Replicating a domestic business model to use overseas does not guarantee success, writes Chris Bennett.
Many businesses that are successful in their home markets fail to optimise results when they expand and enter foreign ones.
In the US, BestBuy and Mattel stand out, and we can all think of some Australian examples. While there can be many reasons for a company’s lack of success in entering Asian markets, I’d suggest an important factor is that although the capabilities to understand foreign markets may exist in organisations, those capabilities aren’t always engaged with effectively by directors and senior executives.
Business paradigms in organisations are usually the result of mental shortcuts adopted by decision-makers, based on their experiences. These mental shortcuts can be helpful because they speed up decision making by leveraging accumulated experience in particular, patterned situations.
There is, however, a danger that assumptions that underlie existing business approaches can lead to inappropriate responses to new or changing environments.
Often, the failure in Asia of approaches that have been domestically successful can be explained by conflict between the expectations of a company attempting to enter a market based on its domestic experience and the reality of the Asian situation it encounters. A good example is McDonald’s initial reluctance to offer Asian themed products such as rice wraps because they saw their success as based on American-style burgers. However, they eventually realised that success in Asian markets required them to adapt to local tastes.
Boards dealing with new or unfamiliar challenges, such as operating in Asia, need to consider not only whether they have the technical capabilities needed, but also how they can effectively they use those capabilities.
In considering capabilities needed by Australian firms wanting to enter Asian markets, Asialink Business (who are supported by the Australian government) have identified eleven important factors.
The first six of these focus on the Asian knowledge, relationships and operating experience of key individuals:
- Sophisticated knowledge of Asian markets and environments.
- Extensive experience of operating in Asia.
- Long-term trusted Asian relationships.
- Ability to adapt behaviour to Asian cultural contexts.
- Capacity to deal with government.
- A useful level of language proficiency.
The remaining five address organisational capabilities around strategic and operational issues:
- Leadership committed to an Asia-focused strategy.
- Customised Asian talent management.
- Customised offering/value proposition based on customer insight.
- Tailored organisational design and tendency to local autonomy.
- Supportive processes to share Asian learnings.
It’s worth reviewing your organisation’s capabilities, which can be viewed as the “hardware” of operating in Asia. Once satisfied that the “hardware” is in place, consider how effectively it is being used.
Decisions are the main product of any board. Consequently, the effective engagement of diverse individual and organisational capabilities through the board’s decision-making processes is critical for directors.
Research shows that diversity of capabilities and experiences in a decision making group potentially leads to better decisions, because issues can be considered from multiple perspectives.
However, it’s also clear from research that the potential for better decision making in diverse groups is often not realised. This is because the diversity in the life experiences of group members can lead to unproductive behaviours, such as high levels of emotional conflict or faction formation.
The board perspective
Boards are seeking greater diversity of capabilities in their directors in order to, among other things, support efforts to enter Asian markets, consider issues from multiple perspectives and make better decisions. Reaping the benefits of diverse capabilities when making decisions involves understanding and challenging the assumptions of other members of the decision making group based on logical reasoning and judgement, not on the basis of emotional reaction.
It also involves accepting those same challenges of one’s own assumptions. It’s a difficult task, especially for the chair, who has an important role in encouraging robust debate about facts and, at the same time, in discouraging emotionally based conflicts. If the challenges aren’t met, unhelpful conflicts and the consequent missed opportunities are the likely outcomes. Such suboptimal outcomes can in turn reinforce the view that Asia is such a difficult place to do business that, “the juice isn’t worth the squeeze”.
Skills in practice
It can be difficult to engage fully with the assumptions of those whose life experiences differ from our own, and especially challenging for executives and directors whose world views have been shaped by previous successes. It’s easy, but risky, to dismiss other points of view without understanding the experiences that have formed them, and past success can be a danger if it encourages firms to find “only nails because their only tool is a hammer”.
To engage effectively with diverse capabilities and views requires a high level of understanding and hard work. The best advice is to slow down and articulate the assumptions and arguments in order to sharpen awareness of your own and others possible biases. The aim is to encourage, what Daniel Kahneman wrote about in his book, Thinking Fast, Thinking Slow, calls “System 2” thinking, which activates the mind’s slower, analytical mode, where reason dominates, as opposed to “System 1”, the brain’s fast, automatic, intuitive process.
To get the better decision-making that can be a key advantage of a board with diverse capabilities, secure competitive advantage, and harvest success outside your organisation’s area of comfort, both capabilities and the behavioural skills to engage them must be in place. Maybe we can conclude that, to paraphrase American management consultant and author, Peter Drucker, “behaviour eats strategy for breakfast”.
Chris Bennett MAICD is currently conducting doctoral research at Aston Business School into diversity, cultural cognition and board decision-making in Southeast Asia. He is the founder of BPA, a Southeast Asian social enterprise concerned with improving corporate governance. Bennett has more than 25 years of line and fiduciary experience in Europe, the Middle East, Australia and Asia.
Tips for boards
Consider these checklists when making decisions or handling conflict on diverse international (and domestic) boards:
The three Is of good decision-making:
- Intention: Be clear about the decision to be made and why it’s needed; make sure you devote time and resources commensurate with the impact of the decision.
- Information: Implement a rational process of data acquisition, analysis, synthesis and inquisitively explore the subject and the alternatives.
- Interpretation: Articulate clear decision criteria, open-mindedly evaluate alternatives and don’t use the decision making process to rationalise a decision that has already been made.
The three Es of managing conflict:
Some conflict will inevitably arise between members of a decision-making group. Argument about ideas is beneficial, so it needs to be encouraged but emotionally based conflict is not helpful, so it should be discouraged.
- Engage: Conflict won’t just go away. It is better to urge the participants to explain their view of the conflict to each other. In extreme situations, involving a third party may be helpful.
- Empathise: Encourage directors to establish rapport and build relationships, meet at regular intervals to understand positions, problems, and challenges.
- Educate: Recognise that management of behavioural and cultural issues in the boardroom is a critical skill set for effective directors; education and training about such issues is essential.
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