By Zlatica "ZK" Kraljevic
Our research and regular interaction with executives and managers in various industries continue to highlight the many challenges faced by Western companies when expanding into the global market. Even experienced multinationals are being forced to reevaluate their strategies and the way they conduct business to adjust to a new global reality.
During the best part of the 2000s, emerging markets enjoyed particular attention from Western companies seeking to capitalize on the emergence of a new middle class in highly populated countries like China, India, Brazil, Russia and also Mexico, Turkey, Colombia, South Korea, and Indonesia. Today, in spite of economic down cycles and sociopolitical unrest sprouting around the world, emerging economies continue to provide the best growth opportunities compared to stagnant population growth and aging of the consumer market in industrialized countries. Western companies would benefit from taking a careful look at the way they conduct business abroad. Here is a summary of the most common missteps made by Western companies when entering new markets.
1. Information Saturation Paralysis
There is significant white noise surrounding today's global market. Excess of information makes it difficult to collect relevant intelligence needed to build a foundation of knowledge and understanding to differentiate and prioritize among emerging markets. Lack of clarity slows down the decision-making process; endless meetings with no resolution keep executives going in circles, delaying action. Companies able to effectively manage the white noise and separate the right signals from the inconsequential stand the best chance to succeed.
Companies that believe their products and services are easily exportable to foreign markets are still living in the last century, when developing countries were eager to attract Western products, services and investment and when exporting existing goods was the accepted norm. Today, governments in emerging markets understand the leverage they have to negotiate favorable terms and conditions with foreign entities seeking to capitalize on a new consumer base. Thanks to global communications, emerging consumers are more sophisticated and demand localization, that is, product designed to satisfy their specific needs. They are also likely to favor local companies offering competitive products at lower cost.
3. Lack of Confidence
Companies that are reticent to enter new markets and wait for others to pave the way, may find it increasingly difficult to penetrate those markets later on. They miss out on the learning process while competition (and expertise) continues to increase daily not only for other Western companies but also for local competitors. Delayed action place companies behind a very steep curve and the final cost of trying to pull alongside and surpass well established competitors may prove prohibitive.
4. Overlooked Industry & Capability Gaps
Emerging markets are still in the process of building physical and institutional infrastructure and may lack the kind of support systems that Western companies have come to rely upon at home. Interruptions in the local industry infrastructure may render company capabilities inadequate. Fixing capability gaps on the run is the expensive way to approach a developing market. Companies are better off by uncovering hidden breaks in the local industry and budgeting for solutions ahead of time. Winners are willing to identify their own capability mismatch relative to local market conditions, turn obstacles into opportunities and bridge broken paths by adding, modifying or reengineering the way they operate before making substantial, irreversible commitments.
5. Corporate Isolation
Executives and managers willing to actively integrate into the local community are at an advantage in terms of market intelligence; they are able to influence and steer their companies to safety during periods of political unrest or business down cycles. Companies with a narrow view of what constitutes success tend to focus solely on the end customer and fail to understand and address the needs of other stakeholders that are essential to their success, namely local leaders and players in business, political and social communities representing important circles of influence.
6. Insufficient Leadership Skills
Traditional leadership qualities (vision, intelligence, determination, and resilience) are often insufficient to succeed in emerging markets where personal relations tend to precede business relations. Successful global leaders have learned to develop and exercise emotional intelligence: the ability to understand the emotional makeup of other people and the ability to manage relationships, build networks, reach common ground and build rapport. Lack of emotional intelligence results in isolation and almost guarantees failure. It keeps Western companies clueless and prevents local prospective partners from establishing the personal rapport they consider essential in accepting new business partners.
In today’s highly competitive environment, success belongs to companies that understand the importance of being relevant to the local market. It is no longer enough to go about your business. Today, companies are expected to be active participants and contributors to improving conditions on the ground, from protecting the environment to stimulating economic development by investing in local infrastructure, financing local capabilities, and contributing to hire and educate the local workforce. In markets where collectivism still prevails over individualism, establishing a collaborative relationship with local governments and local communities distinguishes long-term, serious partners from opportunistic, short-term players.
8. Aloofness & Resistance to Change
Successful companies embrace change as part of their culture and are flexible enough to adapt to market’s demands both at home and abroad. Corporations that still keep emerging markets at arm’s length and prefer to operate in and from an English-speaking country or through representatives, fail to acknowledge the advantages of placing senior leadership in charge of running local operations. This is an essential quality in emerging markets where local competitors are rapidly gaining global capabilities and getting ahead of the game. Western companies capable of localizing and reinventing themselves are well posed to succeed in today’s global market.
9. Resilience Deficiency
One successful tryout is not enough to succeed just like one great failure is not enough to fail. Resilience is the name of the game when it comes to entering emerging markets. Intelligent companies plan their market entry carefully, first learning the way of the land. Depending on resources and corporate culture, companies may invest heavily in market research and seek to secure large market share from the start. Or, they may adopt a more patient approach, taking baby steps to test market behavior then capitalizing on their own field experience. Either approach, strong initial investment or patient discovery, helps companies act on first-hand knowledge, make better decisions and consolidate their market presence more efficiently.
10. Lack of Ingenuity
Local players in emerging markets are well known for their survival instincts and ingenuity. They have honed these qualities through years of lacking the security of economic prosperity and orderly political and institutionalized business environments that characterize industrialized countries. Ingenuity has resulted in low cost solutions capable of satisfying local needs. By contrast, Western companies are bogged down by the high cost of their complex and sophisticated products and services. Agility and dexterity are the new names of the game and those able to play it will be able to compete successfully, harvesting the benefits of a new consumer market with increasing purchasing power.