By Rocio Summers
In 2011, Frits Van Paasschen, at the time President and CEO of Starwood Hotels and Resorts moved himself and his whole senior leadership team to China for a month. When he was asked the reason behind it, he explained that in the past, when he had run business overseas and brought people from the Head Office for a week to show them the operations, the picture was never complete. As Starwood was establishing a new business in China, he felt if he could move there for a whole year he would learn so much, but that didn’t seem to be practical for the CEO of the company. It was his wife who suggested he went for a month. Then he decided that he would go with his team to show them the importance of markets outside of the home office and how being a global company meant to have a global mindset in which people understood the international markets as part of the whole project. He wanted his team to experience the specific peculiarities of this new operation and come out with ideas. He expected them to have downtime to buy groceries and observe people, feel their needs and expectations. In other words, he wanted his team to understand the culture in China, the market dynamics and the reasons behind it.
In the last decades, we have seen corporations strategizing around international expansion and diversification, growing in new markets, exploring emerging economies and establishing operations in remote geographies and different cultures. Most of the time, these adventures have served them well and they have been able to increase their demand and grow their business exponentially. But in some other cases, the unforeseen problems and complications associated with the new venture have turned the dream into a nightmare, the costs have exceeded by far the initial projections and the break-even has arrived much later than expected, making the project much less attractive from an economic and strategic point of view.
Of course, not everybody can afford to transfer the whole executive team for a month to a remote geography, among other reasons, because not everybody owns a hotel in those geographies, but there are a lot of things that can and should be considered before expanding internationally, before becoming global.
As in my prior posts, the very first question I would ask the Board of Directors of an organization expanding operations in different countries is “Why”. How is this choice consistent with the mission and long-term vision of the organization? But I would also ask “Why not”! “There’s a big world out there” and as someone said once “I don’t think that there is any one idea that won’t work somewhere”.
Establishing operations abroad has some obvious advantages:
Obviously, before any sensible group of leaders starts such a significant project, they should do their due diligence and this needs to cover different perspectives.
This is not the only study about different cultures. What is shocking is that around a 70% of the international transactions fail because of cultural mismatches and yet, most of the organizations ignore the importance of the cultural issues and tend to think that the principles and values that are valid at home are universal and the only valid ones. This is the first mindset that needs to be changed before going international, and then go backward and analyze the rest.
In my experience, most of the business and organizations check the boxes above more or less in the order I have enunciated them, and even though they spend a lot of time and resources evaluating the market, the supply chain and the regulations, they tend to ignore socio-political and geostrategic environment of the country they are moving in and the cultural differences. This could be a consequence of a simplistic mindset or even worse, an arrogant one, but whatever the reason for this procrastination is, the reality is that it will be a recipe for failure.
If you’re aiming for an international strategy, pay attention to the culture and behavior of the people in the market you are moving to. Because those are now your stakeholders.
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