Smart tactics for globalising your business
In my last article I stated the case for Malaysian companies to expand to the West to obtain greater margins and profitability instead of just being focused on Malaysia or the immediate regional countries. I have just returned to Malaysia for a short working holiday and I am even more convinced that Malaysian companies must expand abroad if they wish to continue to grow and prosper. The Malaysian market is increasingly competitive and growth prospects are not excellent. Perhaps this is just the push that technology companies need to seek greener pastures abroad. So here are a few tactics to help you improve your chances of success in globalising your business.
The single biggest cause of failure in globalisation is the lack of high-level management involvement in the entire planning and execution of the globalisation plan. Most companies plan for the process but while the plans are made by the Board or senior management, rarely does a senior member of the management take complete responsibility for the actual execution of the plan and is fully focused on that single endeavour. Globalisation is a major initiative and someone in senior management reporting directly to the CEO and the Board should be fully focused on achieving the targets for going global and taking responsibility for its execution. In fact if there isn’t anyone in senior management who has the necessary experience or expertise in globalisation, then chances are highly likely that the initiative will fail. The only alternative is to hire a very senior person to take on that responsibility. Preferably however, the champion should be someone from the initial founding team of the company itself as that will ensure the passion and culture of the company is carried on in the globalisation effort.
Secondly, that member of the team should relocate to the country where the globalisation effort is focused otherwise no one else will have the passion and the drive to push the business forward. It is also preferable that that person has experience in that market or region, someone who has either studied there or worked there would be ideal, so that he or she understands the culture and how best to work within the market. A complete novice will have a long and painful learning curve and this makes the company’s globalisation effort more difficult. This is a tall order but globalising your business is a very difficult process and understanding the market and culture is vital.
Most globalisation efforts fail because the company depends on an external party to do it for them. This may be channel or joint venture partners, agents or foreign managers. None of them will have the necessary drive or passion to really push the business forward, certainly nothing like that of a founding member of the management team. I personally know of several Malaysian companies who have tried to do this with little success. One of the leading causes of failure is to hire a foreign manager and hope that he can do the job. This is a recipe for failure because even though he may know his market he will not understand your business or your corporate culture and will certainly lack the passion to grow the business.
One key business strategy is to be very focused. Concentrate all your effort on ONE particular market, pick the one market that has the greatest potential for growth and profits and focus ALL your efforts on that market. Many globalisation efforts fail because companies don’t have a focused strategy and spread themselves too thinly by trying to cover too many markets at any one time. While you may have partners in several countries your main effort should have a single country focus and always pick the country with the greatest risk to reward ratio.
Also make sure that the market of focus is huge and gives you the potential to grow and be very profitable in that market. For this to happen the market must be very large with the least direct competition and one in which you have the greatest competitive advantage. Do not enter markets that are very competitive where there are big local players whose competitive advantage is as good or better than yours because as the foreign entry you will never beat them at their game. In such a case it is better to enter a market which may be slightly smaller but one in which you can operate from a position of strength.
Many companies are so excited by China that they are getting their hands burnt by trying to compete with everyone else there. Virtually everyone in the world is attempting to enter the China market making it probably one of the most competitive markets in the world and hence one of the toughest. It is better to be a big fish in a small pond than a small fish in a big pond. Don’t waste your effort and resources competing with everyone else, its better to go elsewhere.
Make sure you have adequate resources and this means not just money but also people and time. Focusing on one market will help you conserve and direct resources to the most profitable market. It is indeed costly to globalise so if you do not have all the necessary resources you have to rethink your strategy.
Globalisation is not for everyone. Some businesses do not have the potential for large-scale operations, culture and business conditions may not suit globalisation or you may not be at the right stage for globalisation. So examine your business thoroughly and make sure you are both ready and able to globalise. Also do not globalise just because it is fashionable or because you are pushed towards globalisation by your investors or shareholders. If you are not ready plan ahead and globalise only when you are sure you can be successful.
The single biggest cause of failure in globalisation is the lack of high-level management involvement in the entire planning and execution of the globalisation plan. Most companies plan for the process but while the plans are made by the Board or senior management, rarely does a senior member of the management take complete responsibility for the actual execution of the plan and is fully focused on that single endeavour. Globalisation is a major initiative and someone in senior management reporting directly to the CEO and the Board should be fully focused on achieving the targets for going global and taking responsibility for its execution. In fact if there isn’t anyone in senior management who has the necessary experience or expertise in globalisation, then chances are highly likely that the initiative will fail. The only alternative is to hire a very senior person to take on that responsibility. Preferably however, the champion should be someone from the initial founding team of the company itself as that will ensure the passion and culture of the company is carried on in the globalisation effort.
Secondly, that member of the team should relocate to the country where the globalisation effort is focused otherwise no one else will have the passion and the drive to push the business forward. It is also preferable that that person has experience in that market or region, someone who has either studied there or worked there would be ideal, so that he or she understands the culture and how best to work within the market. A complete novice will have a long and painful learning curve and this makes the company’s globalisation effort more difficult. This is a tall order but globalising your business is a very difficult process and understanding the market and culture is vital.
Most globalisation efforts fail because the company depends on an external party to do it for them. This may be channel or joint venture partners, agents or foreign managers. None of them will have the necessary drive or passion to really push the business forward, certainly nothing like that of a founding member of the management team. I personally know of several Malaysian companies who have tried to do this with little success. One of the leading causes of failure is to hire a foreign manager and hope that he can do the job. This is a recipe for failure because even though he may know his market he will not understand your business or your corporate culture and will certainly lack the passion to grow the business.
One key business strategy is to be very focused. Concentrate all your effort on ONE particular market, pick the one market that has the greatest potential for growth and profits and focus ALL your efforts on that market. Many globalisation efforts fail because companies don’t have a focused strategy and spread themselves too thinly by trying to cover too many markets at any one time. While you may have partners in several countries your main effort should have a single country focus and always pick the country with the greatest risk to reward ratio.
Also make sure that the market of focus is huge and gives you the potential to grow and be very profitable in that market. For this to happen the market must be very large with the least direct competition and one in which you have the greatest competitive advantage. Do not enter markets that are very competitive where there are big local players whose competitive advantage is as good or better than yours because as the foreign entry you will never beat them at their game. In such a case it is better to enter a market which may be slightly smaller but one in which you can operate from a position of strength.
Many companies are so excited by China that they are getting their hands burnt by trying to compete with everyone else there. Virtually everyone in the world is attempting to enter the China market making it probably one of the most competitive markets in the world and hence one of the toughest. It is better to be a big fish in a small pond than a small fish in a big pond. Don’t waste your effort and resources competing with everyone else, its better to go elsewhere.
Make sure you have adequate resources and this means not just money but also people and time. Focusing on one market will help you conserve and direct resources to the most profitable market. It is indeed costly to globalise so if you do not have all the necessary resources you have to rethink your strategy.
Globalisation is not for everyone. Some businesses do not have the potential for large-scale operations, culture and business conditions may not suit globalisation or you may not be at the right stage for globalisation. So examine your business thoroughly and make sure you are both ready and able to globalise. Also do not globalise just because it is fashionable or because you are pushed towards globalisation by your investors or shareholders. If you are not ready plan ahead and globalise only when you are sure you can be successful.
14 November 2005
posted by Dr. Siva at 10:36 PM
1 Comments:
Dear Dr. Siva,
I came across your blog while researching for a paper on foreign managers in Malaysian companies. You write "One of the leading causes of failure is to hire a foreign manager and hope that he can do the job."
What evidence, if any, do you have for this? I'd be interested in any case studies, statistics, qual or quant data that you might have. If you have unresearched anecdotal evidence, please also let me know.
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