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| The Dollars & Sense of Global Strategic Execution |
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The opportunities for global execution are infinite, and the potential for exponential growth is alluring; however, attaining success demands a well-conceived global execution plan: A plan that is grounded in accomplishing specific corporate goals through the careful formulation of business development strategies. Regardless of size or ownership structure, companies that take a proactive, strategic approach to evaluating and understanding both risks and costs will stay one step ahead of the competition and reap the benefits of a successful globalization initiative. When KPMG’s Global Enterprise Institute surveyed U.S. middle market companies in late 2007, it found that 58 percent of all businesses surveyed planned to increase their global presence over the next five years, and one-third planned to maintain their current global presence. Interestingly, in the same survey, fewer than half of all respondents said their execution efforts over the past two years had been successful; therefore, 50 percent were unsuccessful! With failure rates like these, it’s time to ask “What are we doing wrong?” More importantly, what must be done differently to improve chances for future success in the global marketplace? Why Do Companies Fail At Global Execution? · The plan does not support corporate goals and culture · Corporate culture and resources are not able to support the plan · Unrealistic goals for the focus market(s) · Lack of tactical execution, accountability and understanding of the business environment · Disconnect between c-suite and operations in the field · No tools in place to measure progress and alignment between plan and reality in the field and plan · Poor adjustment and adaptability to change · Poor prioritization · It is all in the details: who is doing what in each step to support goal achievement · Flaws in communication and coordination Start With Defining SuccessWhat does success translate into for your company? Going global for the sake of going global is a recipe for failure even though a preponderance of evidence and research suggests that cross-border engagement is a critical path for businesses. Instead, it is important to seek out the “right” opportunity by allowing overall corporate goals and objectives to guide the decision for global execution. By pursuing global opportunities that correlate directly with your company’s overall strategic plan, the entrance into the global marketplace will reflect a long-term commitment that is more likely to generate value and future success. A few common goals for going global include expanding customer base, lowering manufacturing costs, and creating a competitive advantage in the marketplace. Although these common goals are shared by many businesses, accomplishing these goals may require very different strategies for each individual business. While pursing identical goals, each business needs to identify the unique global execution opportunity for its product(s) or service(s). This process requires both an internal and external assessment. Due-Diligence: Balance Risk and Rewards The spotlight of a global execution should stay focused on opportunities for growth, increasing profit, enlarging market share, and gaining further competitive advantage. Still, it’s important to complete a detailed risk analysis assessment. “The analysis should answer the questions: What is the ROI (return on the investment) for international execution and will that ROI be sufficient to reward the company for the associated risks?” explains Ed Morris of Clifton Gunderson LLP. “For example, if a company invests $1,000,000 in plant & equipment domestically and receives a return of $200,000 in additional profits; but could have invested $1,000,000 in a foreign country and received $250,000 in additional profits that additional $50,000 reward is probably not worth the additional risks associated with global execution. On the other hand, if the global execution generated $400,000 of additional profits it is probably worth the additional risks.” Focus the risk assessment process by examining key areas that have caused businesses the most difficulty. The five most commonly mentioned areas of difficulty are as follows: · Cultural issues (39 percent) – Spend time getting to know local customs and practices. · Regulatory environment (35 percent) – Be prepared for unexpected legal and/or regulatory changes and understand the provisions of the Foreign Corrupt Practices Act (FCPA). · Legal environment (35 percent) – Make no assumptions based on geography, every legal system is really very different. · Intellectual property protection (31 percent) – The ability to protect intellectual property varies greatly from country to country. · Due diligence (27 percent) – Do your homework with an emphasis on getting actionable data and utilize experts to assist in relating market information to specific business issues. Opacity Index: One Tool to Measure Risk One tool that can assist businesses in evaluating potential risks in various countries is the Opacity Index created to allow businesses a new way to anticipate, analyze, and manage hidden global business risks. The Opacity Index is a measure of five components identified by the acronym CLEAR: C - Corruption L - Legal system inadequacies E - Economic enforcement policies A - Accounting standards and corporate governance R - Regulation. Know the Real Costs In addition to patience, planning, and preparation, global execution requires a substantial investment in financial and human resources. The consequence of underestimating either of these can be disastrous. Instead, it is important to perform extensive research and interpret it accurately. Ideally, this research should eliminate surprises and aid businesses in anticipating potential problems and ensuring that they are equipped with both the money and talent to succeed. In the study conducted by Grant Thornton, 56 percent of all respondents noted that meeting objectives took longer than expected. In other words, meeting objectives required more financial resources than expected. Both the risk assessment and the cost analysis require global expertise and knowledge. Consequently, it may be necessary to rely on global execution experts who can oversee and coordinate each component of the global execution plan. Gaining an expert’s perspective on globalization can eliminate both surprises and costly mistakes. Plan It Forward and Stay One Step Ahead Long term success requires a strategic focus based on a long-term commitment. For example, if an organization’s long-term goal is to penetrate Eastern Europe and the Middle East, establishing a presence in Turkey may be an ideal first step. It is well-positioned geographically since it is located on two continents (Europe and Asia), and is relatively inexpensive to conduct business. Plus, Turkey offers political stability and gets along with neighboring countries. By establishing relationships in Turkey first, future advances towards Eastern Europe and the Middle East can be accomplished without having to reestablish a local presence. Another strategy is to identify and act on future trends. For example, consider the burgeoning middle class in China and India. Imagine each one with a middle class equal to the entire population of the United States! A recent survey by the American Chamber if Commerce - China, reports that 80 percent of respondents cited a desire to serve customers in China and elsewhere in Asia as their reason for having a presence in China. Only 16 percent indicated they were in China to export products back to the U.S. Any U.S. business already on the ground in China with years of experience conducting business in that region is ahead of this trend and uniquely positioned to leverage their existing business relationships. |