Sunday, December 27, 2015

The Challenge of Global Strategy

In the world of Unicorn companies, privately held start-ups with valuations of $1 billion or more,  global strategy is no longer what it used to be. In fact, the old, dated idea that one goes global only after securing its home market, and having cash flows to sustain far-flung operations, is as good as dead. Getting global fast, rather, is the thing to do, as the copy-and-catchup innovation, as popular in many fast-growing emerging markets, can alter the dynamic for a start-up quite dramatically by capturing large market share in foreign markets and becoming a threat almost instantly. Whatever we may think of them, copycats, imitators, etc., the copy-and-catchup ecosystem in India, China, Middle East and Africa, are made of very smart entrepreneurs, savvy technologists, and investors who are ready to back them either looking to exit in a global M&A or going global through acquisitions themselves. With this, right now, start-ups are usually born-global rather than not, and discussions about global strategy has to flip accordingly.

There are other structural changes that necessitate this too. First, the consumer demand is growing globally, and not just in the United States. In fact, the new demand growth in many a sector - automobile for example - is primarily in the emerging markets, or projected to be in the emerging market. A quarter of new college going students is supposed to be in India, followed by China. Healthcare markets would grow dramatically in the population-heavy parts of the world, not just in terms of service provisions but in revenues too. India is already the second largest market for Uber after the United States. So, the model, created only a few decades ago, of global workflows with cheap labour in emerging markets at one end, and rich consumers of Western countries at the other, is already flipping. The Copy-Catchup innovators often have access to bigger markets and cheaper labour at the same time, on a terrain native to them, creating a different set of strategic challenges to global start-ups. The models used by P&G to take soaps to Asia is no longer a template for strategy-making.

Second, if the transformation of consumption is not enough, the global models change innovation too. Indeed, one may read the above paragraphs thinking that all innovation is happening in the West whereas it is only copy-and-catchup elsewhere, but that would be mistaking what innovation really means. New product and service ideas are still being generated in the West, particularly in the consumer Internet space, because of its advantages with technology clusters, advanced education systems and wider penetration of broadband Internet. But it may not be equally efficient in terms of the last mile solution, where infrastructure and culture have a role to play, and here, there is a lot of innovation in the emerging markets. The emerging market companies often excel in copying the product ideas, and concentrating their innovation efforts on the last mile, dealing with payment issues, community building, service infrastructure etc. This is why M-Pesa originates in Kenya, and Uber is playing catch-up with Ola in offering cash payments for cab rides. And, indeed, frugal innovation, given the limited needs and service infrastructures, is often being pioneered in these markets, interrogating many of the unspoken assumptions about public infrastructure and value systems that underlie the Western business model. This creates a brave new world of strategy-making, where all the assumptions must be carefully validated, because almost nothing can be taken for granted in a global scale.

These changes are setting off great changes in global strategy among the great global corporations, inverting their business models and setting off the quest for reverse innovation. However, these changes create particular challenges for born-global start-ups, whose problems are seldom studied in the business schools. For them, changing global dynamic, and the threat of competition from emerging markets, create very peculiar challenges. For example, the homogeneity and single-mindedness of the founding teams that is usually the strength of a start-up becomes a handicap in handling the intricacies of last-mile innovation. And, it does not help that the quest for global strategy is only mixed up with the softer subject of cross-cultural competence, that nineteenth century game of stereotypes and prescriptive manners, which hinders, rather than helping, development of global mindset.

What are the elements of a global strategy for a born-global start-up? Following a model developed at Thunderbird, this may need, at the competence level, intellectual, psychological and social capital to deal with globality. This means that the start-up should seek to have a native view of the global marketplace, not just by choosing information to fit its assumptions, but by letting its assumptions evolve with global context. In this, diversity of the founding team is an important factor, and one could perhaps comment that most, if not all, successful born-global start-ups have at least a few key executives or founders who came from a different background. It is also important to note that iterative models like Business Model Canvass becomes crucial here, though it perhaps need a different level of sophistication, as any assumption can be proved and disproved simultaneously when tested in a global scale. Market selections, usually opportunistic in start-ups, become even more crucial in this context, as like the founders, first few market-places define the strategy more profoundly than the influence that home markets used to have on earlier generation of companies, because the openness to make the leap is greater when one is going from domestic to global than when it is trying to fit a business model established abroad into another market (because, for many, there are only two kinds of market, home and overseas).

One of my teachers used to say, Start-ups do not do strategy, and there is an element of truth in this. There is very little breathing space to think and reflect in the breathless life of a start-up. However, the imperative to be born global and the complexities of global existence force the hand of the start-up founders to take up seriously the challenge of global strategy. In a world where the start-up ecosystems generate employment, create wealth and explore new possibilities, the issue of global strategy from the perspective of the start-ups is too important to be ignored.  

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