The marriage of U.S. friendliness and German self-reliance has been rocky for Wal-Mart. On top of that, the Federal Cartel Office of the German government ruled that Wal-Mart was practicing illegal pricing by selling staples such as milk, margarine, and sugar below cost. It had to raise prices, which caused Wal-Mart to lose its critical success formula of “everyday low prices.” Wal-Mart has been losing money every year since it went to Germany in 1997. With its projected $49 billion international business in 2002 from more than 1,100 stores in nine countries, Wal-Mart thought its success formula carefully crafted in the United States would work well in Germany. It didn’t.

In short, the golden rule of international business management, “Think globally, act locally,” may not have been followed to the letter. In this respect, Wal-Mart, the largest American company, was blindsided in one of its international forays by subtle differences in the market environment between the United States and Germany. On the other hand, Wal-Mart has been extremely successful in its operations in Mexico for the past several years, because it realized from the very outset that Mexico is quite different from the United States in terms of people, competition, culture, and government regulations.

The Internet, international travel, and lowered international communication rates have all been touted as the great homogenizers of people and the marketplace from Beijing to Bogotá in this new century. This has led management in many companies to mistakenly shift their approach to “Think globally, act globally.” Wal-Mart may have been lulled by this global homogenizing phenomenon along with the success it built in its other foreign operations. Let us look at a few “Simple Steps for Successful Global Management.”

Step 1: Identify your “success keys” in your home country.

The first step is to identify things that made your business a success in your own turf, designated as “success keys.”
Note that your success keys normally have a finite number of factors such as product design, a shorter lead-time relative to your competitors, superior product quality, and your ability to share your production schedules such as a delivery commitment. Once you identified the success keys, have your customers in your home market identify what they think made your business successful, which may be very different from what you have identified. A company can sometimes be a victim of its own myopia.

Step 2: See the host country and its market with glasses not tinted by your own past experiences.

The second step is to recognize that your own success and your company’s success may interfere with your ability to see things objectively when you go outside your own home country. One sees and makes sense out of things based on past experience. A jovial, friendly “greeter” on the doorstep of a Wal-Mart store has epitomized one of the company’s success formulas in the United States. But the German interpersonal style is different from that of Americans.

As an example, a Japanese manufacturing company that successfully built an effective and efficient supply chain with its suppliers in Japan went to France and attempted to transfer the same business model there. Its effort turned out to be a total failure, because the French trade union of truck drivers could not agree to overtime work to do required frequent shipping of parts to the company’s plant. The company and the union could not reach a workable agreement. It retreated back home a few years later.

Step 3: See if and which of your success keys could work in a host country.

As you go through the first two steps, notice that some of your success keys will work as-is in a host country, but others will not. For your own smooth production scheduling and effective inventory management, for example, it is critical for your supplier to share his daily production schedule information, which enables you to shorten your lead-time to your customers. Such a short lead-time is a competitive strength, thus one of your success keys. Before setting up your operations in a host country, you would start negotiating this with your supplier. But your future supplier, without any history of a business relationship with you may well hesitate to do so. Therefore you would be stymied right from the start in implementing one of your success keys.

Step 4: Adapt your success keys to a host country’s environment.

Those success keys that will not work in a host country need to be reviewed to see if they could work if modified. In many cases, a success key should still work effectively in a host country, but it needs to be tailored to the requirements of the host country market. In the case of your need for production scheduling information from your potential partner, for example, you might relax your requirements to a weekly window rather than daily information gathering initially, even though your operations may not be as effective as you want them. Shorter lead-time is one of your success keys that you cannot do away with. Thus, you must devise a win-win relationship where your partner could benefit, for example, from your demand and accurate sales forecast information.
Asea Brown Boveri (ABB) is a large multinational manufacturer for customers in the utilities, automotive, chemical, petrochemical, and telecom industries based in Switzerland. Its management makes sure that each of its operations maintains deep roots in its host country, yet ABB has managers who specialize in setting global objectives to which the various groups must contribute. Its local plants have global mandates, and the organization shares knowledge and other resources across national boundaries where ABB’s operations span more than 100 countries.

The Wal-Mart story recently ended with a happy note. The company started doing much better in its international operations, heeding the management mantra of “Think globally, act locally,” pushing more authority into the host country, working to develop a corps of top international managers, and spreading best practices not only from the United States but also from elsewhere around the world. They realized that their U.S. operations do not possess an exclusive lock on good business practices; instead they found many lessons learned from other parts of the world.

Copyright © ASTM, 2002