#158 Hope for the best, prepare for the worst
Trade wars, lawsuits, viruses – the last several weeks and months have clearly shown that even the mightiest global companies can easily been shaken by the external environment in global markets. Let’s take Amazon in India as an example. For years, the eCommerce behemoth has tried to break into the market. It created jobs, brought Western-style consumption, certainly advanced technology, and it even sent its founder and CEO, Jeff Bezos, on a good will tour during which he was often seen wearing an Indian-style vest. And yet, he’s up against politics and the law. Triggered by negative sentiment among India’s general population and pressured by the 70-million member strong Confederation of All-India Traders, Prime Minister Modi’s government launched an antitrust investigation alleging that Amazon (and its competitor Flip-Kart, partially owned by Walmart) engage in anticompetitive behavior. While Amazon is far from abandoning India, this has certainly put a dent into what must have been a well-thought out plan. More unpredictable even, the ongoing health crisis triggered by the Coronavirus in China has impacted many foreign companies operating there. Retailers like Starbucks had to shut down stores in certain locations, manufacturers like Mondelez are already predicting low sales, and airlines had to discontinue flights to / from certain destinations. And then, of course, there is the trade war that the U.S. is wielding against several countries, especially China. Despite a recent Phase I trade deal (which really is nothing but a temporary commitment to not making things worse), U.S. companies are still hurting and have put expansion plans and investments on halt. None of these changes in the external environment for globally operating companies should be surprising. Experience has taught us that international strategies are fragile and exposed to unknown risks. Events in the macro-environments of politics, law, or health can happen, but one can never now when and with what force they strike. “Hope for the best, prepare for the worst’ still applies…
March 19, 2020 @ 10:15 am
As different statistics show, China and other nations starting to get important markets and especially China will dominate the global trade in future. There are enormous dependencies throughout the continents and a lot of European countries create there majority of GDP with exports, for example Austria has a 55.756 % export part on GDP. Being a multinational company opens new markets and creates amazing possibilities but, as we can see within the last months, an international strategy is fragile and brings unknown risks. With all those problematic aspects within the external environment (trade wars, tariffs, virus pandemia) companies have to rethink their international strategy. Firms that use a systematic market entry strategy will achieve better performance. The corporate readiness to go international is getting more important with an increasing uncertainty in the environment. Another aspect of dependency can be seen now in Europe – some goods (for example germicides, face masks) mainly produced in China getting rare and additional supply is not possible right now – the Chinese government used those products mainly in China and didn´t export it – in a worldwide crisis, the local, domestic needs have higher priority and those countries, who do not have an extremely high dependency on imports or implemented an effective crisis management in earlier days with adequate stocks have advantages.
April 2, 2020 @ 10:03 pm
Country risk is definitely one of the most challenging aspects to consider when defining a company’s strategy of entering a new market. Nevertheless, it is an integral element that can and should be measured during this process, either on a quantitative or qualitative basis.
These examples of failure underline the necessity of a systematic entry approach when an organization undertakes new ventures in international markets.
Amazon’s attempt to enter the Indian market just shows that even such corporate giants like Amazon are not immune to failure and therefore need to be prepared and ready when taking it to a new playing field. In the special case described above, corporate and product readiness as well as the target market selection should have a sound foundation, but probably an external environment analysis and Amazon’s choice of entry mode is showing some blind spots. Cultural distance as well as political structures and regional interrelations play their part too in forming entry barriers for new market players. Maybe even the eCommerce behemoth should have considered modes of entry like joint ventures, that participate in the advantage of local knowledge and networks, instead of trying to “break” into this new market.
Additionally, the ongoing crisis will shake up the “common rules” for global businesses and a new sensitivity will arise on both sides – the one of local markets as well as of international players. These developments will make a systematic entry approach even more crucial due to an increase in risk.
April 16, 2020 @ 5:56 am
In expanding to international markets companies need to take the time to assess the new market and determine an appropriate, country specific strategy for how to enter the market. Clearly, India is an enormously large and significantly growing market which many American companies would love to tap. Although Amazon did do some sort of minimal market preparation by sending Jeff Bezos in an Indian-style vest and preparing Indians for Western-style consumption, Amazon should have conducted extensive research on what the Indian people actually wanted. If before entering the market Amazon, through market research, discovered that the general population of India prefers All-India Traders then perhaps Amazon could have come up with a strategy that allows for them to successfully enter the Indian market rather than just implementing the same services as they provide in America. What works in one country is certainly not guaranteed to work in another. In entering new markets companies should first address what the market needs and then determine how they can best cater to this specific market’s needs.
February 20, 2021 @ 7:31 am
One year after the COVID-19 outbreak we realize that the world has changed dramatically. Nationalism is increasing due to economic reasons. Business trips are virtually impossible. And the cultural exchange with the Newly Industrialized Countries dropped to incredibly low rates.
Over the last decade, go-to-market on intercontinental level had become absurdly easy. Internationalization had become a commodity. One reason was the perceived level playing field in terms of legal protection. And moves such as China modeling their contract law after the German model added more perceived security. As a result, risk awareness deteriorated constantly. It was not an option any longer to go to international markets, it became a must.
Now with the new reality of COVID-19 the “legacy” strategy approaches such as in-depth analysis of target market legal systems, commercial market fit and scenario planning (“what-if” analysis) get on top of CEO’s agendas again. I think that the motivation for market entry must be scrutinized in detail and risk-aware exit scenarios have to be developed accordingly.
January 15, 2022 @ 12:04 am
The rise of Covid-19 and the variants we are facing is making business very difficult for domestic businesses let alone business that are trying to expand to new international markets. Covid has put a standstill on all manufacturing operations in places like China and India causing a wold wide shortage of goods and a headache in supply chains in major US ports. The fragile state of international business and expanding to new markets are causing businesses to shift in sales tactics. Businesses looking to expand to new markets will have to spend more in R&D to see if the cost analysis would be worth the expansion taken the current political and environmental aspect. The Pandemic has shifted in ways business operate. Business are moving closer to their manufacture or bringing their manufacture back to their home country. By adopting the new method, business don’t have to rely on factories to produce their goods and ship the product to their country and deal with the supply chain issues. Business now manufacture their product in their country and transport their widget faster. This allows businesses to operate at a faster pace and see higher return in their sales and shorter time in inventory.
January 21, 2022 @ 2:35 am
This was a great read and I think any other company would have had a bigger issue if they failed as badly as Amazon did in India. Amazon has a lot of resources. They still where facing backlash for local governments and laws. This is a perfect example of how a company thinks they have the ability to just enter whatever market they want because of their success in other markets. If they would have done other research regarding the local governments and regulations they would have had an easier time entering this market. Their giant ego made them not prepare for the worst. I also like how this article touched based on the global issues that are affecting many companies and small businesses. This sheds light on the fact that other companies are struggling even though Amazon is not, which in turn sheds a negative light on the global giant. The bigger picture is how will the changing COVID regulations affect business 5 years down the road. I think CEO’s are going to need to start including this in their 5 and 10-year plans for the future of their companies. Over all great read!
January 26, 2022 @ 7:02 pm
The beginning of Corona Virus really changed a lot, especially for Amazon. In 2020, Amazon revenue ended up being $386 Billion, one of their most profitable years. At this point, Amazon has operations in U.S, U.K, Canada, Mexico, India, France, Germany, Ireland, Italy, Spain, China, Japan, and Australia. Seeing such success, I can believe that Jeff Bezos had a difficult time with the Confederation traders, Anti-trust investigation, and the anticompetitive challenges after investing more than $5 Billion dollars into India. In an article by Annie Palmer at CNBC, it states that Amazon India copied their sellers’ products and manipulated search results in its favor. Meaning, that Amazon was replicating similar products their sellers/competitors were creating and using its platform to place its products before other sellers. Jeff Bezos’s argued that this is not possible as it is, first, against policies and second, Amazon employees do not have access to seller data that would allow for manipulation. Going back to the statement, “Hope for the best, prepare for the worst”, I think it is fair to say that Amazon and Jeff Bezos was not prepared for the worst when entering India, but was hoping for the best.
January 28, 2022 @ 10:31 pm
We all see Amazon as a powerhouse of a company that will do whatever it takes to conquer new markets, but I personally did not know about their endeavors in India. It has been made very clear that Amazon has been successful in doing their research when it comes to entering into new companies, but no one could have guessed that a global pandemic would have been in the cards. When attempting to enter into a new market, we can discuss the legal, social, political, and environmental challenges a company can face, but no one expected a global pandemic. It would be interesting to see where Amazon is in terms of completing this deal today where we know more about the pandemic. Before the pandemic it seemed as if India was doing everything in their power to not allow Amazon and other anti competition companies into operation. I think that while there are situations where companies can push the boundaries to enter into a new market, when a country makes legislation to keep you out specifically, I think it might be time to move on. A company like Amazon usually has a hard time walking away due to the lost opportunity, but I think it might be bad publicity for them to continue to push as much as they were before the pandemic.
January 29, 2022 @ 3:56 am
India has a middle class that is growing faster than ever. It’s no wonder that both Amazon and Walmart invested billions of dollars there in 2018. This being said, are companies like Amazon, Walmart, and Starbucks taking away from the natural competition Idia should be having as a developing country. This is a difficult question to answer. On the one hand, India is building more brick and mortar stores as mom and pop shops are losing traction, especially in the grocery industry. However, Amazon and Walmart are already well-established American companies that operate globally. The reason they are successful internationally is that they are good at what they do and they are providing their customers with what they want. I agree that this may be taking away from local competition, however. In addition to fighting the political battle over certain deals, more people need to support Indian-found companies in order to see change. It’s a tricky time to be doing business in India because not only is it developing at an extremely fast rate, but large companies such as Amazon and Walmart risk tarnishing their brand if they go “too far.”