International expansion is, in general, a very good growth strategy. The products and services a company offers domestically can often offer a similar value to both global and local customers in other countries. Of course, while a global pricing may be preferred when dealing with global customers, the price points for local customers may have to be lower. Understanding the local market, the local competitive landscape, the local procurement processes is a must before setting up a viable business plan for international expansion.
In addition to the above, and the need to clearly understand the regulatory environment, the local business practices and ethics, it is critical to gain a very good understanding of the local culture. Failing to do so can lead to costly mistakes.
Here is an example of one such mistake that I had the opportunity to observe:
An American company wanted to open a factory in an Asian country where the majority of the workforce was Buddhist. The company had previously used an architect for all its US factories. They sent the same architect to Asia, so he could replicate the factory layout for the new facility, which he did. The hand-picked superintendent in charge of the construction project was told it was important to complete it on time and on budget, which he also did.
The plant manager, an American expatriate, did a good job finding out that it would be imperative to have the local monks dedicate the factory on its opening day. He had been warned that no worker would agree to work without it. He had also managed to learn that a statue of Buddha had to be erected at the main entrance of the plant, so that employees could bow in respect as they come in to the plant. A very nice statue, ornate with flowers and offerings, was indeed positioned right after the front gates, and beautiful flowers and fruits offerings had been deposited at its base.
On the day of the dedication ceremony, the company had flown-in from the U.S. several top executives for a ribbon-cutting ceremony. Everyone waited anxiously the arrival of the monks who would bless the factory. The local press had been invited. Finally, a group of monks arrived, and the officials, aided by a translator, toured the new plant with them. The lead monk seemed very pleased by the Buddha at the entrance, and during most of the tour. Up to the moment when, approaching the end of the building, he asked to go to the bathroom. The bathrooms had tiny windows through which one could clearly see the beautiful statue of Buddha at the entrance. The lead monk came out of the restrooms with a scream. He had just seen that the restrooms were facing the Buddha, and was shocked by the disrespect that the US Company had shown with such a design. He refused to dedicate the factory and left.
Three months, a lot of reconstruction money later and after a substantial donation to the local monastery, a small opening ceremony finally took place. Because the company had spent a lot of money and effort recruiting the best local talent, they had to keep them employed during the reconstruction. This was a very expensive mistake that could have been avoided by hiring a local consultant for this project.
There are many other mistakes I observed, in other countries as well. Examples range from naming products without realizing that the meaning in a foreign language was something offensive (the product did not sell in the country), building an elevated highway without realizing that the feet of the drivers would end up being higher than the Buddha in temples along its way (the company had to pay to elevate the Buddha in a number of temples), paying $2 million to a US advertising agency to create a new logo that was found, after the fact, to have an inappropriate meaning in Chinese. In addition, the new logo was hand-drawn, resulting in much larger file sizes and significantly increased IT costs to store and transmit all company documents.
While, expanding overseas is one of the ways a company can accelerate its growth, it does require proper planning, and a very good understanding of the countries where the expansion will occur. Working with a known local consultant, with a global consulting firm or a US consulting firm that has a good network of partners overseas can help avoid costly mistakes and can result in the successful implementation of a growth strategy.