Deadly Sins of International Business Blog

In a recent post, Australian business blogger Andre Sammartino reports that South African grocer Pick’n’Pay has sold off its Franklins supermarkets (”Australia’s Original Discount Grocer”) to the biggest Australian grocery wholesaler Metcash.  It’s not the first time that Franklins has been sold off after a somewhat unsuccessful takeover. In the late 1970s Franklins was sold to Dairy Farm International who then put it on the market again in 2001 (which was when Pick’n'Pay acquired it). Ironically, Franklin’s new owner Metcash was once South African-owned itself. Besides the mere fact, the interesting observation is the striking frequency with which retailers fail in international markets – WalMart in Germany (and some other countries), Marks and Spencer in the United States (and Hong Kong), Home Depot in Chile, The Gap in Germany, to name but a few. And even more interesting is the question why that is. Using common concepts from the strategic management literature, we could say that it’s either that those companies have not been ready for the markets or that the markets haven’t been right for those companies. The former fits nicely with the structure-conduct-performance (SCP) paradigm. The SCP, in essence, says that it’s all about figuring out how the industry you’re in works and then finding your spot and the selecting an appropriate strategy. Performance will result almost automatically. Assuming that global retailers know how their industry works (even in distant country markets), they must therefore simply have picked the wrong strategy (or executed it poorly). Or, in other words, they may simply not have been ready for the challenges presented by those markets. Under the resource-based view (RBV), we might assume that some of these global retailers possess unique resources and capabilities (that according to the theory should lead to superior performance), but failed to select those markets where these would actually be advantageous. Instead, they chose markets in which their resources and capabilities were not useful or even harmful to their success. So, if you are a retailer and you like theory: next time, do your homework! And if you’re a retailer and you’re more hands-on: well…. do your homework!

As the Wall Street Journal reports, Dunkin Donuts is returning to Russia. After it has retreated from the market in 1999, the owner of the Dunkin’ Donut brand, Dunkin’ Brands, is planning to open 20 stores in Russia this year. At the time when then owner Allied Domecq decided after only three years in the market that Russia would not work for their brand, there were two Dunkin’ Donut stores in Moscow and three outside. The official reason has been Russia’s economic crisis, but there was also talk about difficult relationships with franchisees (in particular one who sold liquor and meat pies in addition to Dunkin’ products). There may have been at least one more reason – at least according to the Wall Street Journal, Russians aren’t really familiar with donut’s. In recognition of this, Dunkin will be experimenting with scalded cream and raspberry fillings. Plus, this time they are bringing in a lot of Russia expertise – Dunkin’ is teaming with a Russian real-estate developer. What’s also noteworthy is that Dunkin’s CEO, Nigel Travis, has developed the Russian market for another US brand in the past, Papa John’s.

Having been in Iceland during the most recent eruptions of the volcano Eyjafjallajokull in Iceland has been an interesting experience, even with a view to international strategy. Academics and managers have come so accustomed to being in control that the only thing we worry anymore are issues that may be tricky, but still are manageable. Standardize or adapt? Send expatriates or promote locals? Export or invest? Most answers to these questions aren’t easy ones, but there are ways to handle them. Enter the volcano. Apart from it being a belittling experience if one sees the volcano spewing boulders, it is definitely worth a thought to bring the simple things back into the design of international strategies. Let’s not forget that there are events beyond our control that render any strategy, no matter how well designed useless.

Inspired by the recently announced sale of Volvo to Zhejiang Geely by Ford Motor, I tried to find out what’s happening to British Jaguar Land Rover that has been acquired by Tata Motors of India in 2008. Well, the news has been mixed. In fall 2009, Tata Motors has announced plans to close one of two Jaguar Land Rover factories in England by 2014. This didn’t seem surprising for ailing car brands. It made even more sense when the year-end results showed a loss of $565 million. Most recently however, in March 2010, the US magazine BusinessWeek reported that sales are picking up and Tata’s luxury division has even turned a profit of $141 million in the most recent quarter. New executives have been hired away from GM and BMW, so everything looks good. This will certainly be a transnational acquisition that continues to be of interest.

Chinese carmaker Zhejiang Geely will acquire Swedish Volvo from American Ford Motor. Geely has come a long (and fast) way from its modest beginnings as a motorcycle parts manufacturer to what is now China’s 12th largest automotive manufacturer. Being the 12th may not mean a lot in other markets, but consider two things: First, China is a huge market. Second, Geely has impressed at many car shows with high-powered concept cars and seems to be determined to grow further and gain market share. For Ford, selling Volvo is not only part of its recent strategy to sell off non-core brands (it earlier sold Jaguar and Land Rover to Tata of India), but it’s also quite an infusion of liquidity – out of the reported selling price of 1.8 billion US$, 1.6 billion will be in cash. For now, Geely has promised to leave Volvo alone, but it has also not failed to mention that it has already recruited a new team of executives to ‘oversee’ things at Volvo…!

As even small businesses grow their companies overseas through outsourcing, international customer outreach, mergers or global investing, future business professionals are going to need a solid understanding of international business culture in order to find any kind of job, let alone keep their edge. From CEOs to marketing assistants, being able to work with different groups of people while being able to analyze and work with the constantly fluctuating global economy is vital. A graduate degree in international business is therefore a useful way to add to your work experience or undergraduate preparation, even if you have chosen to specialize in a separate business field, like finance or entrepreneurship. If you’d like to go back to school or extend your education before entering the workforce full-time, here are some tips for picking the right graduate-level international business program.

• Pick a program that focuses on promoting cultural awareness: International business is all about managing different concepts, people, cultures, time zones, currencies and marketing strategies to pitch a cohesive idea, brand or product. If you’re unfamiliar with how the Chinese do business or interpret commercials, you’ll be wholly unqualified to make a business deal with a Chinese company, no matter how smart you are at American marketing principles.
• Consider studying abroad: Whether or not you studied abroad as an undergraduate, consider going to another country to intern or study as a graduate student. Just as b-school is much different than undergrad, your study abroad program will be much more focused and intensive. Plus, it’s the best way to practice a language and build up your international contacts.
• Decide what kind of certificate you want: Graduate school is actually a very broad term when it comes to b-school programs. Decide how long you want to be in school and what kind of program you want to enroll in: MBA, certificate program, distance learning, Master of Arts, Master of Science, full-time, evening, or a language program. Larger b-schools will typically offer more selection, but if you find a smaller school that offers the right kind of program you want, that’s fine, too.
• Research the school’s network: One of the main reasons people decide to go to b-school is to gain access to a program’s professional network of alumni, business recruiters, and other valuable contacts. Before enrolling in a school, find out which companies your school has relationships with, in the U.S. and abroad.
• Interview students and faculty: If you want to learn more about a particular program, contact the admissions office or program’s office and ask them if you can interview students, teaching assistants and full-time faculty. You will get a much more personal and accurate summary of classes, internship opportunities, study abroad experiences and post-graduate options than if you just read it online.

This guest post has been contributed by Alvina Lopez, who writes on the topics of accredited colleges online .  She welcomes your comments at: alvina.lopez@gmail.com .

Tomorrow, the trial against four executives of the UK-Australian mining giant Rio Tinto will open in Shanghai. The executives have been charged with stealing commercial secrets and receiving bribes and are facing up to 20 years in prison. Both the protection of intellectual property and anti-corruption laws are important domains of the legal environment in any market, so what’s wrong with enforcing these laws? Well, two things. The first is that the facts of the case are not quite clear. Not much has been disclosed about the case, but it seems that what the Chinese courts see as infringements on trade secrets may be what business insiders consider rather normal gathering of industry information. Secondly, the trial may turn out to be highly political and less factual. It is commonly accepted in China that judges weigh both legal and political aspects of cases and sometimes give precedence to the political aspects and interests, including the protection of local markets and companies. That the court hearings will take place behind closed doors certainly contributes to concerns that this may happen in this high profile case, too. Could all of this have prevented? Yes, maybe! Multinational companies such as Rio Tinto simply must be aware of the land mines that are buried all over China’s business environment and proceed with appropriate caution. In a way – to stick with the theme of this blog – it is a case of pride that often shows itself as ignorance concerning differences and threats in the external environment.

eBay has been in several ruffles with french luxury goods maker LVHM. Recently, LVHM, that holds the rights to such well-known brands as Hennessy, Kenzo, Givenchy, Dior Perfumes, or Tag Heuer, has sued eBay over misuse of its Louis Vuitton brand. As its customers frequently misspell Vuitton, eBay has purchased keywords from search engines such as ‘Viton’, ‘Vitton’ or ‘Wuiton’ in order to channel web traffic to listings of the prestigious maker of leather goods products on its own website. Compared to earlier judicial awards LVHM won against eBay, the current one of US$ 316,500 is negligable. In 2008, it was fined 39.9 million Euros for the sale of counterfeit LVHM goods on its platform and in late 2009 it received another hefty 1.7 million Euro  slap on the wrist for continuing to allow the resale of authentic LVHM perfumes on its website. With net revenues in excess of US$ 2 billion in 2009, eBay will probably be able to take the most recent blow as well. As the fight between French brands and the California-based auctioneer has long outgrown its pure business and legal nature, but has become one between two cultures, it has not hard to predict that it will continue into the future.

The times when Western hotel chains where the ones expanding in Asia seem to be over. As the International Herald Tribune reports, the latest trend is Asian hotel chains opening hotels in European locations. Raffles will open the Royal Monceau in Paris, where both Peninsula and Shangri-La Hotels will also be opening new properties soon. In addition, Shangri-La is looking into further projects in London, Moscow and Vienna. Banyan Tree will open hotels on Korfu and Santorini islands in Greece, while Six Sense is looking into the island of Milos. Given the growth prospects in Asia, the stagnating market in Europe and the increasing pressure hotel chains find themselves under, their moves seem counterintuitive at first sight. Considering, however, that an ever more affluent group of Asian tourists is and will be visiting Europe, their plans make perfect sense. Ultimately, these hotels will eat into the market share of European and American hotel chains. Will there be difficulties connected to the entry of these hotels into Europe? I am sorry to say, but I doubt it.

Last year Maerklin, German manufacturer of high quality toy trains slipped into bankruptcy. As the Financial Times Germany reports, former US rival and market leader in the United States, Lionel has shown keen interest in acquiring the ailing German company. While there seemed to be tangible urgency to find a new owner originally, 2009 has been a surprisingly good year that renders smaller Lionel’s (sales 2009 about US$ 80 mio) offer just not good enough. With about EUR 110 mio in sales last year, Maerklin made it back into the profit zone and is flush with cash. It may have become more attractive for other investors which supposedly include Sun Capital. Ironically, Lionel has been through a bankruptcy itself in 2007 when it was snatched up by investment bank Guggenheim Partners.