Deadly Sins of International Business Blog

Yes, we have all heard the stories. Stories of patients in need of treatment in the Western hemisphere traveling to countries such as Thailand or India in need for more affordable healthcare, stories of hospitals in the so-called developed world outsourcing certain diagnostic procedures to the so-called emerging markets, or stories of hospitals in the United States who meet their staffing needs by recruiting nurses and doctors from other countries. In a time when the World Health Organization ranks countries such as Singapore 6^th among the world’s healthcare systems and the United States only 37^th, quality concerns are no longer an issue in discussions about the globalization of healthcare. Only questions of liability are still raised as big impediments to a fully globalized healthcare industry. But even these no longer seem to be barriers for business. In Europe, Capio of Sweden, which operates in several European countries including Norway, Denmark, Finland, France, the United Kingdom, Spain, and Switzerland, is owned by global private equity form Apax. And let’s just look at other world regions. Dubai Healthcare City is the world’s first healthcare free trade zone, attracting global brands such as the Mayo Clinic from the USA, Great Ormond Street Children’s Hospital from the UK, the German Heart Centre or the American Academy of Cosmetic Surgery Hospital. The Cleveland Clinic has entered a contract to manage a hospital in Abu Dhabi and has established similar arrangements with hospitals in Austria, Canada, Egypt and Saudi Arabia. Or, let’s look at recent transnational mergers and acquisitions activity in other world regions. In mid-July US-based private equity firms Carlyle and TPG acquired Australia’s Healthscope for nearly US$ 2 billion. Among several hospitals in Australia, Healthscope also has operations in New Zealand, Malaysia and Singapore.  In late July, Integrated Healthcare Holdings Ltd of Malaysia won a battle against the Indian Fortis group over Parkway hospitals of Singapore. It seems that the pace at which the world of healthcare is becoming flat is accelerating rapidly.

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!

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.

Martin Coles, Starbucks’ top exec for international markets resigned and will be replaced by John Culver. This year Starbucks closed more stores than it opened, but for 2010 it looks at opening 200 new stores internationally. Given the limited success in some markets in the past (such as Austria or Australia), the hope may be that Culver will provide the leadership to make this happen.

On June 5th Australian-British mining giant RioTinto canceled a deal struck in February with state-owned Chinese Aluminum Corporation, also known as Chinalco. The deal would have raised Chinalco’s stake in RioTinto to more than 18 %. Based on fears of growing Chinese influence in the region, the deal had drawn public and political opposition in Australia. To this blog it is a good example how multinationals’ ability to extend their global reach are often limited by nationalistic reactions.

Starbucks leaves Australia. One of the latest international business failures comes from one of the most successful retail companies in the world. Starbucks, which operates more than 15,000 coffee shops worldwide, in July announced that it will close 61. Remaining will be only 23 stores in Sydney, Melbourne and Brisbane. What was going wrong? Many people claim that Starbucks failed to understand Australia’s very sophisticated coffee culture. Others take it a step further and accuse Starbucks of arrogance typical of US-based multinational corporations