Deadly Sins of International Business Blog

If approved by UK authorities, Asda, Wal-Mart’s British arm will be acquiring almost 200 UK stores of the Danish Netto chain for an alleged amount in excess of 1 billion US$. Acquiring smaller stores seems like a good move for Wal-Mart in Europe. First, shopping habits in many regions seem to change in a way that (an aging population of) shoppers start to develop a preference for more frequent shopping of smaller quantities in convenient locations. Second, zoning regulations prevent retailers from opening new locations. However, the usual caveats apply: first, Wal-Mart hasn’t done too well in a number of international markets, including European ones (just think of the disaster in Germany). Most recently Asda’s sales dropped inthe UK and it has been loosing market share to its competitors. Second, cultural differences. In addition to differences between national cultures that Wal-Mart sometimes has troubles with, there’s also the fact that Wal-Mart’s pervasive business model isn’t something that travels easily into other contexts. Looks like there’s some homework to do before the post-acquisition integration pains start.

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.

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…!

Have you ever heard of Li-Ning? You will. Li-Ning is a Chinese sportswear company with about 1 billion US$ in annual revenue and more than 7,000 stores in China. The company was founded in 1990 by Li-Ning, a Chinese gymnast who won three gold medals in the Summer Olympics of 1984. To Li-Ning, starting a sportswear company has been a matter of national pride. He recalls the moment when he stood on the podium in 1984. Looking down, he realized that he was wearing a foreign brand, something that he wanted to change once and forever. Today, his products are endorsed by non-Chinese athletes, such as Baron Davis of the LA Clippers. Not only does Li-Ning’s logo bear a striking similarity with the Nike Swoosh, Li-Ning now has also set up shop in Nike’s front yard. In February, Li-Ning opened its first American showroom in Portland’s Pearl District. To this blogger, that’s just a sign of the things to come. Many industries and companies will see increased Chinese competition in their home markets.

It seems that Spyker and GM have finally reached a deal. After initial rumors that the deal is off, Reuters reports of signs that GM has agreed to sell the Saab brand to automaker Spyker of The Netherlands for a total of US$ 400 million.

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.

Something may have gotten past me, but does Chrysler really have a lot of wiggle room for experiments on their customers? It’s recent commercial for the Chrysler 300 features former Soviet leader Mikhail Gorbachev, former Polish leader Lech Walensa and is a call for freedom for Burma’s Aung San Suu Kyi. The commercial is an adaption of what Fiat’s ad agency Armando Testa has done in Europe for its Lancia brand. While the commercial is edgy even for the European market, it may fly there. As noble as the cause is, there is serious reason to believe that it is a total waste of advertising dollars in the US market. Many Americans either won’t know who Aung San Suu Kyi is or they couldn’t care less. Some may not even recognize Walensa or Gorbachev. It may even hurt Chrysler in some Asian markets that take a more authoritarian stance at opposition leaders. What was Chrysler thinking? Or was it Fiat that was doing the thinking? Watch it here: http://www.youtube.com/watch?v=ftJ9nTBDx2E

Over the years General Motors (GM) has become China’s second largest automaker, mainly through a 50:50 Joint Venture with Shanghai Automotive Industry Corporation (SAIC). This is an achievement for which GM should command a lot of respect as joint ventures with Chinese partners have been known to be tricky at times. Now GM has just announced that it will not only sell parts of its Indian operations to SAIC, but that it would also transfer an additional 1 % of the stock in the joint venture to them, thus raising their stake to 51 %. After this move, GM China has finally become Chinese, and this is may be a whole different ball game. To some degree the move is understandable as GM has been desperate for cash recently, but strategically the deal does not make an awful lot of sense (unless you’re SAIC, of course).

German carmaker Daimler announced that it will move part of its C-class production to Alabama. Besides Germany, the C-class has already been produced in two other countries for a while – South Africa and China. The facility in Tuscaloosa, Alabama that so far has specialized in Daimler’s M-, GL- and R-class vehicles. When the production first started in Alabama about 10 years ago it received high acclaim for its high efficiency and novel approach to dealing with cultural differences. Not many difficulties to be expected in this case – too bad for this blog. But hey, who knows? It’s still a German company in the United States!