Mighty and Nimble: Where small becomes competitive.
by Muriel Joseph-Williams.
January 12, 2015
When speaking of globalization, the first idea that comes to one’s minds is multinationals, well-known brands easily identified wherever one travels around the world, such as an Apple store, a McDonalds restaurant, a bottle of Coca Cola, or a white cup full of unsweetened green tea from Starbucks either in Paris, Shanghai, Delhi, San Francisco or DC!
These public companies have deployed their presence throughout the planet with the help of global and frequent marketing campaigns. Paradoxically, their size as well as a multitude of complex rules, processes, and procedures has also generated a bigger weakness: multinationals are slow and they have turned, sometimes, into structural dinosaurs due to a multi-layered decision-making process. They, of course, may take advantage of resources such as budgets, people, and sophisticated advisors to export their products or services, including the luxury to make mistakes. At the same time, their size becomes a handicap in the long run. Their flexibility and agility are gone and thus they become less responsive to the disruptions that can occur in the environment. Large organizations often display delays to adjusting to new customer demands or to changes of regulations for instance. These lags in response time turn into a critical impediment that affects the business quite significantly.
I, then, asked myself: what types of companies are truly best equipped to evolve into global corporations? Could it be true that the smaller a company is, the more advantages it offers? During one of my discussions with few CEOs, I was impressed by the large global presence of some of these medium-size companies. “I think that if we have not entered the international market, we would have died. Any company which does not internationalize itself will not survive in this economy.” Stated one of them.
As an example, one of them, Ikonix, specializing in manufacturing testing equipment, started to produce and export overseas in 1966. Today the company has a presence in many countries around the world and a successful track record in Asia. Braverman explains his thriving implementation overseas with some recipes. “In Asia, we initiated our internationalization by choosing a local Taiwanese company specialized in the production of testing equipment that was manufacturing products of semi-identical technology. We were able to build a relationship at an early stage. We reshaped their product line and implemented a mix-sales strategy including part of their products and ours. We later on purchased the company, which allowed us to develop a solid footprint in Asia from that platform. My recommendation would be not to start with a greenfield operation but through a strong partnership.”
In other words, when deploying operations, especially in some regions such as Asia or the Middle East, it will be more efficient to rely on a strong and trustworthy partner that will help an American Small Medium Enterprises (SMEs) to become accustomed to the culture as well as the implicit and explicit rules that can only be learned through experience. Rather than starting from scratch and ruining all opportunities of a fruitful implementation in the target country, this option offers a better chance of success. It is particularly obvious in the case of another client of ours, a small food company, which implemented a branch, actually structured as a joint venture, in Saudi Arabia. Laws and culture impose to find a Saudi partner who will represent the brand and/or the company locally. The CEO, a former Executive Chef at Disney, formalized a partnership that allowed him to secure investments in the country while benefiting from the influence of his business partners to grow his presence and revenue in the Kingdom of Saudi Arabia.
It is only when the company has internally integrated the “rules of the game” that it becomes possible to plan for the acquisition a new entity overseas, when conditions and timing are met. Acquisitions can only take place as a result of a longer presence abroad. Otherwise, there is a higher risk of failure due to the fact that SMEs will learn as they go. Given the limitation of their financial resources, the bet would be too big for the stake!
Most importantly, the competitive advantage of SMEs consists in a condensed and cohesive managerial team where leadership is in few hands and the decisions remain consistent and fast. Some CEOs explain that they initiated their global presence through marketing research, followed by attendance to several trade shows where they and their teams were able to meet with local and international companies. Additional training was provided to senior staff so they could embark and perform into new ventures. The results may not pay off immediately but it is worth the strategy of meeting customer needs and looking for competitiveness, because global players are impacting even domestic markets.
For these CEOs, being at the head of smaller private companies is truly a blessing: “being public creates an additional pressure coming from the shareholders and enforces a shorter term outlook”. Therefore the investments that are made are preparing the company to the future and there is no rush to maximize a return on investment to satisfy demanding shareholders immediately.
In addition, large companies are also not interested in what, in their eyes, appear to be minor business deals. That situation generates opportunities for medium to even small sized organizations. They might sell less, but at a higher margin, resulting in a substantial boost of revenue since they find themselves in a position of operating in a profitable niche.
In both instances, going beyond borders increased growth, sales, profitability, and helped to diversify products, customized to local markets. Additionally, this improved the richness of technology or services because: “each country brought creativity and innovation given the variety of backgrounds involved”.
Even SMEs cannot afford to misunderstand the local culture since those mistakes can be costly when the resources are limited. Here is what one of these CEOs stated about his Chinese experience: “the Chinese are very different from us (Americans). We quickly realized that we needed to understand the people and their culture. For instance, Chinese think in terms of centuries. Consequently, their approach might be slow and steady compared to Westerners who plan 3-5 years ahead or 15 years when they speak long term!”
For instance, virtual communication is not enough and building relationships are a pre-requirement to foster successful and long lasting business commitments. It is only through face-to-face meetings and trust that people of Asia, the Middle East and Latin America will agree and close deals. And again, this is where SMEs are advantaged. Often family businesses or small entities, supported by close and tights bonds in their workplace, SMEs will not find themselves in a tough predicament but on a common ground with these cultures.
This strategy may request to persevere during several years before seeing efforts paying off over time! It is quite a journey, indeed, but worth the sweat and efforts for leaders who dare