Introduction
Internationalizing companies and managing intercultural teams are more than ever part of the everyday life of employees and executives. Nevertheless, there are very few people with the right answers to the new challenges facing them today. As a result, the management of intercultural teams or international projects frequently ends in chaos when traditional methods are adopted. This not only endangers a manager's own career but also the successful internationalization or even the existence of the company. Consequently many of your colleagues ask the following questions:
How can I develop a successful international strategy?
How can I organize my international activities efficiently?
How can I select overseas markets that are growing and will be profitable?
How can I obtain correct and reliable information on overseas markets?
How can I be successful with my products in the overseas markets selected?
How can I develop these sales markets efficiently and how can I find new customers there?
How can I manage intercultural (project) teams?
How can I communicate efficiently with external stakeholders from other cultures?
How can I benefit from free-trade agreements and how do I deal with political risks?
How can I prevent errors and risks abroad from endangering the parent company?
How can I reduce investments and the risks of fi-nancial loss abroad?
The following pages will provide you with answers to these and many other questions. The answers are backed up by sound theory and have been thoroughly tried and tested in practice. The GMM Global Management Model, which I have developed and implemented successfully over the years, focuses on the current practical demands placed on you and your colleagues. Whereas 5-10 years ago it was mainly specialized global managers of large companies that had anything to do with internationalizing, most employees nowadays, independent of their position in the hierarchy, have links with overseas. And that is only the beginning. Increasingly, skills such as dealing with other cultures and developing new markets are at least part of the standard repertoire of any ambitious manager. For that reason I have written this book for all those whose job ac-tively involves international business or who ex-pect to work in a state- or privately-owned organization whether as an employee, a student or an executive.
Many SMEs (small and medium sized companies) in Germany, Austria and Switzerland owe their export successes, among other things, to the GMM Global Management Model and have advanced to global market leaders in their market niches. Today, they are referred to as the so-called 'hidden champions' in the field of globalization. As a result they set an example to many other SMEs and in conjunction with these are a reason for the export successes achieved by Germany, Austria and Switzerland. Numerous case studies can help you to recognize the factors needed for your success and to understand how using the GMM Global Management Model your company can become a champion of globalization whether you come from Brazil, Russia, India, China, North America, Africa or the Middle East.
The GMM Global Management Model provides you with a tool box that has been tried and tested for many years and enables you to manage and develop an international organization. You recognize opportunities and challenges more quickly and you acquire the skills to react to these in the appropriate manner. Your intercultural awareness is enhanced and by col-laborating with new stakeholders you learn to operate at an international level. You continue to develop in a wholly targeted way, look for ever new and better solutions and adapt continuously to new challenges.
'Global Market Strategies' provides a comprehensive management model. From global vision to developing an internationalization strategy, from selecting and entering the foreign market to dealing with cultures and managing a global organization - the most important tasks and tools for you as a global manager are described in detail and with solutions and practical implementation in mind.
'Global Market Strategies' does not propagate simple solutions 'for all'. Unlike traditional guidebooks this reference book does not offer simple solutions of the kind 'one size fits all' but deals methodically with complex, international questions that differ clearly from each other depending on the various companies and foreign markets.
'Global Market Strategies' does not pursue the latest fashions. That applies both to individual overseas markets and management methods. Deciding in favor of internationalization or a particular foreign market has a lasting impact on a company. Decisions that are wrong can threaten its very existence. Global managers make better decisions if they use both down-to-earth and well-tried methods and a professional approach.
'Global Market Strategies' offers high user value. The model is a combination of well-tried theories and comprehensive practical experience. It does not omit unpleasant topics such as market exit or corruption. That is why it is a realistic compass to help you negotiate the dynamic jungle of global opportunities and the risks entailed.
The structure of the book follows the steps to be found in the GMM Global Management Model. The first chapter addresses current trends, innovations and experiences in designing international corporate strategies. There is also a section on global competitive strategies.
The second chapter gives a detailed description of the management process 'company2newmarket' for the successful opening of new foreign markets and thus deals entirely with the successful implementation of internationalization strategy. A key success factor is the IMM International Market Monitor. This early warning instrument and management information system supplies you with high-quality facts that form an objective basis for decision-making.
International management is always intercultural management, too. Efficient intercultural communication is a key factor for the success of international companies and one of the focal points of the GMM. The third chapter addresses collaboration with employees from other cultures by employing a cultural profile. It is this collaboration that will help your company to improve its intercultural intelligence.
The GMM Global Management Model presented here can help you arrive at better decisions and help you manage your international organization more efficiently and more successfully:
You acquire new customers in new foreign markets in less time, with lower risk and with a minimal use of (financial and human) resources.
You open up new foreign markets and launch new products more quickly and successfully than your competitors.
You manage multi-cultural teams more efficiently and thereby profit from the advantages afforded by diversity.
You benefit from the advantages of location in the individual foreign markets by producing high quality at competitive prices.
Finally, you develop internationalization to one of your core competences or even to a sustainable competitive advantage for your company. That way you achieve a leading global and, above all, a profitable market position in your market niche.
Do not hesitate but take the first step by reading this book. Become a champion in the field of internationalization. I would love to hear from you - what progress you have made and what your experiences have been abroad. Questions are always welcome. I can be contacted at michael.neubert@company2newmarket.com.
1. Internationalization Strategies - Innovative Strategies for Successful and Flexible Exploitation of Global Change
The only constant is change. Driven by the development of modern communication and information technology global networking between states, companies and people is continually on the increase. In a multi-polar world, the resulting complexity can scarcely be overlooked, let alone understood or managed and this also has an impact on developing global market strategies and opening up new markets.
Companies and their global managers are subject to pressure for greater internationalization and global hype. Almost every week, there are reports in the trade press on new and even more attractive foreign markets. Whereas BRIC and TRIADE countries have been a must for the location repertoire of every sensible global manager for some time, it is considered to be cool and hip today to make use of the growth potential of the Next11 and to explore the opportunities presented by the continent of Af-rica. This market-hopping may well promote the circulation of a magazine, but it very rarely impacts a company's balance sheet.
Every international company requires a very long-term perspective that also admits of setbacks. It is particularly dangerous if there are panic-stricken market exits and investment stops when the results that were expected fail to materialize immediately. Thus, many companies have come to a standstill somewhere in their internationalization process. They are faced with the ruins of their internationalization. Their subsidiaries are more like zombies that are more dead than alive but are languishing in foreign markets without any perspective. The only or-ganizational unit that still continues to thrive magnificently is the group holding.
If subsidiaries withdraw from the market or companies turn their backs on internationalization, the group holdings often lose their raison d'être. Nevertheless, in most cases there is no one there who has the courage or skill to assume responsibility for the further expansion of overseas activities. As a result, there will still be only a very limited number of companies implementing global internationalization strategies consistently and successfully.
A prerequisite for successful internationaliza-tion is having a clear international vision and strategy. This long-term decision is reached by the owners and it shapes and alters a company for a long time. Both the owners and the management need to be aware of the consequences of this decision; they need to want this decision; they need to be prepared to learn and also to stand by their decision even in difficult times. The method of 'Let's give it a try' doesn't work.
Moving abroad also means that a company is ven-turing into new foreign markets where it is not familiar with the legal systems, networks, customers and suppliers. In cases of doubt, personal experience and knowledge count for little in these markets. Consequently, a company needs professional tools to enable it to meet these challenges. This first chapter addresses the current major tools, the trends, and the approaches for developing an internationalization strategy.
1.1. Preparing for Internationalization
Moving abroad requires thorough preparation. At the start of this process a company needs to ask itself what its international vision is in the long term, what short and medium term objectives this step means and what skills, competences and resources are available or will be required. Preparation for internationalization can be compared to preparation for a sports competition. At the end, the company is ready and in a position to prevail in global competition.
The first condition for moving abroad is developing an international vision. This is the basis for an internationalization strategy and a key management instrument for global managers. It helps them to establish a good international reputation in terms of culturally adequate, authentic, honest and reliable conduct.
The second step entails defining internationalization objectives whereby it is important in this case to distinguish basically between objectives that are geared towards strategy, sales, efficiency and resources. Usually internationalization objectives vary depending on the industry and the business model. One conventional internationalization objective is the positioning of the company as a market leader in a clearly defined market niche and defending or expanding this by developing competitive advantages with this objective in mind.
This is then followed by taking stock of the appropriate competences and skills. This network of competences provides the basis for an international business model and as a competitive advantage it ought to be unique, sustainable and relevant and above all transferable abroad. Apart from the awareness of one's own strengths and weaknesses in addition to the opportunities and risks, the analysis of one's own business model always comprises a comparison with competitors.
Finally every company faces the decision whether it really should venture into new foreign markets or not. For this purpose, it is important to recognize the degree of internationalization desired and the ability of one's own industry to internationalize, and to deduce realistic alternative courses of action from this.
Developing a Global Corporate Vision
Developing a global corporate vision or mission is a crucial basis and condition for internationalizing any company. It describes how a company sees itself, where it stands and where it aims to go. 'We are the world's leading providers of ........ technology for ....... solutions in the field of ....' is a traditional corporate vision, which provides all stakeholders with all the relevant information on the company in one sentence.
This corporate vision serves as a guideline for employees no matter where they work and no matter what their culture or nationality is. It forms the basis for communication with all stakeholders outside the company, as well as with personal family and friends, with customers or suppliers. Information is motivation. A clear corporate vision gives them a sense of security and stability because then they know what objectives they are working for and they know that the company has come to their country to stay. This last point is particularly crucial for the motivation of local employees and executives, who are always afraid that a company will withdraw from the foreign market very quickly if it fails or that it is only making use of short-term advantages in a 'hit and run' strategy.
For the management and its executives, a global corporate vision is the basis and the guideline on which an internationalization strategy is developed and also implemented of course (see Fig. 1). Deciding on a corporate vision takes precedence over the internationalization strategy; it functions as a steering mechanism for all activities of a global management model and is thus a prerequisite for all aspects of opening up new international markets. A corporate vision which is clear and well expressed has a positive impact on the motivation and commitment of all the executives and employees, and all stakeholders outside the company.
Fig 1: Elements of a global corporate vision
A corporate vision comprises international values, leadership values, the way to deal with external and internal stakeholders, and the purpose and identity of a company. Thus it defines the conduct that is desired in its employees and executives and gives numerous instructions and specifications for management situations, whether they are serious (for example: dealing with corruption) or intercul-tural (for example: the structure of remuneration schemes). Finally, a corporate vision also mani-fests itself in corporate communication, in corporate behavior and its corporate design.
A corporate vision applies to the whole of the international company; that means to all the international branch offices and subsidiaries. A corporate vision (apart from occasional common events) is often the only opportunity, especially for employees working far from headquarters, to establish a degree of identification with the entire company and to promote a sense of belonging.
It is precisely in an intercultural environment that a corporate vision is a crucial guide for global managers. Frequently, as far as local employees are concerned, the only representatives that companies have abroad are global managers. At the same time they are very far from head office where the company culture and values are practiced and demonstrated by the management daily. Consequently they need efficient instruments. A management handbook is a good example for it contains management culture and values based on the corporate vision and culture. The aim of this management handbook is the integration of all the employees independent of their origins and their culture into a uniform corporate and management culture.
At the same time a distinction is made between more 'technical' and more 'person-centered' corporate functions. Technical corporate functions are for example the fields of finance, project management, IT or compliance (including IP protection) that on a global level can be more readily standardized. Person-centered corporate functions include communication, marketing, sales, and customer services, which require considerable adaptation to the culture of the country in question.
Therefore a corporate vision is not an end in itself for the global manager but a key management instrument. That applies in particular to market entry forms based on collaboration with local partners in foreign markets (e.g. joint ventures), to integrating acquisitions in foreign countries or in markets with great cultural, geographical and structural (i.e. economical and administrative) distance.
Definition of International Corporate Objectives
Before developing an international corporate vision the owners ought to consider in detail the reasons for going abroad. This may sound banal but it isn't. Many companies tend to allow themselves to be driven willy-nilly into moving abroad, drawn by their customers (or other opportunities) and pushed into it by colleagues at the business roundtable talking of their great success in the new growth markets.
It seldom happens that international corporate objectives are clearly formulated. It is even rarer for companies to have any idea of what lies in store for them if they move abroad. Implementing an internationalization strategy will have a radical impact on the company. This can lead to more success but in cases of doubt it can also put the entire company at risk.
The question about international corporate objectives is more than legitimate; answering it is very important. Why does a company move abroad, where it doesn't know the market, the culture, the language or the political and legal framework conditions and where it has no customers? Potential, local customers don't know its brand or its products, its competitive ad-vantages and services. Does a company intend to generate above-average returns for its owners under such conditions? After all, that sounds rather ambitious and not very realistic. Nevertheless, the urge to expand to foreign countries is enormous. As a result, companies pursue the objectives listed in Table 1.
Resources and procurement oriented internationalization objectives
Access to raw materials (valuable and in short supply)
Access to knowledge, specific competences and experts
Access to (cheap) capital
Sales oriented internationalization objectives
Acquiring new profitable customers in new attractive foreign markets
Retaining (and expanding) current customer relations that already exist abroad
Extending the life cycle of established standard technologies and existing products
Circumventing tariff and nontariff trade barriers (for example: localcontent or joint venture regulations) in order to gain access to the market in the first place
Looking after existing export customers locally
Efficiency oriented internationalization objectives
Using cost advantages (e.g. lower labor and energy costs or state subsidies)
Expanding cost leadership by implementing the effects of cost and experience curves through higher sales volume
Diversifying risks (e.g. exchange rates, fluctuations in demand, burdens due to tax-es/fees, and regulation)
Strategy oriented internationalization objectives
Implementing an international corporate vision (e.g. establishing a leading global corpo-rate position)
Reacting to the activities of competitors (e. g. market entry by a foreign lowcost manu-facturer)
Establishing and developing core competences and competitive advantages that can be exploited globally
Table 1: Internationalization objectives
In the past, resource and procurement oriented reasons were the major force behind the interna-tionalization of companies. Today, this still ap-plies to certain industries such as oil, natural gas and other energy companies or to certain company functions. For that reason, software companies outsource some of their programming departments to countries which have a knowledge or know-how that is not available in their own country. Companies from capital-intensive industries and from countries with inefficient capital markets (for example: primary commodity producers in mining or oil production for example) go to the biggest capital markets (for example: New York, London) to obtain the necessary financial resources at attractive conditions.
Nowadays, companies look for a way to enter new foreign markets especially when they would like to acquire new customers or sales markets or to strengthen or expand existing customer relations. The traditional global business model for sales oriented internationalization objectives is the 'global exporter'. The head office in the home country is responsible for the products which are sold via distribution subsidiaries or branch offices. As success in the market increases, assembly and services are relocated to the various foreign markets.
Implementing efficiency oriented internationalization objectives is mainly about benefiting from cost advantages and diversifying risks. Traditional cost advantages are wage and energy costs and subsidies for investment costs (for example: direct payments, depreciations, and tax advantages). These are also referred to as arbitrage objectives. By producing goods at more cost-effective locations and selling them at the market price in high-cost countries a company can improve its relative cost position and become more profitable.
Strategic internationalization objectives are gaining increasingly in significance. For this purpose the company adopts a holistic and global perspective in order to pursue more than just regional or non-market-specific objectives. In point of fact relations between the commitments in the different foreign markets ought to be increasingly born in mind. Examples of strategic internationalization objectives are establishing a global market position or worldwide competitive advantages, developing an international competitive strategy or implementing learning effects or economies of scales and scope.
Analysis of One's Own Business Model and Competitive Position
Before moving abroad every company should know its strengths and weaknesses. That is the only way it can decide with which products and competitive advantages it intends to enter the new foreign market or which knowledge and which skills are still required if internationalization is to be successful.
Taking Stock of and Outlining One's Own Competences and Competitive Advantages
After the corporate vision and the internationalization objectives have been established, an internal analysis is made about which resources are already available for implementation and which are still required.
Every company has resources. These are finance, people, organizations or technologies which become competences when implemented in certain combinations. This can be the ability to produce the product at a low price and of good quality, or it can be the knowledge and experience needed for solving customers' problems or handling customer situations. A core competence is an activity in the core processes which a company executes better than its competitors. A core competence becomes a competitive advantage if it creates greater customer benefits and /or offers these at lower costs (see Fig. 2). Competitive advantages that are used as a basis for internationalization need to be sustainable in the specific target markets, difficult to copy (in the case of knowledge it needs to be also protectable), profitable and above all they need to be of relevance to the local customers. Moreover, customers need to be prepared, in the long term, to pay a price which, from the company's point of view, is profitable.
According to Michael Porter's concept of the 'competitive advantages of nations' companies de-velop skills in various countries or regions on account of the infrastructure there (for example: universities), the geography (for example: natural resources, tourism) or the history; they develop skills which do not exist in this form in other countries. Thus a manual or technical skill never amounts to a competitive advantage in the home country but it can definitely meet with brisk and profitable demand abroad (for example: Italian fashion). The reason for this is often to be found in the high level of competition which historically has forced all the local competitors to acquire and build up unique skills. It is quite possible that global competitive advantages can evolve from the competitive skill which has thus developed.
Fig 2: Relation between skills, competences and competitive advantages
To begin with, a global manager ought, therefore, to make a list of all the skills and then assess to what extent these can be transferred to other countries. This list - or even better would be the word network - of the core competences and competitive advantages that can be transferred (see Fig. 3) is a significant indicator of the capacity for inter-nationalization of the business model and of the willingness of foreign customers to pay an appro-priate price for the products and services of the company.
Fig. 3: Network of core competences as a competitive advantage
Transferring One's Own Competitive Advantages to New Foreign Markets
The simplest and best known instrument for answering the question as to whether a company can make use of its own competitive advantages and competences to take advantage of the opportunities presented in foreign markets is the SWOT analysis (Strengths, Weaknesses, Opportunities, Threats; see Fig 4). This is compiled from the point of view of each individual country and comprises not only the home markets but also all foreign and target mar-kets. Thus a multi-dimensional picture emerges that furthermore contains external and internal perspectives with their strengths, weaknesses, opportunities and threats.
Fig. 4: Individual SWOT analysis for each foreign market
The evaluation examines whether there are strengths (or competences) within the entire company to be able to take advantage of the opportunities in decidedly diverse countries and target markets. Of course, the SWOT analysis cannot simply be made in an internal workshop but is supplemented with external data. In this way a global manager receives a rough idea initially as to whether the company's own competitive advantages can be transferred to foreign markets. In practice, answers are given for instance to the following questions on this subject: Do your own products have a competitive advantage in the target market? Is the company also competitive price-wise despite logistics and co-ordinations costs?
Analysis of the International Competitiveness of a Company
Apart from the tools already mentioned, Michael Porter's process, in three stages, for analyzing the international competitiveness of a company is widely used (see Fig. 5). The analysis begins at the economic level where the competitiveness of a company is analyzed within the framework conditions of its home country. The second stage concentrates on the competitive structure of the industry involved. In this connection an analysis is made as to which of the Five Forces will be in a long-term position to generate the highest return on equity with their activities in the value chain. This information enables each company to find a competitive market position, which it can defend against the other Five Forces with its competences and competitive advantages.
It is not until the final stage that the compa-ny's value chain is analyzed (for example: the competitive triangle) and compared individually with other competitors (for example: benchmarking, best practice-analyses). In particular, two parameters - the cost of and the customer benefits from the product - are used in this comparison. This concerns increasing customer benefits and improving the cost position by increasing productivity and lowering costs and aims to identify the core competences and the weak points in the various activities. The latter are outsourced to specialists whose core competences are precisely these activities.
The success of many international companies lies mostly in the competitive advantages they have achieved in their home markets through framework conditions and the high level of competition. In a precise analysis, networks of manufacturers, suppliers and customers are often to be found which, depending on the foreign market, are referred to as industrial clusters: e.g. Chaebol (in Korea) or Keiretsu (in Japan). Industrial clusters are characterized by good contacts and close connections to the companies in an industry. In addition they have all the necessary resources such as capital, natural resources or qualified employees to establish a high level of competitiveness. There is any number of famous examples: the technology firms in Silicon Valley and Route 128 in the USA, the IT/software industry in the Bangalore region in India, the clothing industry in North Italy or trading with raw materials in Geneva and Zug in Switzerland.
Global managers can derive their internationalization strategy solely from the origin of a company. Frequently, therefore, industrial clusters jointly expand their entire value chain abroad. Thus competitive advantages arise from the networks with suppliers, major customers and distribution channels.
Fig. 5: Establishing global competitiveness in three stages
Finally, the three stages of this analyzing process are an aid to discovering hitherto unknown markets and to understanding which activities enable the individual competitors to actually earn money. Frequently, these are innovative customer benefits. The search for new business fields is referred to as 'blue ocean strategy'. The engineering industry is a good example of this. At first the companies in this industry concentrated solely on developing, producing and distributing their products. Today, services such as financing or maintenance contracts are a key source of sales and proceeds. This also applies to airlines, who due to the high level of competitiveness could hardly earn money from their core business of providing transport services. Thus Miles & More, the cus-tomer retention program, is no longer a cost factor for Lufthansa meanwhile, but a very profitable line of business.
Deciding to Internationalize
A company is now in a position to develop realistic alternative courses of action for its own internationalization independent of its own industry and skills.
Developing Alternative Courses of Action
At this point at the latest, global managers ought to have a precise idea of the internationalization objectives and be familiar with their competences and competitive advantages. Thus, they are in a position to develop alternative courses of action on the basis of two decision-making criteria using tools such as the two-dimensional nine-cell matrix (see Table 2). However, the matrix can also be reduced to four cells (for example: the Ansoff-Matrix) or even expanded to 16 cells. Global managers are free to choose the criteria. The two decision-making criteria chosen are the degree of in-ternationalization of one's own industry as well as the ability and willingness to internationalize one's own company. On the one hand, the latter contains a global corporate strategy with international development objectives (willingness) and on the other hand, the necessary resources (finance, human resources, knowledge, organization, technologies) and competitive advantages that are the
