Tyranny of the immediate
By Mitchell OsakManufacturing
How to avoid it and expand globally in five steps.
These days, there’s no shortage of economists and politicians exhorting Canadian manufacturers to go global. The reasons are well known. GDP growth is slowing significantly according to the latest OECD outlook, while low cost foreign producers have invaded Canada’s markets. Furthermore, our domestic market is small, resource-driven and relatively fragmented.
A number of high-profile success stories such as MacDonald Dettwiler and Associates, Canada Goose, Bombardier and Lululemon prove that Canadian companies can design and build world-beating products. The $64,000 question is: how can your business become one of those world leaders?
While there is no single, winning roadmap to successful international expansion, a lot can be gleaned from the stories and best practices of the Canadian manufacturers that blazed this trail before you.
One such best practice – and one that seems to be adopted by successful global manufacturers – is the ability to overcome the ‘tyranny of the immediate’ in strategy development and planning.
This decision-making construct is the tendency to allow the crisis of the day, or big, shiny opportunities, to drive poor decisions, insufficient planning and ineffective execution.
Management exuberance, a lack of patience or missing information are at the core of this decision-action trap. Examples include: focusing on deals or tactics instead of more fundamental strategic concerns (how you will compete); being assumption-driven rather than fact-driven; adopting a short-term planning horizon; and using a Western-based analytical lens when examining other cultures and markets.
Fortunately, there are many ways to avoid these pitfalls and maximize your return on investment:
1. Avoid hubris. Success has a habit of cultivating a dangerous level of pride and arrogance in many companies. When looking at international expansion, manufacturers may be inclined to rely too much on their judgment and cut analytical corners, underestimate the time or financial investment involved or take unnecessary risks. These blind spots and biases are dangerous. Success in certain markets does not always or easily translate into strong results elsewhere. Consumers and channels, even within the same country, can be very different; there is no substitute for caution when entering new geographies. To ensure the evaluation is objective, develop an independent, fact-driven market entry business case that includes learning from the successes and failures of similar companies, and delivers a ‘danger check’ around financial and operating plans.
2. Find your white space. Competing with a me-too product in a familiar home market is challenging enough, but it’s a recipe for disaster in a foreign market when your entry brings nothing new or compelling to the existing category. When expanding overseas, be realistic about a product’s appeal. Typically, you’ll be a entering highly competitive markets populated with a decent selection of incumbent products. Local players may not be as sophisticated as you, but they’ll likely be aggressive and territorial. To gain market share, find the market ‘white space’ or a way to differentiate with a relevant and credible product, or an innovative approach to getting to market. In one case, a Canadian B2B manufacturer penetrated the crowded US market by developing a new e-commerce channel that reached customers by outflanking traditional ‘bricks and mortar’ selling by competitors.
3. Drill deeper. A company needs to understand its new target market – specifically the clients, channels, competition and regulatory requirements. Often this analysis doesn’t tell you enough to best capitalize on opportunities and minimize risk. Prudent business leaders probe further, to really understand what makes the country and its people tick. Include a deeper understanding of the target country’s geopolitical position and history; its people’s political and cultural views towards Canada; and key environmental risks. As an example, it’s no secret that Japan experiences earthquakes. The potential impact on your business is an important consideration. The devastating 2011 quake wreaked havoc on the national economy, not just the hard-hit northeast region. For months after the disaster, fuel shortages continued nationwide and power outages negatively impacted production, distribution and the ability of staff to get to work.
4. Leverage your home team advantage. There’s no substitute for being on the ground with your own personnel or hooking up with credible local partners. However, this approach can be expensive and time-consuming. A more practical solution lies in enlisting the knowledge, connections and talent found in your own backyard. Hundreds of thousands of new Canadians hail from large emerging markets such as India, China, Russia and Brazil, not to mention more mature markets such as the US, Great Britain and France. These people possess vital market knowledge, networks and assets that could smooth and accelerate your global expansion, especially in harder-to-crack, large emerging economies.
5. Be realistic. If a huge market beckons, by all means, dive in – but be realistic. Rome wasn’t the only place not built in a day. Despite your best efforts, the roll out will inevitably be lengthy – and positive financial results will likely come slower than expected. The pace of business in many places, especially in emerging markets, can be excruciatingly slow. The delays come in all flavours: slow regulatory approvals, customer purchase inertia and unavoidable challenges such as physical distances, border controls and time differences. In our research, many rapidly growing African, South American and Asian markets still lack even the basic financial, physical and legal infrastructure to which Canadians are accustomed. Success could be measured in years, not months.
International expansion should be a strategic imperative for many domestically focused manufacturers, but there are no easy markets or silver bullet strategies to increasing your global footprint. Fortunately, companies can improve their odds of success by leveraging the experiences of others by doing their analytical homework, having realistic implementation expectations and being innovative in terms of how they enter and compete in a target market.
Mitchell Osak is managing director, strategic advisory services, at Grant Thornton LLP, a Canadian accounting, tax and advisory firm.
This article appears in the April 2016 issue of PLANT.
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