Recently, I published this report in e-weekly Business Trends Asia (http://www.businesstrendsasia.com/). Please, react.
How to prepare your market entry ?
Introduction
Before companies decide to expand into international markets normally their home market position is strong and healthy. It´s a market they know well and know how to operate successfully in. The (business) culture is their own so they’re not confronted with “surprising” behaviour and attitudes from staff and customers. Self-confidence and a strong home market position lead to the question why international expansion could not be successful?
Companies who already have expanded into international markets and have a career development programme in place will send high performing / high potential employees to take on an assignment in their international offices. Staff with good to excellent track records is rewarded with well-paid international positions.Companies that expand into international markets for the first time will use the elements of their success on their home market as the basis for their international expansion.Companies that are already internationally active will reward well-performing employees with an international posting.
International expansion and careers
When companies expand internationally for the first time management and staff guiding the expansion process will of course perform market investigations to the best of their abilities. Market research encompassing the statistical chances and growth opportunities will be investigated. Figures and other hard data will be collected as much as possible and evaluated.
These hard data will justify the actual expansion and required investments. The actual –human- approach of the new international market will be based on experiences gained on the home market. Where a lot of energy and effort will be put in the collection and evaluation of hard data the so-called “soft” side of the operation is in most cases completely ignored. The standard attitude is one of cultural self- centeredness. The home culture is deemed to be universally applicable and correct.
The attitude believing one’s own culture as the international standard of what is considered “normal” and of not being able to place other cultures at the same level is a universal human trait and difficult to replace with a more “open” approach of different values. And this is where the operation normally runs into difficulties.
It may seem like an open door but business is conducted between people and not companies. Successful business is therefore the result of successful interaction between individuals. People with different cultural backgrounds will evaluate the same situation with different views which might lead to completely opposite and conflicting conclusions. These hurdles are real and will affect the outcome of a business venture negatively if not recognized and addressed properly.
Companies who venture across their own borders for the first time need to spend just as much time and devote the same level of energy in properly evaluating the different (business) etiquettes of the country they want to be active in as they do in gathering and evaluating hard statistical data concerning their business opportunities.
Companies who are already active internationally run the risk of falling into the same ethno-centric trap. Multinational companies tend to send employees on international assignments and longer term stay as a reward for previous good performance and/or based on a specific set of professional skills rather than determining if the specific person is capable of successful intercultural interaction. Whereas the employee might be able to operate successfully in his/her own cultural environment this does not mean that the same set of professional skills will be sufficient to be effective in a different culture.
Staff from head office sent out to work in the international branches tend to believe local staff lack the level of technical skills they posses themselves and have a tendency to duplicate the work of their local employees to suit their own cultural perception of what constitutes a job well done. Local staff views this as cultural arrogance which can result in an uncooperative attitude. Foreign management members should accept that local staff probably posses the same set of professional skills as they have themselves and that giving priority to their own approach might backfire no matter how well intended.
Asian outlook
Within Europe even neighbouring countries, no matter how small, differ greatly in their cultural values and approach to life and business. In the Americas, Canada, the USA and Mexico to name just a few, each have a completely different cultural outlook on life. Within the USA individual states have their own unique set of values. And in Australia people from Brisbane, Sydney, Melbourne, Adelaide and Perth approach similar matters with different attitudes.
If cultural differences already appear between neighbouring countries or even within own borders then this is even more so the case between nations and peoples from different continents. And just as the USA cannot be considered as one homogenous entity the same is true for Asian giants like China, India and Indonesia.
The brash and aggressive attitude that is acceptable in Bangalore might be totally misplaced in more genteel Delhi. The Indonesian business elite might reside in the modern office towers on Sudirman Ave. in Jakarta but oil fields are located in rural Riau on Sumatra and most of the country’s mineral reserves are found on Irian Jaya where the population still largely lives in the Stone Age, is hostile towards outside interference and an impenetrable jungle makes local infrastructure almost impossible.Also in smaller countries different ethnic and /or religious groups might require a different approach whether as a partner, supplier or customer/consumer. In the Philippines, Indonesia, Malaysia and Thailand ethnic groups like the indigenous population, ethnic-Chinese and Indians live side by side but in most cases separately. Even in Thailand where assimilation of all ethnic groups has progressed farthest clear distinctions remain.
What might be considered a compliment e.g. a positive comment on the democratic process of Indonesia for one group (ethnic-Javanese) can be viewed as totally ridiculous by another group (e.g. the ethnic-Chinese in Indonesia). Where especially ethnic-Javanese would accuse their ethnic-Chinese countrymen of disloyalty towards the state of Indonesia, the ethnic-Chinese in turn would counter that their persecution by the ethnic-Indonesians does not warrant loyalty.
Operating inside an ethnically very sensitive society like Malaysia will require different approaches towards the main different ethnic communities: Malay, Chinese and Indian. Political tension can easily spill over into daily life.
Where across the Southeast Asian region as a broad generalization the indigenous population can be considered more open towards outsiders, the local ethnic-Chinese and Indian communities remain very much suspicious of outside developments and tend to rely exclusively on support networks within their own (international) communities. When dealing with an indigenous organization establishing the right hierarchal structure might be crucial whereas dealing with an ethnic-Chinese or Indian organization might require eliminating high levels of initial suspicion.These differences matter. They need to be taken into account, studied and evaluated. When operating in a culturally completely different environment it is important to reflect on one’s own culture vs. the culture one is operating in.
Examples
1) Toys
Increasing incomes means more disposable income of course and in general Asians crave the same things as Westerners. When parents earn more money they will spend more on their children, especially in Asian cultures. And all children like toys, right?Gift giving occasions are a Western cultural phenomenon. Receiving toys and other presents at birthdays and Christmas is something Western children see as the natural order of the universe but is completely alien to Asian children. When Asian children receive presents during festive occasions e.g. Diwali, Eid al Fitr, and Chinese New Year these come in the form of new clothes and shoes, cake and candy, not toys.In South and Southeast Asia daily temperatures are simply too high to remain indoors in case airconditioning is not available. For playing outdoors very simple toys like plastic water guns will suffice. Lego, miniature train sets etc. are all unwanted.
Where airconditioning penetration among common households is increasing like Malaysia and Thailand or is already the norm as in Singapore, children jump immediately from no toys at all to sophisticated computer games skipping the phase of traditional toys.
Toy stores in South and Southeast Asia are only few in numbers and cater mostly to an expat Western clientele. Just because parents have more money and their children are more familiar with what happens in the outside world does not make them automatically crave traditional Western toys.
2) Financial services
In general Europeans, Americans, Australians are familiar with long-term saving concepts like pension schemes or private financial programmes. Running periods range from 15 to 35 years. In China, India and Southeast Asia such savings concepts are completely new. Pensions are traditionally only available to civil servants, the police force and the military. Old age care in general comes in the form of offspring who take care of their parents when they are too old to work. Instead of a safety net provided by social services and personal savings programmes siblings support each other and their parents financially when necessary or for business opportunities or educational purposes etc. Financial resources are actually pulled together when necessary thus allowing each member access to a greater financial support system when required.
International finance companies seeking new markets for their Western market- orientated savings programmes need to accept that Asians have completely different savings objectives and therefore a different savings horizon. It’s not enough to study GDP growth figures or to determine that savings programmes do not exist in most Asian countries and that a growing middle-class should need these.Saving money is in general not an Asian feature. Money can buy things, even for long- term investments like gold, land and real estate. But actually saving money in the bank every month for 15 years or longer for retirement or other purposes is unheard of. Besides, how would a consumer know if the bank where she puts her money is safe and reliable and will not collapse and steal all her hard-earned savings? In many countries local banks do not yet have a solid enough reputation that would allow them to attract long-term savings. Savings programmes need to cater to local needs and customs and should have much shorter running periods.
3) Growth and decline
GDP growth figures of 8% to 12% of countries like India, China but also Singapore have to be analyzed carefully. There is always a catch or at least a hidden story behind these figures.China’s massive economic growth of the last decade has been concentrated in selected parts of the country like Guangzhou, Shanghai and Beijing-Tianjin. It’s not that 1.3 billion Chinese have suddenly all been lifted out of poverty.
India’s growth spurt is more recent although no less impressive. High tech developments in cities like Bangalore, Pune and Hyderabad make international headlines. India’s BPO industry is world-famous. But over 70% of India’s population lives in the countryside and a staggering 76 million households or 400 million people (36.4% of the total Indian population) still have no electricity. It’s not that 1.1 billion Indians suddenly will all buy mobile phones. If you have no electricity how will you recharge the battery?Singapore is a prime example of excellent planning and modern city life. But with a GDP level matching or surpassing West European levels economic growth figures of up to 8% as was reported in the period 2005-2008 is simply not possible without completely overheating the economy. Singapore’s economic growth of this period was solely caused by the rapid development of certain specialized very high-tech industries creating a lot of added value such as biomedicine and medical tourism plus the specialized construction required for these types of industries.
Due to the relatively limited size of Singapore’s economy (approximately €100 billion annually) growth of this new and high value-added industries within a short period of time to over €9.0 billion annually with an added-value of €4.6 billion meant a massive contribution to the country’s overall GDP growth. But due to its specialized nature this did not mean that other sectors of the economy did equally well. General retail, tourism, services etc. did not realize similar growth levels. It was not as if all Singaporeans from scientists to taxi drivers experienced a massive income growth during the growth years.Now that initial investments in the biomedical and medical tourism sectors have been finalized and no need exists for immediate massive new investments the growth in these sectors of the economy has temporarily levelled off. Now other sectors experience a slow down due to the global economic crisis official GDP figures released by the Singapore government show a contraction of 5 -10% . If real it would mean a near collapse of the country’s economy. But just like the economic growth figures affected a certain specialized segment of the economy so is the decline also not a country-wide phenomenon. The financial services industry and retail are taking a hit due to less consumer confidence but other sectors of the economy are keeping up.
Success
Western companies with a successful presence in Asia all have an excellent local network in common. This can have been built up over the decades and even dating back to colonial times like Shell, Unilever, FrieslandCampina Dairy or the Borneo Trading Company or relatively recently. Examples include the Minor Group in Thailand (est. 1967) owned by American Bill Heinecke or the East West Seed Company in the Philippines and with branches in Thailand, Vietnam and Indonesia (est. 1982) and co-owned by Dutchman Simon Groot.
Local partners are crucial to the success of a Western company in Asia. Bad ones will prevent any effort from bearing fruit, no matter how much money, work, attention and energy is contributed. But good ones can take a company to unexpected heights. Eventually this will lead to independence from the local partner and a full integration into the local society.
Besides a local network and/or strong local partner, successful Western companies offer products and services that tailor to the local market needs. This seems also an open door but many companies fail to recognize this and offer standard products developed for their own home market or following only international standards.
Another success factor is recognizing local trade structures and economic realities. An example is the popularity of flavoured yoghurt in small single-use cups in Thailand. Dairy products in general are not part of the traditional Thai diet. Yoghurt is a specialized product with a distinct taste that is popular in India, the Middle East and Europe but completely unknown in Southeast Asia until 20 years ago.
In the beginning of the 1990s, FrieslandCampina Dairy (in Thailand known as Foremost) with a local presence dating back to before WWII, started to promote its flavoured yoghurt products. Part of its strategy was to focus on the countryside where it organized a network of independent (female) door-to-door sales people who came from within the local communities. As these people were known and trusted they were able to persuade the local population to sample some products and when they enjoyed the flavour buy 1 or a few cups. Within 2 years this had led to a wide acceptance of yoghurt products in the Thai countryside. The sweet taste of the flavours suited Thai taste buds for dairy products and the small portions made them affordable for all income groups.
A third success factor lies in trusting, respecting and valuing local staff. Just because they might not be able to speak English well, might prefer rice to bread for breakfast or act differently when confronted with challenges does not mean they are uneducated, incompetent or disloyal.
A Western, Japanese or Korean company also has an advantage local companies lack: they normally attract the better educated, more ambitious, more assertive people. Staff working for foreign companies in Asia in general tend to stick out from the pack, even where it concerns lower-level functions like drivers, messengers or cleaning staff. These employees know they receive higher wages than average and get more opportunities than their counterparts in local companies. They also realize their foreign employer is more demanding than a local one but this combination of challenge, opportunities and better pay suits them and when treated well local staff can display enormous loyalty. Such staff, when nourished and respected, will open up many opportunities for their foreign employers.
Conclusion
Success factors for international expansion are straightforward but not always easy to implement. When evaluating chances in a foreign market, study cultural aspects just as thouroughly as the hard data. When sending staff abroad not only take their technical skills into consideration but also their ability to function successfully in a culturally completely different environment. Make what might seem a disproportionate effort of selecting the right local partner(s). Hire local staff selectively and trust them and respect their own professionalism. Accept that the foreign culture is no less than one’s own and has the same value. Be able to put the different culture at the same level as one’s own and not secretly believe one’s own cultural values are of a higher standard. They’re just different, not higher. Accept local economic realities and make use of local trade structures rather than trying to force one’s own concept of what reality should be on an organization that will be unable to operate successfully with unrealistic policies.
