Case Study- Managing in a Borderless World
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Most managers are nearsighted. Even though today’s competitive landscape often stretches to a global horizon, they see best what they know best: the customers geographically closest to home. They may have factories or laboratories in a dozen countries and joint ventures in a dozen more. They may source materials and sell in market all over the world, but their field of vision is dominated by home-country customers and the organizational units that serve them. Everyone and everything else is simply part of “the rest of the world.”
This nearsightedness is not intentional. No manager purposefully plans or implements an astigmatic strategy. But few managers consciously try to set plans and build organizations as if they saw all key customers equidistant from the corporate center. Whatever the trade figures show, home markets are usually in focus and overseas market are not.
Effective global operations require a genuine equidistance of perspective. But even with the best will in the world, managers find the kind of vision hard to develop. And harder to maintain.
It may be unfamiliar and awkward, but the primary rule of equidistance is to SEE and THINK global first.
If you have a manufacturing divisions in Japan, North America and Europe – all three legs of the Triad – your managers do not think or act as if the company were divided between home country and overseas operations. The word overseas has no place in the vocabulary of the company because the corporation sees itself as equidistant from all key-customer. You top managers should gather information directly from each of their – primary market and then sit down together to develop a revised plan for global product development.
There is no single best way to avoid overcome nearsightedness. An equidistant perspective can take many forms. However manager do it, however they get there, building a value system that emphasizes seeing and thinking globally is the bottom-line price if admission to today’s borderless economy.
A Geography Without Border
On political map, the boundaries between countries are as clear as ever. But on a competitive map, a map showing the real flows of financial and industrial activity, those boundaries have largely disappeared. What has eaten them away is the persistent, speedier flow of information. Information that government previously monopolized, their monopoly of knowledge about thing happening around the world enabled them to mislead or control the people, because only the government possessed the real facts in anything.
Today, people everywhere can easily get information they want directly from all corner of the world. They can see for themselves what the tastes, preferences are in other countries, the styles of clothing now in fashion, the sports and the lifestyles. In the past, there were gross inefficiencies in the flow of information around the world, some purposeful, some not. New technologies are eliminating those inefficiencies.
Through this flow of information, we’ve become global citizens, and so must the companies that want to sell us things or products.
More than that, we are all coming to share it in a common language – English. This is a momentous change. We can talk to each other now, understand each other, and governments cannot stop us. “Global citizenship” is no longer just a nice phrase in the lexicon of rosy futurologists. It is every bit as a real and concrete as measurable changes in GNP or trade flows. It is actually coming to pass.
The same is true for corporations. In the pharmaceutical industry, for example, the critical activities of drug discovery, screening, and testing are now virtually the same among the best companies everywhere in the world. Scientist can move from one laboratory to another and start working the next day with few hesitations or problems. They will find equipment they have used before, equipment that comes from the same manufacturers.
The drug companies are not alone in this. Walk into a capital-goods factory anywhere in the developed world and you will find the same machineries. When information flows with relative freedom, the old geographic barriers become irrelevant. Global needs lead to global products. For managers, this universal flow of information puts a high premium on learning how to build the strategies and the organizations capable of meeting the requirements of a borderless world.
What is a Universal Product?
If you are a CEO of a major company reviewing your product plans for the years ahead. Your market data tell you that you need to develop four dozen different models if you want to design separate parts for each distinct segment of the Triad market. But you don’t have enough managerial talent or enough money. No one does. Worse, there is no single “global” product that will solve your problem for you. America, Europe, and Japan are quite different markets with quite ,ixes of needs and preferences. But you cannot write off any of these Triad markets. You simply have to be in each of them and with first rate successful products. What do you do?
First look at the Triad region by region and identify each market’s domain requirements. Make a “lead country” model – a product carefully tailored to the dominant and distinct need of individual national markets. Once you have your short list of “lead country” model in hand, you can ask your top manager in other parts of the Triad whether minor changes can make any of them suitable for local sales. But you start with the lead-country models.
With this kind of thinking, we have been able to halve the number of basic models needed to cover the global markets and, at the same time, to cover 80% of our sales with designed for specific national markets. Not to miss the remaining 20%, however, we also provided each country manager with arrange of additional model types they could adapted to the needs of the segments. This approach allowed us to focus our resources on each of our largest core markets, and at the same time, provide a pool of supplemental designs that could be adapted to local preferences. If the Japanese happened to like something we tailored for the American market, so much the better. Low-cost incremental sales never hurt. Our main challenge, however, was to avoid the trap of pleasing no one well by trying to please everyone halfway.
When it comes to product strategy, managing in a borderless world doesn’t mean managing by averages. And it doesn’t mean the appeal of operating globally removes the obligation to localize products. The lure of a universal product is a false allure.
Although the needs and tastes of the Triad markets vary considerably, there may well be market segments of different sizes in each part of the Triad that share many of the same preferences. They are some Japanese products that can capture a few segments of the U.S. market that makes a nice addition to their sales.
There are some kinds of products, that become successful across the Triad like cameras, watches and some electronic products.
Another important cluster of these global products is made up of fashion-oriented, premium-priced branded goods. These products are sold around the world, unchanged from one country to another. They are marketed in virtually the same way. They appeal to an upper bracket market segment that shares a consistent set of tastes and preferences. By definitions, not everyone in the United State or Europe or Japan belongs to that segment. But for those who do, the growing commonality of their tastes qualifies them as member of a genuinely cross-Triad, global segment. There are even such a segment for top-of-the-line automobiles like the Rolls-Royce and the Mercedes-Benz. You can – in fact, should design such cars for select buyers around globe. But you cannot do that with Nissans or Toyotas. Truly universal products are few and far between.
Some may argue global products is for the upper bracket market segment only. Coca-Cola, for example- is another thing. On closer examination, however, these turn out to be very different sort of things. Before Coca-Cola got establish in each its markets, the company had to build up a fairly complete local infrastructure and do the groundwork to establish local demand.
Access to markets was by no means assured to day one: consumer preference was not assured from day one. Unlike Gucci bags, consumer demand did not “pull” Coke into these market; the company had to establish the infrastructure to “push” it. Because the company has done its homework and done it well, Today Coke is a universally desired brand. Bit it got there by a different route: local replication of an entire business system in every important market over a long period of time.
For Gucci-like products, the ready flow of information around the world stimulates consistent primary demand in top-bracket segments. For relatively undifferentiated, commodity-like products, demand expands only when corporate muscle pushes hard. If coke is to establish a preference, it has to build it, piece by piece.
Customer pull, shaped by images and information from around the world, determine your product choices.
The information that shapes fashion-driven choices is different in kind from the information that shapes choices about commodity products. Your preference is shaped by the effects of the company’s complete business system in that country.
To be sure, the quality of that business system will depend to some extent on the company’s ability to leverage skills developed elsewhere or to exploit synergies with other parts of its operations – marketing competence, for example, or economies of scale in the production of concentrates. Even so, your choice as a customer rest on the power with which all such functional strengths have been brought to bear in your particular local market – that is, on the company’s ability to become a full-fledged insiders in that local market.
With fashion-based items, where the price is relatively high and the purchase frequency low, insiderization does not matter all that much. With commodity items, however, where the price is low and the frequency of purchase is high, the insiderization of functional skills is all-important. There is simply no way to be successful around the world with this latter category of products without replicating your business system in each key market.
The Headquarter Mentality
But of course not all insiderization is a success. The path it took to insiderization – replicating a home-country business system in a new national market – creates many more problems than it solves. Managers back at headquarters, who have had experience with only one way to succeed, are commonly inclined to force that model on each new opportunity that arises. Of course, sometimes it will work. Sometimes it will be exactly the right answer. But chances are that the home-country reflex, the impulse to generalize globally from a sample of one, will lead efforts astray.
One common problem with insiderization, then is a misplaced home-country reflex. Another problem is what happens back at headquarter after initial operations in another market really start paying off. When this happens, in most companies everyone at home starts to pay close attention. Without really understanding why thing have turned out as they have , managers at headquarters take an increasing interest in what is going on in wherever it happens to be.
Functionaries of all stripes itch to intervene. Corporate heavyweight decide they had better get into the act, monitor key decisions, ask for timely reports, take expensive tours of local activities. Everyone wants a say in what has become a critical portion of the overall company’s operations. When minor difficulties arise, no one is willing to let the local managers,
continue to handle things themselves.
Where is all this is likely to lead? The operation, which had grown progressively more important, was no longer able to enjoy the rough autonomy that made its success possible. Relations become antagonistic, profits fell, the intervention grew worse, and the whole thing just fell apart. Overeager and overanxious managers back at the headquarters did not have the patience to learn what really worked in the market. By trying to supervise things in the regular “corporate” fashion, they destroyed a very profitable business.
Persistence and perseverance are the keys to long-term survival and success. Everyone knows it. But headquarters is just not able to wait for a few years until local managers- of whatever nationality- build up the needed rapport with vendors, employees, distributors, and customers. And if they do, then the headquarters is likely to see them as having become too Local to represent their interest abroad. They are no longer “one of us.” If they do not, then obviously they have failed to win local acceptance.
If you want to operate globally, you have to think and act globally, and that means challenging entrenched system that work against collaborative efforts. If our commitment to acting globally is not strong, we are not going to be inclined to make the painful efforts needed to make it work.
Top managers are always slow to point the finger of responsibility at the headquarters or at themselves. When global faults have local symptoms, they will be slower still. When taking corrective action means a full, zero-based review of all systems, skills, and structures, their speed will decrease even further. And when their commitment to acting globally is itself far from complete, it is a wonder there is any motion at all. Headquarters mentality is the prime expression of managerial nearsightedness, the sworn enemy of a genuinely equidistant perspective on global markets.