I teach a course in Business Strategy for CUNY; among the topics I focus on is growth through global expansion. A key implication of understanding the “flat world” philosophy, is to realize that companies need to adopt a transactional approach –one in which offices anywhere in the world, and not just the traditional HQ in the US or Europe, can provide key corporate services, such as R&D, marketing and sales. We also spend time understanding why so many top companies have stumbled when trying to serve emerging growth countries they don’t really understand the needs of local residents to whom they will market and sell their products. For instance, just recently Walmart, the leading US retailer, announced earlier this year a retreat from their initial approach in India, and the need to alter it. They’ve had similar experiences in other countries.
Ram Charan, the world-renown business advisor to several Fortune 500 firms, addresses these issues in “Global Tilt; Leading Your Business Through the Great Economic Power Shift”. He focuses on two concepts which we all should remember regardless of where we’re expanding our companies: Outside-In and Future-Back.
Outside-In refers to the need NOT to focus on the expansion solely based on your competencies (strengths), but to also recognize the need to see it from the point of view of the countries’ customers for whom buying values are different than those of our domestic customers. For instance, when Nabisco tried to figure out why their Oreo cookies were leading their market in China as they do for years in the US, they realized that they needed to understand customers better. Turns out these new customers didn’t like round cookies nor associated “milk and cookies”, A sweeter, smaller and wafer-like cookie was introduced and became #1. Procter & Gamble has done the same in trying to understand how customers in other cultures look at several products, including Tide and Head & Shoulders.
Future-Back refers to focusing on the end result, and then working backward to see what really would lead to getting there, Steven Covey address the same concept in the last of his The 7 Habits of Highly Effective People: start with the end in mind. Ram takes it to the truly strategic level: extend your time horizon as you assess the world and imagine what the competitive landscape will be as much as 20 years in the future. The key is to work backward by thinking of the implications for the present. For instance, if 20 years from now there will be more cars being used and sold in China than the US, thinking through the segmentations that are likely to be there at that time guide you on current decisions.
In India, Tata Motors introduced a car several years ago give families of 3-4 people who travel in the morning to school and work a safer yet affordable option than their motorcycle. So instead of buying a $1500 motorcycle, Tata offered a $2500 car, which was very basic; no air-conditioning, no dashboard storage compartment, etc. The Nano received lots of publicity as a major breakthrough. This year, Tata revealed that sales for the car are so few that they are losing money on it. Why? They concluded that if people are going to spend more money on a car, they want one with some creature comforts So they are upgrading it and will price it now at $3500. A few weeks later, Ford announced that it was introducing a new car for the emerging markets – priced at $10,000. Ford’s decision suggests that car buyers want more than basic performance plus few comforts, and that the new Nano will still not be sufficiently attractive for the Indian target.
As you think of expanding your company to new markets – domestically or internationally doesn’t matter. You need to take these two concepts into account when planning. Are you? Share your stories and experiences with us.