Going 'Glocal': Selling U.S. Products Overseas

January 20, 2015
By Tony Chapelle

In Japan, McDonald’s restaurants serve up shrimp burgers. In China, BMW built larger versions of its 5 Series sedans to satisfy wealthy customers who wanted more space between their chauffeurs and themselves. Meanwhile, Western companies in some emerging-market cities provide safe, late-night shuttle bus rides to protect women employees after work. U.S. multinationals often need to do business a little differently abroad.

As one former-multinational-executive-turned-consultant says, success comes from going “glocal” — that is, being a global company that dotes on its local markets.

Local tastes can drive sales in a foreign market. Yet by definition, allowing regional exceptions means there isn’t a sole standard for global consistency. Variation could introduce risk. So veteran directors and international experts say it’s important for boards to help ensure that country managers not only uphold quality controls but remain regionally relevant.

“Boards need to ask, ‘What is the essence of the brand?’ And when we go from one location to the next, what are we allowed to change and not change?” explains Ludo Van der Heyden, director of the corporate governance program at Insead international business school. “The board shouldn’t be obsessed with getting the absolute right trade-off between autonomy and consistency. But they must avoid getting the wrong trade-off.”

For instance, Van der Heyden says that in 1997 Wal-Mart Stores spent $5 billion to open U.S.-style mega-stores in Germany. Yet the company was forbidden by European Union regulations from undercutting competitors by selling products below cost. With that competitive advantage blunted, German consumers stayed with indigenous low-cost providers Aldi and Lidl.

Van der Heyden notes successful trade-offs at Zara and Four Seasons hotels, both of which provide variety in their products and the designs of their venues, yet give consistent quality.

He advises boards to spend more time on the four key business strategy issues: purpose, which market segment to aim for, which product to sell and how to deliver it. When a company plants its flag in another region, those strategic issues may all have to change. “Then they must be clearly specified to local managers,” says Van der Heyden, who is a director at privately held Spanish company Celpax Engagement Solutions.

A former official at the Commerce Department recalls that on trade missions to emerging markets with American businessmen, it was easy to see the respect U.S. brands were given. “Our brands overseas are strong and synonymous with quality,” says Nicole Lamb-Hale, who was an assistant commerce secretary for manufacturing and services. Still, she says she observed many American executives who assumed their U.S. marketing and strategy would work abroad. But that is a flawed plan, says Lamb-Hale, who is now a senior vice president at Albright Stonebridge Group, a consulting firm that advises clients on trade. Some U.S. businesses aren’t just facing local preferences, but possibly local champions supported by authorities. “You have to be smart, particularly when governments have their fingers on the scale,” Lamb-Hale explains.

Oreo cookies from Kraft Foods represent a classic business case of a U.S. company adapting its product to a foreign market. The treats are the world’s best-selling “biscuit.” Yet after being introduced to China in 1996, the brand had scrounged out only 3% of the domestic cookie and biscuit market nine years later.

In 2007, Sanjay Khosla joined as Kraft’s international division president from Fonterra. He helped the company devise a new global strategy that dumped the previous cookie-cutter approach to each foreign market. Kraft executives identified China as the most important international market for the entire company to win, so they reversed their decision to pull Oreos off shelves in China. Instead, with more market research, a brand team found that Chinese parents, who were limited to having just one child, sought products through which they could bond with their youngsters. On a taste level, however, consumers there preferred smaller, less sweet and less expensive Oreos than those sold in the U.S.

Kraft manufactured a new recipe for Oreos, packaged to contain half the cookies at half the price. The company tested it in just two cities. “You can’t do big bangs. Think big, start small and scale fast,” Khosla says. Indeed, he says many marketers overreach by rolling out to scores of countries. A product can be hugely successful, he says, by expanding to just six big well-targeted markets “that really matter” using deep distribution and infrastructure. “You’re going to get bigger sales and profits than mindlessly expanding and spreading yourself thin.”

Within three months, the new Oreos were selling briskly. Soon Kraft introduced wafers and green tea Oreos, “which in the U.S. would have been nuts,” Khosla says. By 2012, Oreos commanded 15% of the Chinese cookie market. “It took Oreo 95 years to get sales outside the U.S. to $200 million. It took just five years to get to a billion,” Khosla says.

Now Khosla is a senior advisor to consumer packaged-goods companies through Boston Consulting Group. He’s also a director at Best Buy and Big Heart Pet Brands (formerly Del Monte) and two other companies. He stresses going glocal and has written a new book with an implied warning in the title, Fewer, Bigger, Bolder: From Mindless Expansion to Focused Growth.

Bowing to regional exceptions doesn’t need to increase risk of lax controls, says a former CFO and COO at Toysrus.com. Jonathan Foster, now a director at Lear, Masonite and two other companies, who also runs private equity firm Current Capital, advocates a matrix management structure. That might mean appointing a global head of customer sales and service, as well as a head of global manufacturing. In turn, they both should have regional counterparts — say, two each in Europe and another two each in Asia. The global heads can transmit values and compliance through the regional officers who get it down to the troops. Foster says at one board on which he sits, both global business unit leaders and the head of its Asia division make presentations at every meeting. “Asia is a very big market for this company. It’s important to highlight the impact that a quality organization in Asia can have on [us] overall,” he says.

One industry whose business model is strongly tied to standardization is the franchise business. While many of these corporations are not public, they are often international. Their managers are taking advantage of local insights. For example, franchise company Tutor Doctor Systems recently guided a new buyer in Costa Rica to accept wire transfer payments, since customers there trust them over online payments. Tutor Doctor operates in 15 countries.

Tutor Doctor’s honcho in charge of international franchise development, Rogelio Martinez, explains that every week the brand standards department evaluates franchisees. The reviews keep each owner on track to meet their business goals but also guard the integrity of the brand through analyzing four to five key performance indicators. One of those is the net promoter score, a customer satisfaction system. The brand standards department also lets franchisees recommend innovations and deviations from the model. The department may invite other franchisees to participate in a pilot program and subsidize 50% of the costs associated with the test. A corporate manager benchmarks the new practice. If it achieves positive results, the company would train other franchisees in it.

At another franchise company, restaurant chain Johnny Rockets Group, the head of international development says it’s often the desperate, unprofitable franchisees that are likely to cut corners and abandon corporate standards. Operators that are making their numbers should be able to afford to maintain their stores, market properly, staff adequately and make sure the staff is properly trained. “Profit cures a lot of problems,” says Scott Chorma, a vice president with the Americana-themed diners that are now in 26 countries. Chorma also recommends that boards ensure, when they’re planning, that the company has sufficient resources to set and enforce its standards. “If you don’t have the resources, you can’t get it done.”

Please read the full article online at: http://agendaweek.com/c/1045843/107623/going_glocal_selling_products_overseas?referrer_module=emailForwarded&module_order=0