Business Expansion Strategy

Business Expansion Strategy: Global vs. International

It is common for successful businesses that have a healthy market share in a set geography to extend themselves to new countries and regions.  The rationale and the strategy behind the expansion could range from reducing manufacturing costs, increasing supply chain efficiency and market expansion.  The discussion around “Globalization” and “Global Talent” is a key part of the business vernacular. 

What results from the execution can be a truly global organization or simply an international version of the original home grown company.

From my observations and for the purposes of this piece Global means a truly networked multi country organization that adopts global best practices including those relevant from the parent company operations.  This includes taking into consideration local customs, culture and management styles.  It usually means appointing and developing local managers and leaders to run the businesses.

In contrast to this an international company will push down the global head office culture and management style without due consideration for the local customs.  This usually means having the foreign entity managed by people from the global head office.

From observing many companies implementing and modifying their foreign expansion the best approach can be determined by many factors.  These include the quality of internal processes, communication internally and externally, HR Strategy, the maturity and experience of the executive team.  There is no one correct way. Different economic conditions may dictate a different approach.

In my experience the optimum outcome is for a full Global Strategy but in reality it can take a company with intent for international expansion some time to develop the requisite maturity before true globalization is realized.  In this instance the step to an International Company may be the best that can be expected.

One example of this can be found with IBM Japan which was founded in 1937.  Over the years IBM Japan was truly part of a global organization.  On many occasions I have visited and there was only the proud IBM logo to differentiate the company from being totally Japanese.  Also the staff, language processes and communication were Japanese.  This was probably an extreme version of Globalization.  A lot of US and European companies were in this situation in many countries around the world. 

Many negative aspects have been written about the global financial crisis which hit the world economy in 2007~2008.  However, a very positive aspect was the mandate it gave company CEOs and CFOs to introduce efficiencies and align the various global entities with the global HQ.  The process was started where companies that had drifted from the stricter global HQ practices were brought back closer to the mother ship.  For IBM Japan this meant a foreigner as CEO for the first time in a long period.  Now the company is aligned again and achieving satisfactory profits a local is back at the helm.

An example of global best practice benefiting the locals could be found in Ikea’s global expansion.  The countries Ikea establishes itself in can have various work practices.  From Ikea’s perspective and deeply ingrained culture the concept of work life balance for all its staff and managers is important.  Workers who are used to long days, weekend work and overtime cannot get these conditions at Ikea.  This is a good example of a famous company mixing a global strategy with a strong culture and internationalization of its business.

In the manufacturing space Japanese companies like Fuji Xerox and Toyota are famous for taking a mature product to China, Thailand or Vietnam and implementing the same high quality manufacturing process in those countries with the resultant drop in manufacturing and distribution costs.  This is an example of where international rather than global strategy is the best initial approach.  However, an evolved global company deployment would be where the local engineers and technical staff were trained and developed to a point where they matched their colleagues back at the head office.  Of course mature companies like Fuji Xerox and Toyota are already doing this.

In one American clothing manufacturer I visited outside Hanoi the factory had been set up almost exactly like everywhere else in the world.  A foreign CEO was in place.  However, the mid-term plan was to have a local leadership team and from day one the investment into talent development and training was a key part of the strategy.  The foreign CEO saw it as a key part of his role to totally globalize the business as soon as practical and work himself out of a job.

There are many advantages for companies to expand overseas.  Developing and implementing the correct short, mid and long term strategy is the key to success.