours. For instance, when Dyson started to export to Europe in earnest around 1997–98, Miele retaliated by penetrating one of Dyson’s most valued accounts, John Lewis, which in around 1999 told me: ‘Miele is our best-selling product.’
In sophisticated and global markets (especially in fast-moving consumer goods) multinationals will often coordinate their offensive marketing strategies across borders - even staging simultaneous attacks on a rival.
To finish, there are two further angles worth flagging up: the options for importing, and strategies for repelling entrants from other countries.
As some parts of the world can manufacture things much more cheaply than in Western economies, importation can be a vehicle for strategy development based on this - called ‘comparative advantage’.
This approach is often facilitated by the internet, which has truly shrunk the globe.
Also, as outlined above, a domestic-only player can suddenly find itself up against new competitors that may be cheaper and better. Consider, for example, how many trades have been revolutionised in the UK by workers coming into the country from Eastern Europe.
Dr Tony Grundy is an independent consultant and trainer, and lectures at Henley Business School