written by Janet Loh

Becoming multinational - many European companies have done it. So have American companies.

Now Asian firms are beginning to set their business targets on lands far from their home countries too.  Pushing frontiers, redefining limits of growth opportunities. From America to Asia - the drive and ambition to take their business across borders seem to be very much a universal aspiration.
 
It could be the need to defend market share in an intensely competitive business environment, or a sense of satisfaction to see a home grown brand splashed proudly on labels, signboards and in the media in another country, another region, another continent.

As Asian companies transition into multinational companies, they are learning from their European and American counterparts what makes a company truly international. Perhaps these companies have a useful set of  best practices to follow.  Perhaps they are good at managing cultural differences. Surely, these established multinationals had to face challenges when they first began their expansion efforts, and must continue to grapple with other issues today. 

While the desire to become truly international is on the minds of many business leaders, how to operate successfully and profitably in different countries is a question an international company always asks itself too.

Philips Chair Professor of Human Resource Management Arthur Yeung from CEIBS and Emeritus Professor of Strategy and Asian Business Philippe Lasserre from INSEAD provided their opinion based on their years of experience in teaching Asian business and strategy programmes. Here are some insights.

1. Every country has its own local success stories but relatively few companies make a successful transition to a multinational company. Why is that so? 

Philippe Lasserre (PL): There are two main reasons: First, the key success factors for the company in one country are not necessarily the same in another. Each country has its own legislations, culture and sociology, organisation of labour and distribution, business practices and competitors. The successful company has adapted its business model to these specific aspects of the home country. When it internationalises its business model, it is not necessarily adapted to the new environment of another country.  And this can be extremely difficult, because to do business in another country one has to sometimes do things that are "in contradiction" to what makes the company successful in its home country. 

Second, the human resources aspect, which is somewhat linked to the first reason I gave. When a company internationalises, it has to include people from different culture, language and traditions in its own workforce. This is also extremely difficult because the dominant culture of the mother company is usually so strong that it can make other cultures feel uncomfortable.

Arthur Yeung (AY): Yes, the differences make it much more complex to succeed in a multiple country operation, compared to a single-country operation: It requires very different organisational capabilities. It involves leadership abilities to spot business opportunities on a global scale and manage their risks accordingly. It also requires organisational capacity to accommodate different national cultures, business environments and regulations on the one hand and to ensure consistency on the other. By consistency I am referring to products, organisational culture, management practices, and IT systems. 

Of course, if done well, the payoffs will also be much greater in improving business efficiency such as sourcing low-cost materials or labour and in upgrading business competitiveness. Business competitiveness allows you to reap economic scale through wider market reach and bigger procurement volume, access better technology or talent, and reduce business risks.

2. To become multinational companies, some companies tend to follow the 'best management practice' in their home market. Would this be adequate for success when expanding beyond your borders? 

AY: Multinational management refers to a company's capacity to access better or cheaper resources in multiple countries and/or to operate in multiple markets. Due to different business environments, what worked in the home country may not work in new business markets. Experienced companies will be able to figure out if business activities such as manufacturing know-how can be transferred or replicated overseas from home country, if items like product design should be adapted in host countries and if parts of their marketing strategy such as local business channels need to be created from scratch in host countries.

PL: It's not enough to just follow "best management practice" in their home market. To be successful a company has to develop competitive capabilities. Some people call these "competitive advantages" - capabilities and attributes unique to a firm and difficult to be replicated by others. Examples are brand, distribution network, scientific or managerial knowledge and quality of manufacturing. When a company internationalises, some of its competitive capabilities are transferable easily, some are not.  For instance, if a company has developed in its home country a strong distribution network, this is not transferable to another country. Rather, it has to be created in a different environment. And the way to create a new distribution network in a new environment may be completely different from how it has been done at home. So in the new environment it seems the company has no competitive advantage on distribution. And if distribution has been a key success factor in its home country, the company now has to ‘learn’ to do business differently in the new environment.

3. What would be some recent success stories you can mention from China, Asia or elsewhere? What is remarkable of their transition to a multinational company?

AY: Many Chinese and Asian firms are aspiring to become global players. It is hard to say which is successful and which is not as the transition is a journey and not completed. 

However, in Asia, companies like Samsung Electronics and Trend Micro are quite successful in building global brand image and capturing reasonable global market share. Many Chinese firms like Lenovo, Huawei, ZTE are leading the pack to become multinational firms, though they are still in the process of rapidly building their leadership and organisational capabilities. 

In general, European and American firms, for examples, GE, Philips and Shell are more experienced in operating multinational firms due to their longer history of development.

PL: I, too, believe that it is premature to talk about successful internationalisation for Chinese firms. Companies like Haier have expanded internationally with some degree of success, but we don't know if Haier will become an effective global firm. It all depends on the managerial capabilities of the company to build a global pool of human resource and to adapt its business practices to local environments.  

However, there are some Asian companies who have been successful. These include ACER from Taiwan and Sony from Japan.

4. Many are waiting for the emergence of Asian multinationals. For sure there are already examples but do you expect a rapid increase of multinationals?

AY: Yes, many Asian firms are in the process of becoming multinational corporations. And there will definitely be an increase of companies looking to internationalise.

PL: Yes, the important word which Prof Yeung has used is "process". Internationalisation is a learning process.  It takes several years to become a real multinational. Sony started to internationalize in the 50's. It is only by late 80's that Sony became a true multinational. An important factor for this long process is culture - Asian cultures are very inward oriented. 

5. So, what do you think is driving this trend? 

AY: The primary driver is their rapid growth in big home markets like China and India. As a result, they accumulate enough resources, scale, and more importantly, ambition, to go global. On the other hand, many of these Asian firms such as Lenovo and TCL have no choice but to go global due to the saturated growth in their home markets and also intensified global competition in their home markets by foreign competitors. To defend their market shares, they must become globally competitive not only inside their home markets but outside as well.

6. Companies don’t make the transition overnight. What are the key areas that you suggest managers focus on to improve their chances of success?  

PL: Firstly, intelligence: managers must recognise that it takes time and resources to train and learn.  Secondly, human resources: companies must recruit local people and make them part of the family.  Thirdly, organisation: managers must treat local subsidiaries well and not get them to merely follow orders from the headquarters. They should listen to the suggestions of local employees, and obtain their buy-in during decision-making. Fourthly, develop your own people in the home country and help them understand other cultures. 

AY: Companies must think through their strategic rationale for globalisation, start with less risky globalisation strategy, and allow time to experiment and learn how to manage multinational management. First, think through why the company wants to globalise: to acquire better and cheaper resources or to expand market opportunities? Then, think about its strategic focus and organisational requirements. Is it capitalising on local resources to reach a global market, using global resources to reach a global market or using global resources to reach a local market? Once the company is clear about its strategic aspiration, then it should pick countries that are less risky in terms of cultural and economic proximity to the home country. Doing this provides opportunities to experiment and develop global talent and management capabilities. 

Companies can also leverage overseas partners in the beginning to help expand market opportunities or import essential resources. With more global experience, they can start to accelerate the globalisation process through merger or acquisition or overseas investment. 

7. And what are the pitfalls to avoid? 

AY: The common pitfall is: when companies have strong strategic ambition that far exceeds their leadership and organisational capabilities. As a result, they put themselves in high risk situations that they are not ready to cope with. Examples of such situations to avoid include large-scale M&A, and starting in countries that are very different from home countries in terms of culture, economic development and political systems.
8. We know that both of you co-direct the CEIBS’ Success Beyond Borders: Developing a Winning Multinational Company. Can you tell us briefly what is it about?   

AY: It is a comprehensive programme that covers fundamental but important concepts and tools in multinational management. Topics covered include: understanding global environmental trends, country assessment and entry strategies, global M&A, alliance management, global financing, global operations, global marketing, global organisational and leadership development.

PL: People who attend the programme belong to three categories: first, those who want to start doing business in an international environment. Second, those who have started but want to expand and build an international network. Third, those from established multinationals who want to know more about multinational management and expand their competencies in this domain.

Send this article to your friend:

Your Email:     Your friend's Email: