In the Wizard of Oz, Dorothy’s character discovered “We’re not in Kansas anymore.” J. Stewart Black, Allen J. Morrison, and Hal B. Gregersen confront us with some analogous, sobering reality. The global leadership ranks are woefully deficient of the talent required to capitalize on international opportunity. Black et al. cite four dynamics that frame global leadership: country affiliation, industry knowledge, host country culture, and functional responsibilities.
Facts form truth. The same facts may form different truths for different national cultures. This hints at the complexity of international commerce and the challenges of its elusive mastery. Success, by necessity, demands transformational leadership because the dynamics of global activity are in perpetual flux. At issue, then, is what aspiring entrepreneurs must do in order to create value beyond their home country borders.
Americans are better consumers than producers of global products. Indeed, over three-quarters of the U.S. workforce is employed by service industries. Moreover, the U.S. has experienced a consecutive trade deficit since 1976. Even though small business is the backbone of job creation for the U.S. economy, the U.S. market has been sufficient to keep these enterprises busy. Although America is the biggest consumer market in the world, it is only a third of world population. Thus, Oz is worth exploring for its market potential.
First world, or western, countries have some material similarities to U.S. markets. The Judeo-Christian tradition influences natural, civil, and criminal western law. For example, the rule of law protects property rights for software vendors. Some second world economies, e.g., China, are adopting aspects of capitalism that create market penetration opportunities. However, western countries are cautious about exposing intellectual property in these markets for fear of unchecked piracy. For example, medical device manufacturers may desire tapping into the Chinese labor pool, but not at the expense of creating a competitor. Some third world, or developing, countries are already prime markets for some U.S. industries, e.g., oil and gas. One of the caveats in some of these countries regards theocratic law. For example, some Muslim nations are influenced primarily by the Mullah-interpreted Quran and Sharia law. As third world nations develop, more potential awaits U.S.-based global leaders. Indeed, some third world markets may develop even faster with American products.
Why Pursue Oz?
Successful long-term international strategy may traverse through Richard L. Daft’s four stages of development: domestic, which is germane to the home country; international, which commences as exporting after curiosity is sparked about foreign trade; multinational, which results in duplicative functions scattered across the worldwide footprint; and global, which manifests in boundaryless, integrated, intercontinental articulation for the business model. Assuming our aspirational global entrepreneur has a domestic foundation, the international stage represents the entry to the yellow brick road.
Some pertinent critical thinking questions protect our global neophyte from the “Field of Dreams” phenomenon. To wit, customers may not flock to her product. Keen leaders will spend time scrutinizing the differentiable value proposition from the customers’ perspective. First, exactly what is so appealing about her company’s widget to foreign customers? Would some countries be more disposed to use the product than others? If so, then why? Would the product have to be modified to sell in the new market, e.g., the Conformité Europeenne (CE) marking required of the European Union? What special regulatory hurdles await exported product, e.g., the European Medicines Agency (EMEA) equivalent of the Food and Drug Administration? What does the product lifecycle look like? Are there any environmental issues associated with product disposal, e.g., Japanese regulations emanating from its Environmental Agency and or the Ministry of International Trade and Industry?
Next, the leader will prioritize countries by total addressable markets. This analysis includes identifying impenetrable competitive positions as well as vulnerabilities. Then, the entrepreneur should examine barriers to market entry. This might entail law, regulation, licensing, distribution channels, infrastructure, and/or pricing. Finally, the global aspirant will codify an approach in strategy, replete with an action plan, goals, and execution responsibilities.
What is the Right Way to Approach Oz?
Assuming the exercise has yielded legitimate primary markets, there are several options for entering a country. The simplest form of international sales is pure exporting. This requires some knowledge of trade finance. Whereas the customer may prefer open terms, the exporter may commence with a confirmed, documentary letter of credit drawn upon the customer’s bank. However unpretentious this may appear, the majority of letters of credit transactions are discrepant, e.g., an inspection certificate is not included in the documentation. Fortunately, most discrepancies are not serious. None-the-less, a “clean presentation” is a prerequisite to payment.
Unless the product is proprietary, credit terms are part of a de facto pricing strategy reflective of customer cash flow and carrying cost to finance inventory. Therefore, the exporter will be pressured to offer terms. This decision may open doors to other complexities. Of course, the firm may ship directly from the U.S. on terms. More likely, however, the global executive will find an indigenous host country distributor to carry inventory. A joint venture, or strategic alliance, is another option. Perhaps the popular home country product complements a host country product sufficient to lure a partner to handle local customer relations.
Suppose the endeavor blossoms and hints of even greater opportunity. The entrepreneur might eventually establish its own legal entity-either to distribute or produce the merchandise. Alternatively, an acquisition accomplishes the same objective. However, acquisitions have unique challenges associated with process and cultural integration.
Charles W.L. Hill refers to international ownership as “foreign direct investment.” Once this bridge is crossed, the questions focus more intensely on leadership in the host country operation-an indigenous manager or an expatriate leader from the home country. Hill describes four unique challenges to foreign direct investment. First, countries are as different as fingerprints. Second, leadership problems are diverse in scope and complex in nature. Third, economic externalities, e.g., government fiats, artificially alter the execution environment. Finally, currency exchange rates fluctuate subject to economic and political risk. Even if a facility is established in the host country, the question of autonomy versus integration must be addressed. Global competitiveness is at least partially reliant on economies of scope and scale to minimize operating cost. Can the organization leverage centralized finance and human resources functions, for example, in support of the global footprint?
Just how serious is the pilgrim about reaching Oz? The “breakfast principle” offers some critical thinking value: chickens are involved by contributing eggs; pigs are committed by delivering bacon. To wit, the host culture may only recognize serious commitment through the manner of home country engagement. Does the home country platoon an expatriate to live among them and work side-by-side with the host country employees? Alternatively, does the home country recruit an indigenous host country leader? Either may work. Both approaches have attributes. Both have challenges. In short, despite the potential of the yellow brick road, surprises await the traveler.
Who Understands Oz?
Why won’t Dorothy’s Kansas paradigms work in Oz? Simply put, things are different. For example, Dorothy had no previous concerns about witches, flying monkeys, or ruby slippers. Even though the strategy and tactics of international commerce are important, they may pale in comparison to other issues. William Hitt offers four worldview prisms through which all human interaction is filtered: religion, science, philosophy, and daily life. Aubrey C. Daniels discounts the value of common sense as uniquely personal. Instead, Daniels defends critical thinking for universal truths. Daniels’ thoughts contrast with B.F. Skinner’s scientific management, which is comparatively dehumanizing. Interpersonal cognizance appears to be especially wise advice for international novices. Even a relatively simple letter of credit transaction presumes an order was consummated, but by whom? A leader based in the U.S. who travels to the host customers’ countries may handle initial activities. However, getting a passport only gets the leader past customs officials at the host country airport.
Morgan W. McCall, Jr., and George P. Hollenbeck offer useful suggestions for navigating cultural variation. While experience is a great teacher, miscues can squash good business opportunities. Ideally, the global executive previously traveled in the host country. Valuable immersion experiences include detouring from the touristy sites to soak up the nuances of the local culture. In the absence of solid grounding in the local culture, a mentor or acculturation course is prudent. One of the fundamental building blocks of culture is language. Knowing a language is one thing. Using it is another. The global leader needs to speak the language, confirm that the customers encountered speak English, or procure an interpreter.
Local values influence social etiquette and business norms. This entails how people interact with each other, including gender customs, the trappings of attire, and the tenor of conversation. For example, the degree of formality and the choreography in approaching the desired subject should be understood. The subtleties can be profound. Home country idioms may not translate well. Then again, context may communicate more than words.
Host country infrastructure should be understood. This begins with the potentially onerous political and governmental environment. Indeed, some countries are prone to bribes and kickbacks. While U.S. businessmen must abide by the Foreign Corrupt Practices Act, those legal requirements and ethical choices will add to the challenges of success in some countries. A home country international law firm that has host country representation is a good investment.
Finally, the leadership style of the global executive is relevant. Successful styles in the home country may not work in the host country. The Geerte Hofstede Cultural Dimensions tool compares countries in terms of power distance, masculinity, long-term orientation, individualism, and uncertainty avoidance. The comparison of home and host countries offers general clues for leadership style decisions. This benchmark is a good point of reference for drilling down to organizational, team, and individual levels of interaction.
Motivating the value-creating Munchkins in Oz may bear no resemblance to the plainsmen of Kansas. Daniels opines to the necessity of pinpointing behaviors for systems of positive reinforcement. While this is universally applicable to all cultures, the methodology varies due to factors such as collectivism versus individualism. Daniels offers three avenues for discovering the workable solutions: asking, observing, and experimenting. The leader must apply incentive wizardry carefully for fear of inducing the opposite of intended consequences.
May One Thrive in Multiple Ozes?
McCall and Hollenbeck summarize core competencies of successful global executives. First, nimble minds creatively overcome challenges. Second, cultural chameleons adjust to their environments without compromising personal or corporate values. McCall and Hollenbeck add that culture sets the tenor of business, and consequently may overshadow the importance of business, per se. Third, the ability to indulge duality is differentiable. Black et al. describe duality as the ability to simultaneously embrace the contrasts and contradictions of home and host country commerce. Fourth, indefatigable tenacity is required to reap potential rewards of global commerce. Fifth, effective global leaders never compromise their true north, something Bill George and Peter Sims regards as the “moral compass” of unalterable values by which a leader governs personal behavior. Sixth, global leaders do not sacrifice their families for their careers. Finally, global leaders continually pursue unique value propositions to remain competitive.
Robert Rosen, Patricia Digh, Marshal Singer, and Carl Phillips write of four global leadership literacies: personal literacy, or self-awareness; social literacy, or emotional intelligence; business literacy, or scenario acumen; and cultural literacy, or situational adaptability. Collectively, the global entrepreneur may find in the host country a plethora of kindred spirits with a passion for success. However, the modus operandi for achieving success may dramatically differ.
Humility is a virtue, especially for Americans. Two of the chronic criticisms of American business professionals are the cultural collateral damage inflicted by self-confidence bordering on arrogance, and the prominence of financial results orientation at the expense of interpersonal relationships. The lesson is clear: slow down and get to know your counterparts. Stephen M.R. Covey reminds us that we judge ourselves by our intentions while others judge us by our actions.
Black et al. summarize four competencies of effective global executives: inquisitiveness, perspective, character, and savvy. Inquisitiveness approximates Andy Grove’s obsession that only the paranoid survive; therefore, leaders must continually probe for new value opportunities. Perspective leverages past lessons to understand new ones; some regard this as meta-leadership. What works in one venue may fail in another. Conversely, failure in one venue may succeed in another. Character is revealed and refined amid commerce in the struggle between right and wrong. Of course, global cultural disparity makes this more challenging. Savvy amounts to doing the right thing despite an incomplete understanding of all the variables.
Global leaders may think in international terms, but they should act in local ones. Oz is different from Kansas. Even so, Dorothy adjusted while she forged deep relationships with Scarecrow, Tin Man, and Cowardly Lion while encouraging them toward accomplishments seemingly beyond their abilities. Aspiring global executives may approximate Dorothy’s odyssey to Oz. While there is no place like home, there are other places people call home in which it may be fulfilling to transact commerce while experiencing personal growth. Not only may this enrich the entrepreneur’s home country experience, but it may also do some good in the world. People who trade with each other tend not to declare war on each other.