The old, restricted view that you can start in your domestic market and then progressively expand, taking countries one by one, is completely obsolete. There's a new wave of managers and leaders who can quickly build a company and take that company global.
They start up in many countries at once, so that after twelve months the company has a balanced business in Europe, the United States and Asia.
Companies of all sizes and almost all industries are growing internationally. They know that success depends on serving clients worldwide. On access to the best ideas and leading talent. On finding the lowest costs of inputs.
Yet international growth is extremely difficult. The problem is not just the complexity of doing business abroad: local consumer habits, currency risks, government regulations, and cross cultural management. It is more fundamental.
In recent years, the process of international growth itself has changed. For decades, companies could expand in a slow, incremental manner, entering nearby countries and eventually expanding farther and farther away. That approach to international growth no longer works.
As Didier Benchimol, CEO of iMediation, says, a new wave of managers can build a global position quickly. iMeditation launched the company simultaneously in Germany, France, the United Kingdom and the United States.
How do such companies do it? Over the past four years, I have worked with dozens of growing firms in industries ranging from telecommunications to lodging, from packaging to software. I found that the best of them -- large companies like Accor, DHL and Cisco, as well as many smaller companies -- have built a new set of capabilities.
They do five things well:
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They think strategically on a global basis;
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They manage partnerships well, including acquisitions and alliances;
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They build staff rapidly, both through expatriation and localisation;
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They share expertise globally; and
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They adapt their organisation design to support growth.
Let us look more closely at each one.
1. Strategic thinking: grasping the globe
The first necessary capability is mindset. It means thinking about strategy in a new way. For lots of companies, global strategy used to mean identifying the country to enter next. Great companies like Colgate-Palmolive, Matsushita and Danone expanded incrementally, one country at a time.
In each new market they performed roughly the same set of activities. Today, the best companies do not think one country at a time: they grasp the entire globe at once. They do not replicate their business model in each country, but look for the best way to spread their business system across the world.
They're guided by one broad question: How can I best reconfigure my business system on a global basis? They ask questions without regard to geography like:
- Where in the world shall we locate manufacturing?
- Where in the world shall we sell our products?
- Where in the world shall we hire talented managers?
- Where in the world shall we raise capital?
- Where in the world shall we procure our inputs?
- Where in the world shall we conduct research and product development?
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Where in the world shall we locate customer service, data entry, and other labor intensive activities?
Questions like these lead in two directions. They lead to a dispersed business model, with different activities spread around the world, rather than a series of local clones.
They also lead to an emphasis on rapid growth, since a dispersed business model only works when all the pieces are in place -- meaning that you have to grow simultaneously rather than incrementally.
This sort of strategic thinking is only a starting point, of course, but it is the basis for everything that follows. Unless companies grasp opportunities on a global basis, they will never achieve rapid international growth.
2. Managing partners: acquisitions and alliances
Many excellent companies from the 1970s and 1980s, including Hewlett-Packard and Sony, expanded abroad mainly by setting up greenfields. Today, relying exclusively on that approach is too slow. Rapid international growth calls for partnerships, whether acquisitions or alliances.
Acquisitions are the fastest way to growth. Daimler Benz went from being the nineteenth largest automaker in 1992 to the third largest in 2000 thanks to acquisitions of Chrysler, then Mitsubishi, and next Hyundai.
Renault was limited to Europe until it bought Nissan and most recently Samsung. Acquisitions were the only way forward for Daimler Benz and Renault -- adding capacity in the auto industry would have been suicide.
In telecommunications, Vodafone grew rapidly through acquisitions including AirTouch and Mannesmann. Of course, finding an attractive takeover candidate is not enough, companies have to manage the integration process, capturing operational advantages and cultivating the skills and expertise of a new workforce.
Partnership management, not just financial acumen and analysis, are needed.
Alliances, non-equity alliances as well as joint ventures, are another way of building a global position rapidly. Alliance partners bring expertise about the local market, reach an established base of customers, and have connections with local stakeholders including government authorities, schools and universities, and more.
Alliances also help share costs and reduce the risk of foreign investment. Yet countless firms have discovered that making alliances work is tough. Some look at alliances as 'deals': they complete one deal, then move on to the next. But successful alliances are based on effective relationship building among partners.
They call for skilful negotiation and preparation; communication, trust building and conflict resolution; staffing and resource sharing during the alliance's formative stages and the ability to secure resources at later stages.
3. Rapid staffing: expatriation and localisation
The scarcest resources for companies expanding internationally are often human resources. A strong global position demands excellent local staff. Attracting and retaining outstanding talent is hard enough for a domestic company, but the challenges multiply when expanding abroad. The best companies have built two capabilities: expatriation and localisation.
Expatriation used to mean sending managers abroad on a long-term assignment. That approach is slow, wasteful and expensive. Today, many companies take a more fine-grained approach.
MTN, the South African mobile telephone network operator, entered three new African markets in 1998. Within days of receiving the license, MTN's human resource department determined the staffing needs in each new market.
Next, they met those needs with a combination of short-term technical visits, six month secondments, and a handful of two-year assignments. MTN made another smart move by creating a special pool of employees who were hired and trained with the expectation of going abroad. That way, MTN's domestic operation did not feel its employees were being poached.
Localisation means quickly bringing local citizens into responsible positions, making full use of their talent and also reducing the need for expatriates. Historically, firms are poor at localisation. They are stuck in a cycle of sending expatriates abroad, then replacing them with new expatriates.
Several years after entry, they still have expatriates in key slots -- expensive, demotivating and out of touch. Companies like Motorola and BOC Gas make a deliberate effort to localise management, either by hiring local managers from the outset, or by insisting that expatriates replace themselves with local managers.
4. Sharing knowledge globally
The best global companies excel at sharing knowledge. 'Knowledge management' and 'organisational learning' are nothing new, of course, but rapid international growth calls for two particular skills.
Entering many countries simultaneously means we cannot rely on individuals, posted in one country and then moving to another, to transfer expertise. Rapid entry means a systematic approach to start-ups. At DHL, for instance, a clear set of steps means that each new office is quickly and predictably put in place.
After entry, companies have to apply the experience of one market to others. New countries are sites of knowledge creation, and become sources of expertise for elsewhere. Already a large global firm, BP (formerly known as British Petroleum) continues to expand internationally, both upstream in oil and gas exploration (Angola, Azerbaijan, Algeria, Colombia) and downstream in petrol retailing (Central and Eastern Europe).
BP's chief executive, Sir John Browne, insists that each new action must benefit from acquired learning elsewhere in the world.
"In 1995, we spent 100 days on average drilling deepwater wells. [In 1997] we spent 42. How did we do it? By asking every time we drilled a deepwater well: What did we learn last time and how do we apply it next time? The key to reaping a big return is to leverage that knowledge by replicating it throughout the company so that each unit is not learning in isolation and reinventing the wheel again and again."
How does BP excel at sharing knowledge? Partly thanks to information technology -- in this case, a common operating environment (COE) that lets computers all over the world talk to each other. But that is not all.
BP also invests in information processes like user communities that allow employees facing common issues to share information immediately, and instills norms of open communication and sharing behavior among its employees worldwide.
5. Adapting organisation design: facilitating growth, not impeding it
As companies expand abroad, their organisations have to adapt. The wrong structure is like a straightjacket: it inhibits growth. As companies grow internationally, they often find their organisational or product line structure does not offer much support.
The solution is often a separate division, called the international division. But over time the international division may become counter-productive, separating domestic from international activities precisely when they need to be coordinated.
In fact, the more successful the international division becomes in stimulating growth abroad, the earlier it may need to be disbanded!
Becton-Dickinson, the US-based maker of medical and analytical devices, offers a good example. In the 1980s, when international revenues were 5% of the total revenues, Becton-Dickinson formed an international division to focus attention on its growing markets. By the 1990s, when international revenues had grown to 45% of the total, the international division had outlived its usefulness, and the company shifted to worldwide business lines.
Importantly, Becton-Dickinson monitored its strategic needs and amended its design to match the current needs. Failing to create an international division in the 1970s would have stifled growth in Europe and Asia; but failing to disband the division in the 1990s would similarly have impeded continuing growth.
The road forward: assessment and action
How can you develop these new capabilities for international growth? By implementing the following three steps:
a. Are all five capabilities important to us? To begin, be clear that all five steps are important to you. If you rely mainly on greenfield entry, partnership capabilities may at least for now be less important. If you have recently designed your organisation to support rapid growth, you may conclude that organisational issues are not pressing.
But most companies will conclude that each of these capabilities is vital for rapid international growth -- if not right away, then in the near future -- and that they deserve attention.
b. How good are we today? Next, assess your present level of each capability. Where are you strong? Where is improvement most needed? For example, are you able to staff with a combination of expatriates, but reluctant to turn the reins over to local management? Does your organisation structure prevent you from coordinating product lines on a global basis, or from serving customers globally?
There is no magical diagnostic instrument. Managers simply have to take the time to assess where they need to improve -- and have the courage to realize where they come up short.
c. What should we do differently? Once you have identified your priorities, you can take action. But none of these capabilities will happen automatically -- they will require focused effort.
Sometimes the breakthrough comes as soon as you recognize the weakness. I know a European firm that claims it wants to grow through alliances, but has a dismal record.
On reflection, managers concluded they were not giving enough importance to managing relationships, and were avoiding important discussions rather than working together constructively. They changed course right away, assigning a different mix of managers to negotiate alliances, placing greater emphasis on communication, and measuring alliance performance along 'soft' as well as 'hard' dimensions.
For other firms, improvement comes from looking outside the firm for best practices. Studying what the best companies do about, say, expatriation and localisation, is a good way forward.
Are these five capabilities a ready formula for growth? Of course not!
No company can build a strong global position by just following a fixed set of steps. Flexibility, pragmatism, and persistence are vital. But as a way to focus efforts on a few major priorities, and as a way to underscore that old traditional approaches are not enough, these five capabilities are an excellent way to pursue international growth.
Philip Rosenzweig is Professor of Strategy and International Management at IMD (International Institute for Management Development). He was formerly with Harvard Business School.
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