Balancing act

In a fiercely competitive and hugely diverse international market, businesses need to localise global strategies to win new consumers

Working out of company headquarters, you have P&L responsibility for a sizable global business unit. The company's goal is to achieve higher growth in revenues, margins, and market share in key countries of the South. At the same time, the slow-growing but larger markets of the North still produce most of the earnings, resulting in a tension of resource allocation: Short-term investments in the South - whose payoff is far away - could reduce total worldwide earnings.

Long-standing habits may have conditioned you to tilt toward the existing markets, since getting the best bang for the buck right now is the norm in corporate America. (And quite possibly, unless your CEO is on the ball and sees the need for change, your key performance indicators, KPIs, will be geared to this outcome.) But the company's future, and yours, depends on your willingness to take risks in long-term strategic locations, which are highly uncertain and subject to the vagaries of local governments.

One reason you have this job is the CEO's confidence that you have the cognitive bandwidth to comprehend the worldwide factors of the business through lenses other than your own and the ability to crystallize what matters and when it matters. You both realize that shifting the center of gravity from North to South represents a major change in the psyche of the people in the business. So you start thinking through the difference between managing a worldwide business in a traditional way and managing on a global basis.

You will need to deal with the ingrained feeling - among your colleagues and possibly in yourself -that "you've been there" and therefore know it all because you've taken several trips a year to key countries in the South. Those short visits are superficial, yet people at global headquarters over rely on them. People in the North have all the power in approving decisions about investments, processes, and procedures in critical areas such as pricing and advertising; they discount the insights of executives living on the scene.

In the new markets of the South, people with local information and knowledge are critical to your decision making. You need to motivate them; you need to pay attention to their judgments; you need to trust them and build their trust in you; and you need to be sensitive to the huge cultural distance between headquarters and the local context of these countries. It's not a challenge to be underestimated. Your headquarters people will need to know that when they visit a country of critical importance, they will have to invest about nine days - two weekends and five working days - to be able to get into the local social circuits. Most executives who are experienced in the global game have already learned this.

While the ingredients of business (margin, cash flow, cost structure, revenue and revenue growth, market share, return on capital, capital intensity, and brand share) are the same in all countries, how they combine and get prioritized is conditioned by the local context. Conflicts between the global and the local goals, especially in the areas of pricing and product development, often arise in operationalizing a worldwide strategy for a line of business. For example, when the same product is intended to be used in several geographies, will you need to change the specifications to produce a lower-priced version for some markets?

In other cases, localizing a global strategy comes down to organizational decisions. Say a company that makes high-quality laminated-wood furniture for Northern markets is heading south. It uses a specialized sales force in the North, which it built over many years. Creating a new sales force in the South will take too long, so the company decides to line up local distributors. That means putting those distributors through an intensive education program before they can effectively market the furniture.

Meet the author

Ram Charan is a renowned business adviser, author and speaker who has spent the past 35 years working with many top companies, including GE, MeadWestvaco, Bank of America, DuPont, Novartis, Aditya Birla Group and

Tata Group. He is known for cutting through the complexity of running a business in today’s fast changing environment to uncover the core business problem.

Charan’s introduction to business came early while working in the family shoe shop in a small town in Uttar Pradesh. He earned an engineering degree in India and took a job in Australia. He did MBA and doctorate from Harvard Business School and also served on the faculties of Harvard Business School and Northwestern University before pursuing consulting full time. He has authored 15 books since 1998 that have sold over 2 million copies in more than a dozen languages. Execution, which he co-authored with former Honeywell CEO Larry Bossidy in 2002, was a Wall Street Journal bestseller.

Charan was elected a Distinguished Fellow of the National Academy of Human Resources and has served on the Blue Ribbon Commission on Corporate Governance. He has served on the boards of Hindalco, Emaar, Austin Industries, Tyco Electronics, and Fischer and Porter.
Or, to take on a real mind-bender, say you're a pharmaceuticals company that wants to introduce one of your drugs to a part of Africa. It's priced high in America and somewhat lower in Europe, and those margins are important to paying a return on many years of research and development. The drug is needed in Africa, but you would have to price it much lower. In today's transparent world, there'd be no hiding that discrepancy. How do you ensure your company's financial health while satisfying customers in vastly different economies?

Other tensions are apt to arise when you're adding high-level talent overseas - for example, when you're recruiting a vice chairman of an $80 billion Indian company to join you as the chief executive for Asia and Africa for the most promising category of the business. Compensation and status for such an appointment in the South are usually at the level of a vice president of a North-based business unit. You'll have to fight with headquarters to get this executive into the circle of corporate officers, distinctly above the level of a vice president in a North-based business unit. It will require your best skills of persuasion to quiet the grumbling at headquarters, but that's just part of your new game.

How do you balance the money and people resources you invest to meet worldwide goals with the need to nurture markets and geographic subsegments to position them for the long term? Deciding on the right balance requires savvy resource allocation and goal setting. Procter & Gamble found that it had to rebalance when it tried to expand too widely and too fast in emerging markets. It pulled back to forty product markets that account for 70 percent of its profits.
GLOBAL TILT: LEADING YOUR BUSINESS THROUGH THE GREAT ECONOMIC POWER SHIFT
AUTHOR: Ram Charan
PUBLISHER: Random House India
PRICE: Rs 499
ISBN: 9781847941060

Reprinted by permission from Random House India. Excerpted from Global Tilt: Leading Your Business Through the Great Economic Power Shift . Copyright 2013 Random House India. All rights reserved.