Summer 1996 - Volume 2, No. 1
Managing in a Global Environment
I grew up together in a small town, Lawrenceburg, Tennessee. During that time, meeting someone from Ohio or New York was a multicultural experience. While growing up in Lawrenceburg, I had an interest in exploring new environments and learning from people of different cultures. Something my parents never did and that they still do not understand. You often find the same attitudes among CEOs and business leaders in America. Why seek new markets when we have a good business here, where we have a stable government, where the costs are reasonable, where there is no risk of currency translation gains or losses, and where we generally understand each other? A reasonable perspective, in times past, but not one with which I can agree at this point in time.
My company, HCA International, is a small but global company. We have been working abroad for nearly a quarter of a century, and have owned and managed hospitals, large and small, in such diverse areas as Australia, Singapore, Malaysia, Saudi Arabia, Brazil, Panama, Russia, and the United Kingdom. I would like to share with you why I believe global business is important to each of us and how we should begin to evaluate it in terms of each our business strategies.
One of the first lessons we learn in business school is that to be successful in business over the long term, it is essential that a company avoid dependence upon one market, one niche service, one product, or one client. Yet many American companies do just that. Many have been successful but if we look at a roster of the 100 largest U.S. Companies at the beginning of the 1900s - you'll find that only 16 are now in existence. If we then consider Fortune magazine's first list (published in 1956) of America's 500 biggest companies, only 29 out of the 100 firms topping that first "Fortune 500" could still be found in the top 100 by 1992. During the decade of the 1980s, a total of 230 companies (46%) disappeared from the "Fortune 500." Obviously, size does not guarantee continued success. Neither does a good reputation.
Communication technology is radically changing the speed, direction, and amount of information flow even as it alters work roles all across organizations. Technology has made it challenging, if not impossible, for American companies to remain insular and maintain a "stay at home" attitude. Since 1987, homes and offices have added 10,000,000 fax machines, while email addressees have increased by over 26,000,000. Today's average consumers wear more computing power on their wrists than existed in the entire world before 1961.
These innovations have made the world a much smaller place. In my own experience of the last 25 years, working globally has changed significantly. It never ceases to amaze me that I can eat breakfast in Paris or even Shanghai and have dinner in Nashville. Today, I can talk to my foreign partners from Nashville while they drive their car in Kuwait. While it used to take weeks to receive contractual documents from Saudi Arabia, I can receive them almost instantaneously via fax or e mail. While technology allows us to conduct business better and faster, it also allows our competitors greater access via these inexpensive and swift technologies. While there is tremendous room for improvement in the global perspective of U.S. companies, I am encouraged at the rate of globalization of American companies. The Vice Chairman of Goldman Sachs, Robert Hormats, who held positions in the Nixon, Ford, Reagan and Carter administrations, recently wrote in the Washington Post: "With American exports growing at twice the rate of imports, this is hardly the time to undermine the global trading system." I heartily agree. U.S. export growth has been a steadily rising curve, with exports expanding at a strong 13 percent in the first half of 1995. Tennessee alone accounted for exports totaling some $2 billion in 1995. The government anticipates that American exports will increase to $1.2 trillion by the year 2000, which translates into 16 million jobs by the turn of the century.
To quote Peter Lynch's and John Rothchild's book, Learn To Earn, "in spite of everything you hear about the United States getting weak in the knees and long in the tooth and old in the hat and losing its place in the world, we are leading the world in new ideas...we ship steel to Seoul, transistors to Tokyo, cars to Cologne, spandex to Sienna, and bike parts to Bombay. Men on six continents shave their whiskers with Gillette."
Let us take a moment to look at Gillette a truly global company. Their products are sold and distributed in 200 countries, seventy to seventy-five percent of their sales, profits and employees are located outside the U.S. All senior managers have worked in an international setting. The company has 360 expatriates, the majority of whom are not Americans. When Gillette launched the company's Sensor Excel razor, they did it first in Europe.
A global company produces locally and markets locally around the world. Diversity of management is crucial in developing a global company. Why would Gillette have the majority of its operations outside the United States managed by nonAmericans? Because they believe that to be a "global" company, they must have a global work force - and they do. In a genuinely global company there is no "international division". Other global companies such as Coke, Pepsi, McDonalds, GE, and Shell are very much committed to this global arena rather than solely to the U.S. market.
Today's global marketplace is marked by triumph of capitalism over socialism, the strengthening of economies, and the establishment of English as the most accepted language for business dealings around the globe. Yet, those of us who do global business know full well that U.S. companies no longer send expatriates abroad with an expectation that early reports to the home front will model "I came, I saw, I conquered." In fact, experience seems to confirm that the expectation of easy triumphs overseas declines in proportion to the amount of business conducted by expatriates. Failure rate of up to 25% is well documented. By "failure" we mean an early return home before an assignment is completed and its goals are attained. It is also interesting to note that a significant number of returning expatriates leave their company within two years after returning to the states.
As one executive was recently stated, the United States is the only country "that makes a distinction between business and international business." This lack of understanding, combined with a serious dose of ethonocentrism, has cost U.S. companies millions of dollars. The stories of marketing blunders are legion. General Motors testmarketed the Chevrolet Nova in Latin American markets, not considering the fact that in Spanish "no va" means "it doesn't go." The campaign bombed spectacularly. Less wellknown blunders include Pillsbury's Jolly Green Giant which was originally promoted in Saudi Arabia as the "intimidating green ogre." Later, a more liberal translation produced the "Giant of the Valley," which no doubt sold more vegetables.
When competing overseas, bigger does not necessarily mean better. It is my experience that the executives of smaller companies are "closer to the ground." Because they are aware of their inexperience, they are far more realistic when recruiting and managing a global work force. They quickly understand that expatriates need to be culturally diverse while, at the same time, being responsive to the directions coming from U.S. based headquarters. Hence, they tend to encourage entrepreneurial attitudes and creative flexibility that are key ingredients for global success. Bigger companies very often are bogged down by their huge, cumbersome, inflexible bureaucracies.
It occurs to me that in smaller companies, the chief executive officer is more involved in human resources and in the global development of the business. Some recent studies suggest that organizations whose senior officers play active roles in career development are more successful with global staffing than those whose CEOs are not involved. Indeed, smaller organizations often embody the traits of flexibility, agility, and receptivity that are indispensable when competing in the global market.
However, the companies we cited previously are exceptional for companies in the global marketplace. The majority of U.S. service companies, like HCA International, are small and medium sized businesses which employ fewer than 500 people each. These small companies, however, account for more than one half of all U.S. jobs, one half of American GDP, and one half of all sales in the U.S. They were responsible for onethird of total merchandise exported in 1994US$ 150 billion. Small companies are critical to our country both within and outside of it.
I am often asked why I chose a career in international healthcare, particularly given the vibrant U.S. healthcare market. Firstly, while U.S. healthcare is perceived to be the most expensive, it is also perceived by the rest of the world as the best. Therefore, it a service commodity that, with modifications, is desired and needed throughout the world. The challenge lies in the modifications needed to make the service affordable and culturally acceptable to each market of introduction and penetration.
You will recall when Mr. Clinton assumed his presidential responsibilities almost four years ago, one of his priorities was make our healthcare system more affordable and accessible to the American people. Mrs. Clinton and others of her team cited the national health service NHS- in the United Kingdom as a model to be emulated. While the NHS does provide greater affordability to the masses, it also requires extensive waiting times and the rationing of care (aspects not acceptable to Americans and increasingly to no one). Additionally the government cannot afford the new equipment, procedures, and the rising demands and expectations of a growing middle class.
We began our international operations in the late 70s and early 80s. One of our first successes was in the United Kingdom with private hospitals, as an alternative to the NHS. Those hospitals continue to prosper and grow in the United Kingdom. Was this American ingenuity or simply recognizing a need, a niche in a market and adapting it to meet the local culture? I believe we provided an option for those with the means and willingness to pay for private care while complementing the government's effort of caring for those who did not have other resources. The system marked for both groups and in turn created a better health service for all citizens of the United Kingdom. In fact, competition from private sector improved the quality and levels of care and service from the NHS. What we didn't export from our U.S. healthcare system was the high incidence of malpractice claims, high administrative costs of meeting government and insurance regulations, and the high costs of care in certain treatment modalities whereby few benefit but all absorb the costs. Today, private healthcare business continues to thrive in the UK, partnering services with the NHS.
I believe this illustration characterizes that modification is fundamental to establishing a service or selling a product in a global environment. And while modification and flexibility are indispensable in this arena, patience and ingenuity are just as critical. The global marketplace is full of opportunities but equally has challenges which must be managed and overcome.
There are major challenges in the global market places that have similarities but also significant differences. For example, if you have trouble collecting on some of your debts in the U.S., there are legal remedies and procedures. In some countries, however, there are no legal remedies. Some countries (govt.) solve their cash flow and financial problems by not paying vendors and yet requiring them to continue to perform and provide services. If you do not, the government has the right to contract with others and charge you for the services performed by the new contractor. If you sue the government (never easy) they then do not consider you for future jobs and even slow payments further or do not pay at all. In such countries disagreements can also result in your senior executive having his passport taken and not being allowed to leave the country until the conflict is resolved. Normally "resolved" means in their favor.
In the U.S., we generally look an agreement or a contract being signed as the conclusion of the negotiation. However, in many countries of the world, this may be only the beginning of the negotiation. You may have only agreed to the foundation of the scope of work and conditions and the building blocks will continue to be added. Contracts to us are legal agreements that specify the scope of work, the terms, conditions, payments, penalties, parties, and remedies. However, often these are agreed in the other parties mind as applying to you but not to them.
In many instances, this may be the style and the manner or approach of your partner. However, it also may be typical of the culture. Indeed, there are significant cultural differences in the process of doing business and one needs to understand the role of the agreement and the purpose of the contract. I generally look at an agreement as one that is nonbinding upon my client but will be used to bind me. If I can accept this, then I know many of the hurdles that I will face in doing business in the country. I know my down side. In the Middle East, certain countries in the Far East, and the former eastern block, you may face significant problems in resolving contractual issues in law, and equally you may face significant and entrenched bureaucracy.
Bureaucracy is a nightmare for all of us and not unique to any country. You need to plan, consider, evaluate, and expect to experience bureaucracies in any and all of your plans generally in the global environment. You need to be aware of relationships and networks which are both similar to and different than those you have here in the states. Global business in general, and certainly in many specific countries, is done with family and intimate friends. However, we may perceive it much differently when we experience it and feel its affect. Networks, relationships, friendships, contacts, old boy ties - all exist in America, as in other countries, but perhaps in more subtle or extreme ways. This is why it may be very valuable to have local partners or joint venture companies to help in these situations. However, the local partner should bring something to the table other than contacts. Contacts often change, government officials move or are removed. The partner should have a commitment to the business, product, or service. They should have an infrastructure, financial strength, and/or value that they can add if you are seeking a long term relationship. When you select a partner, you are often doing so for life. These joint ventures or agency relationships are difficult to end or change and thus you are seeking a reliable business partner. Value added is a must and is critical as competition becomes as keen globally as it is locally.
The cardinal error that reflects adversely upon the success of American businesses it is that U.S. businesses in global partnerships and markets is the intention of imposing U.S. business systems and practices on other countries. They assume that successful American practices will work in another country. Historically, the locals are very sensitive to outside influences, and are anxious about managerial practices that they feel are being imposed on them. There are three popular notions that Americans take as part of their cultural baggage on an international trip or assignment:
In the March/April 1996 issue of World Business there is an interesting article entitled The Local Angle regarding the initial failure of Enron, an energy company, and its venture to build a power plant in India recently. Prime Minister Rao concludes that mistakes made by the United States firms have impeded India's liberalization program. He states Enron hired a PR company, they changed companies again and again and they didn't listen to what they were told. If I had been with Enron, I would have gone into a joint partnership with someone in India, at least someone who knew the ropes who would restrain me from doing silly things. Jay Dubashi, a local economist, said that Enron's problem was arrogance. Americans should be more humble. The Hindu doesn't believe in a single god. Americans don't go for a single philosophy or single market philosophy - why should we have a single key for economic development? Americans need to respect the Indian culture and their way of life. Needless to say, Americans and American firms are not always respected or wanted by many countries and their people. Our style, approach, and/or values and culture are not always valued by others. We need to be aware of and accept this as we look at markets and our involvement in those markets.
In summary, the world in which we conduct business is smaller and ever changing. To successfully guide a company into the 2lst century, American business leaders must embrace a global market mentality. Through flexibility, product and service innovation and modification, patience, an appreciation of cultural differences, and a continuous curiosity about what works best in a variety of markets, we can truly embrace globalization as a business community.
There is no easy entry into the global market unless you have a very unique product, required by all but only available through your company, and this situation rarely exists. However, given the nature of the competition coming into your market from both inside and outside the U.S. and the squeeze that has or will develop, you have no real option in the future but to enter and compete in the global market place. It can be risky, it can cause anxiety, it is difficult, and in many ways it is different and strange. It can also be one of the most rewarding, exciting, challenging, interesting, and enjoyable opportunities you have ever had or experienced. You will learn and grow as never before and you will add value, perhaps as you have never ever done. It can be one of the greatest learning and growing experiences of your lifetime. Try it and enjoy it!
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