10 biggest overseas blunders — HSBC Global Connections

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  10/29/13 10 biggest overseas blunders — HSBC Global Connectionshttps://globalconnections.hsbc.com/us/en/articles/10-biggest-overseas-blunders 1/5 Brought to you by 27 December 2012Paul Gallant, Global Report W 10 biggest overseas blunders Mistakes international businesses can learn from Companies are more vulnerable in foreign markets when there is a disaster, likeU.K.-based BP’s oil spill in the Gulf of Mexico in 2010. Photo: Bloomberg via GettyImages hen a company fails internationally, the thud is heard round the world. Aspectacular failure might take the shape of a genuine disaster, in the caseof BP's oil spill, or a cultural disaster, like marketing frivolous toys to seriousChinese girls and boys. Either way, the fallout can leave a company red-faced for years. The irony of many international misfires is that companies that have proven domesticsuccess are as likely — perhaps more likely — to slip up. They overlook how theirestablished business model needs to adapt. They'd do better treating each effortoverseas as a new startup."Companies can become complacent and arrogant and then they make mistakes whenthey expand overseas," says Peter Cohan, co-author of Export Now: Five Keys toEntering New Markets  and founder of Peter S. Cohan & Associates, a managementconsulting and venture capital firm.  10/29/13 10 biggest overseas blunders — HSBC Global Connectionshttps://globalconnections.hsbc.com/us/en/articles/10-biggest-overseas-blunders 2/5 Whether it's bad marketing, sloppy operations, ill-advised corporate behaviour or mereobliviousness to local culture, screw-ups happen. We asked Cohan, his Export Now  co-author Frank Lavin and Robert E. Mittelstaedt Jr., dean of the W. P. Carey School of Business at Arizona State University and author of Will Your Next Mistake Be Fatal? what can be learned from some of the most embarrassing international ventureflameouts.Here’s the top 10 international flameouts, in no particular order:  1. Nestlé in Africa Accused of aggressively marketing its baby formula in impoverished markets whereclean water was not readily available, which caused children to be sick, Nestlé was hitwith a boycott that started in 1977 and continues to this day in various regions aroundthe world. "They went in and tried to convince people that this was the modern thing todo," says Mittelstaedt. "They assumed there would be clean water, when there wasn'tany, and the natural method would have been perfectly fine." While Mittelstaedt says itwas the wrong product in the wrong market at the wrong time — Nestlé may have donebetter selling nutrients to mothers — Lavin says that niche marketing, perhapsfocusing on affluent women who needed an alternative to breast feeding, would havegiven Nestlé a foothold in Africa without causing so much ire. 2. BP in the Gulf of Mexico The 2010 oil spill was the largest accidental marine oil spill in the history of thepetroleum industry, causing extensive damage to wildlife habitats, as well as localfishing and tourism industries. The oil and gas industry is unusual in that it's global —cultural differences don't have much impact except at the retail level. So, while theU.K.-based company followed the advice of experts in applying the same standards inits offshore operations as it did to its domestic ones, the problem was that BP's globalstandards were weak and poorly executed. "They put money ahead of safety," saysCohan. This made their branding, which positioned them as a greener kind of energycompany, seem especially misleading. "The vulnerability you have in a disaster will besignificantly greater in foreign markets," says Lavin. "There is no home market goodwill." 3. SNC Lavalin in Libya Currently facing multiple investigations into alleged wrongdoings by formerexecutives, the Canadian engineering and construction company, a global leader in itsfield, is learning a hard lesson about hanging out with the wrong crowd. While thecourts will decide whether tens of millions of dollars in mysterious payments in Libyaand other markets were illegal, what will hurt SNC Lavalin most is the perception thatthey were fraternizing with the regime of a much reviled dictator, the late Moammar  10/29/13 10 biggest overseas blunders — HSBC Global Connectionshttps://globalconnections.hsbc.com/us/en/articles/10-biggest-overseas-blunders 3/5 Gadhafi. "Some people have a moral compass and some people ask what it's going tocost me if I get found out," says Cohan. "In a market like Libya, you have to make thatmoral choice before you even set foot there." Although bribery and payoffs might beconsidered the cost of doing business in some markets, laws like the United States'Foreign Corrupt Practices Act means that companies should always follow their homecountry's rules, even if it gives their local competitors an edge. Then there's SNCLavalin's questionable corporate governance. "Companies have lawyers for a reason,"says Lavin. 4. Walmart in Germany After opening 85 stores over the course of eight years, the U.S. retail giant abandonedthe German market in 2006 at an estimated cost of US$1 billion. Walmart's domesticsuccess is built on streamlined distribution channels, high-volumes sales and lowprices — none of which fit into German culture or its regulatory regime. German policyand attitudes favor the " mittelstand ," small and medium-sized retailers that know theins and outs of the country's restricted business hours, intricate labor laws and multi-layered distribution systems. "Unless the German laws and the culture change, thewhole thing that sustains Walmart's model — which is their ability to discount heavilyand to operate in some cases 24 hours a day — doesn't work there. If you don't allowthem to differentiate themselves, it makes it very difficult for them to operate," saysMittelstaedt. Worse yet, Germans are less price sensitive than North Americans. "Theymight even be skeptical of discounts and question the quality of the product," saysLavin. 5. Home Depot in China  The U.S. DIY giant entered the Chinese market in 2006 andopened 12 stores before they realized that most Chinese people don't like to do itthemselves. The company closed its last seven Chinese stores in 2012, absorbing a$160-million after-tax charge. Although China is in the midst of a huge buildingboom, it doesn't have the same implications as in North America. And it's not just thatlabor is cheaper in China. All those new apartment complexes and plannedcommunities don't need to be renovated yet. And then there's the culture. In China,there's status in having work done for you. "In developed countries, doing it yourself isseen as an enjoyable hobby. Even a stockbroker might do it," says Lavin. "Inaspirational, developing societies, it's viewed as a sign of poverty." Home Depot mighthave been better off as a wholesaler to contractors or selling appliances andaccessories. 6. Mattel in China In March 2009, the U.S. toy company opened a 36,000-square-foot Barbie store onShanghai's flashy Huaihai Road. Two years later, they shuttered the place and scaledback their efforts to sell Barbie in China. The skinny plastic doll was seen as toofrivolous a pastime for Chinese kids. "Chinese parents, more than American parents,emphasize education. Toys can be seen as an indulgence," says Lavin. That's especiallyimportant considering Chinese families usually have only one child. "You'll do anything  10/29/13 10 biggest overseas blunders — HSBC Global Connectionshttps://globalconnections.hsbc.com/us/en/articles/10-biggest-overseas-blunders 4/5 for your child to succeed," says Mittelstaedt. Disney, for example, has found success inChina by tying its playful entertainment brand to a chain of English Learning Centers —kids aren't just playing with Mickey Mouse, they're learning new skills with him. If onlyBarbie could give MBA instruction. 7. Best Buy in the United Kingdom Four years into a $1.1-billion joint venture with the U.K.'s Carphone Warehouse, U.S.electronics retailer Best Buy pulled the plug on the overseas operation, closing all 11outlets. Part of the problem was cultural: Big box retail is not as widely accepted on theother side of the Atlantic. "Some things that work in the largest economy in the worlddon't work in smaller economies," says Mittelstaedt. "You can't scale down the sameway." But Best Buy's timing was also badly judged. The margin in electronics is growingthinner and thinner. Even major manufacturers like Sony, Sharp and Panasonic are introuble. So much of the electronics retail business has moved online that consumersaround the world use big box stores as mere "showrooms" for online rivals. "Best Buyhas tried to compete with their own online presence and with a loyalty program, butthen you see the inconsistent pricing. It's confusing," says Mittelstaedt. 8. Coke in India In 1977, Coca-Cola left India when it refused to give its recipe to the India governmentand so lost out on one of the world's biggest markets for 16 years. But Coke's return in1993 has not been entirely triumphant. A dispute that ran from 2003 to 2006 saw localgovernments ban both Coke and rival Pepsi, after an environmental group claimed thesoft drinks contained high levels of pesticide. Some villages also complained that thebottling facilities were hogging local water supplies. Cohan says protectionism mayhave played a part in the demand for the Coke recipe; it may have been a strategy togive domestic players an advantage. And local politics probably played a part in thepesticide allegations. He thinks Coke made the right decision the first time in decidingto abandon the market—a company should never let its intellectual property fall intothe hands of a foreign power. But when faced with the tainted-drink scandal, he saysCoke could have acted more quickly. "You shouldn’t be quiet about it. You have to fightback in the media and present your side of the case." 9. Korean Airlines in the United States Between 1970 and 1999, 16 Korean Airlines aircraft were in serious accidents, killingmore than 700 people. In the most shocking incident, a plane was shot down in 1983,killing all 269 passengers and crew, when the pilot erroneously flew into Sovietairspace. At one point, the United States Department of Defense prohibited employeesfrom flying on Korean Air planes and the Federal Aviation Administration wasconsidering banning the airline from America airspace. While most internationalfailures result in companies failing to adjust to local expectations, the Korean Airlines’problem was the opposite — the airline had failed to keep up with rising internationalsafety standards, partly because of its corporate culture. Because of the strict  10/29/13 10 biggest overseas blunders — HSBC Global Connectionshttps://globalconnections.hsbc.com/us/en/articles/10-biggest-overseas-blunders 5/5 adherence to rank, co-pilots and other crew members would not point out even themost glaring errors to the captain. "You just didn't question the pilot," saysMittelstaedt. The airline finally brought in American experts to re-educate theworkforce so that all crew members would address any problem they saw. "It's a lot lessexpensive to invest in more rigorous procedures than to have accidents." 10. Ford in Europe Between 1988 and 2000, U.S.-based Ford Motor Company acquired Europeanboutique brands Aston Martin, Jaguar, Volvo and Land Rover. But the automotivemammoth struggled with the luxury brands and in 2007 and 2008 sold them all off.Lavin points out that some mergers don't work the way their proponents expectedthem to. "You don't create aggregate value. Most of the time, one plus one doesn'teven equal two." In this case, it turned out the mainstream-oriented, large-scale styleof Ford was a poor fit for the niche brands. "They didn't have a lot to add to theprocess. Ford couldn't add any value," says Mittelstaedt. "Companies fail when theyexport their model overseas, but they can also fail when they buy an overseascompany. They usually want to scale it up, as oppose to letting it continue the way itwas, but it doesn't work that way."As Cohan puts it: "I remember looking at the Jaguars at that time and thinking, 'Theylook a lot like Fords.'"
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