Saturday, June 03, 2017

If You Are Going Global, Which Country?

Wrong question, perhaps! Some of the times I asked the question, I got awkward pauses in return. This is a dinosaur question, so dated, reactions indicated: Going global means being on the Cloud, countries are totally irrelevant in this conversation.

As I wrote in an earlier post, Global or Multinational, I think this is one of the big mistakes companies make. Their assumption of flat world is totally off the mark. One has to touch the ground as long as they involve people from different nations as customers. This idea of 'global market', borrowed mostly from the playbook of hedge funds who seem to move money from one place to another seamlessly, does not apply to most businesses dealing with customers. One has to be 'national', multi-national if you like, because markets are national. And, that claim of being on the cloud is based on complete innocence of how marketing and product development work in real life.

Once I get past the mistaken assumption of 'unbearable lightness of business', I usually ask the question again: Which countries?

However, even if the idea that nations are real and they have real bearings on consumer preferences and operating realities, many entrepreneurs have no clue how to choose the countries to focus on. The two criteria most used are where the founder may know someone and, somewhat less frequently, the size of the market. For all the professed love of data and objectivity, for small and medium businesses, chance acquaintances, often unqualified, remain the basis of choice of country to do business in. Size of the market often come a distant second, given the opportunistic, rather than strategic, nature of decision making in this particular decision area.

My point is not that the size of the market is not important. It is very important, but it is the starting point. In fact, it is often used as the empirical justification for accidental decisions, but for a real strategic approach, size of the market should be the conversation starter, before that size is qualified. It also should be mentioned that the size of the market is very difficult to establish, primarily when one is speaking about new products (where one could only guess how many people would buy the product or service) or new price points (size of the market is irrelevant if no one can afford the product).

One approach I would recommend at this point is to qualify the size of the market with the 'complexity' of market entry. To do this, I find Pankaj Ghemawat's framework - CAGE or Cultural, Administrative, Geographical and Administrative Difference - quite handy. Professor Ghemawat, who firmly believes in the persistence of national markets, suggests that the business of country choice is done on the careful considerations about 'distance', of which these are four dimensions. 

The Cultural Distance is well known, and there is a lot of literature on it already. Value systems, ideas of time and space, and ways of doing business vary from country to country. Indeed, there is some stereotyping involved in this, but let's say that it is possible to establish a model of 'normal behaviour' for each country. The problem is many executives are completely unaware of these differences, or worse, they believe cultural differences are peculiarities that are going to go away. This is part of the 'globalization apocalypse' thesis - that all markets would become like metropolitan markets (read US) over time - but the opposite seems to be happening everywhere: Cultures are diverging rather than converging. Understanding the Cultural 'distance', from home to target market of a business, is the starting point of a good 'Going Global' plan.

The Administrative Distance, which is about difference of Legal and Regulatory systems, is somewhat better appreciated, but many CEOs think that this is a matter of choosing good lawyers rather than devising strategies around it. However, it can quickly become problematic: For example, who would really know that transferring Dollars to a Country Representative's personal account may be okay in many countries but not in India, which has extensive Exchange Control mechanisms! One may be aware of Common Law and Civil Law traditions, but rarely we factor these in assessing which markets are most attractive for business, considering this is something which 'lawyers will sort out'. But this creates a 'distance', in ways of doing business, writing contracts, doing partnerships etc, which are day-to-day considerations of an enterprise.

The Geographical Distance is neglected for an altogether different reason: Because it is too obvious. But we know geographical distance matters, because countries are not just neatly drawn blobs of colour on a two-dimensional map, but they are about a million overlaps and interactions, exchanges, Diasporas and commonalities. Usually, countries trade more with their neighbours more than others (this is the problem with the argument that UK would offset any lost trade with EU by trading more with its global partners). The countries with poor relations with its neighbours - think of African nations or India - are working within a self-imposed field of constraint.

The final aspect, the Economic Distance, gets some consideration in strategy making. This is about looking at differences in Ability to Pay, Per Capita Income and factors such as these, but most companies would have a very superficial idea about these. The culprit in this case are indeed those over-excited reports that the consultancies bring out, often paid for by a national or regional development agency, which highlight the best case scenarios (and keep the rest for fine print). The whole world got excited about India's 300 million strong Middle Class, therefore, and completely overlooked the fact that someone with $5 a day may be considered Middle Class in India (compared to $20 a day benchmark in developed nations). 

In summary, a strategic approach to Market Opportunity should start with an appreciation of size of the market qualified by the 'Distance' followed by question 'Do I know someone there', rather than the other way around. Such an approach would also allow better planning of resources - a big and complex market like India may justify its own strategy and investment unlike some more familiar markets - and can save a lot of headache later. However, the starting point of all this is to abandon the 'globalisation illusion' that many companies remain enthralled with.

 

  


No comments:

Popular Posts

How To Live

"Far better it is to dare mighty things, to win glorious triumphs even though checkered by failure, than to rank with those poor spirits who neither enjoy nor suffer much because they live in the grey twilight that knows neither victory nor defeat."

- Theodore Roosevelt

Last Words

We shall not cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time.

- T S Eliot

Creative Commons License

AddThis