Deadly Sins of International Business Blog

Looking at the mere numbers, Burger King does look impressive. Burger King operates close to 11,000 franchises and owns close to 1,500 restaurants globally. It is present in 76 countries where 40 % of all of its restaurants are located. Unfortunately, 40 % of the restaurants abroad only generate about 30 % of the total revenue. Plus, Burger King hasn’t been doing so well in the home market, either. Time to change gears, time to change owners. Only eight years ago, Burger King switched owners when Diageo, the spirits maker based in the UK sold the fast food chain to a consortium of investment firms made up of TPG Capital, Bain Capital, and Goldman Sachs Capital Partners. After its owners took Burger King public in 2006, it will now sell itself to private equity group 3G Capital. What is interesting besides the 3.3 bn US$ price tag which presents a hefty 46 % premium, is the fact that 3G capital is backed by Brazilian interests including Brazilian billionaire, Harvard graduate, Wimbledon tennis player, and resident of Switzerland, Jorge Paulo Lemann. It therefore doesn’t come as a big surprise that plans have already been announced to expand foreign operations into Latin America, with a focus on Brazil. It’ll be interesting to see if the mastermind behind some of the most publicized deals in the beer market can work his magic for Burger King. In the past, Burger King hasn’t been doing so well in a number of foreign markets, including Europe. Burger King has been in Finland for a short period of time in the 1980s before leaving again, it has briefly been in Greece in the 1990s, it pulled out of France in 1998, then left the Ukraine in 2006, and closed operations in Iceland in 2008. They left and re-entered countries such as Austria and Japan. It seems that in many markets they have been up against first movers such as McDonald’s or KFC. But that alone would be nothing but a bad excuse that no executive should get away with. Ill advised product programming, price strategies gone haywire, restaurant design that falls way behind that of McDonald’s restaurants, and a less than ideal use of technology that allows to track trends in sales in real time have all contributed to its poor performance abroad. It seems as if global market potential is there, but Burger King has never been able to fully tap into it. Brazil seems to be different. Burger King has entered the country in 2004 and expanded impressively since then. With its  GDP per capita steadily growing since 2002, the Brazilian market certainly holds a lot of promise for Burger King.

It looks like Honda’s China troubles are over for now. Its Chinese joint ventures, Guangqi Honda Automobile and Dongfeng Honda Automobile, will resume operations after having made significant concessions to workers who went on strike mid-May. There were complaints of working conditions and low wages. Honda agreed to raise wages by 25 %. Yes, twentyfive percent. Such a significant increase can only mean (or at least hint to) that Honda has been doing what many multinationals are often accused of – the exploitation of cheap local resources, such as labor. And in fact, workers at Honda or at similar plants earn as low as 1,000 Renminbi monthly, about 150 US$ and have not received a wage increase in five years. What’s the lesson to be learned? Moving production to a low-cost location is not necessarily a bad thing – after all, there’s very little choice for companies in some industries if they want to stay competitive. Besides, foreign direct investment is also helping the development of local economies. However, creating ever worsening wage disparities at foreign subsidiaries of multinational companies over time makes them less welcome than they may have initially been. Besides, in Honda’s case, the company has ambitious plans of growth in the Chinese market. Last year, it produced about 600,00 vehicles in China, but it is looking to increase its capacity by 30 percent to more than 800,000 cars by 2012. The expansion banks on increases in domestic purchasing power. And this is where being not locally responsible becomes a very short-sighted strategy – not only did Honda nothing to contribute to increases in purchasing power, it is also slaughtering its own image.

Other Japanese multinationals in China have recently announced similar increases in output – Nissan plans to produce more than one million cars by 2012, Sharp will double the number of retail outlets, fashion retailer Uniqlo intends to open 1,000 stores by 2020. What happened to Honda recently provides a good lesson for these Japanese companies and for all multinationals from other countries.

Volkswagen just announced that it will acquire a 20 % stake in Suzuki of Japan. The move is expected mainly driven by VW’s intent to increase its presence in the Asian market for small trucks.

I admit, that this is old news, at least in Japan or among those in the inner circle of the mobile phone industry. However, this blog would not be complete without a mention of Nokia’s pullout from Japan. After trying hard, in late 2008 Nokia was looking at a market share of only 0.3 % in the Japanese market – a market position simply not sustainable. Japan is a very sophisticated mobile phone market that requires great efforts in localization, thus not offering the scale a company such as Nokia needs. But then again, isn’t it surprising (and a little bit embarrassing) that a company of the likes of Nokia can’t break into the Japanese market?

I just found an older, but still good article about some interesting cases of failure of American firms in Japan: Knight, Gary A. (1995), International Marketing Blunders by American firms in Japan – Some Lessons for Management, Journal of International Marketing, Vol. 3, No. 4, 107-129. Knight writes about well known brands’ failures, including the big three US automotive manufacturers, Avon Cosmetics or Betty Crocker. It’s a well written piece which should be appealing to both academics and practicioners. What amazes me most about these companies’ blunders is the fact that we’re dealing with companies here which have all the human and financial resources needed to do things right. And yet, they ignore some of the basics. Many times it’s general knowledge about cultures (including, in the case of Japan, the status orientation or the collectivistic attitudes) which could be easily picked up and integrated into corporate strategies for market entry. So the question is, why don’t they do things properly and continue to fail in international markets?