Going global or globally local? Differences between failures and success-stories

Whether it’s Netflix expanding its operations to over 190 countries in just seven years, IKEA driving its international expansion to reach 445 stores worldwide, or Domino’s Pizza growing their operations to become the largest pizza company in the world, there have been numerous success stories of companies expanding abroad. The dark side of international expansion, however, is also very evident. Target closing down 133 stores in 2015 just two years after it entered the Canadian Market, Suzuki filing bankruptcy in the U.S. with debts as high as $346m US dollars, and Amazon taking its Chinese website offline just 4 years after entering the market, are all examples of national champions failing internationally. But what is it that truly differentiates these failed internationalization attempts from their successful counterparts and what are the factors that drive international success?

To shed light on this question I would like to start with highlighting two key points that characterize all three failed internationalization attempts mentioned in the introduction. First, they all failed to adapt their products to the local market in which they were operating. Target did not adapt their stores to Canadian customers, rather they tried to use the same products and sales tactics as in the U.S. (Platt, 2015). Suzuki made a similar mistake: they tried to sell their small jeeps, that had become standard in Japan, to an American audience which clearly preferred larger cars (Soble, 2012). Amazon also largely failed to adapt to local customer preferences. This was exemplified by the fact that they stuck to their standardized, minimalist interface even though Chinese customers preferred bright, diverse, color schemes (Cebeci, 2020). These differences in customer preferences are often driven by the cultural distance between the home and the host country (Ghemawat, 2001) and not taking these into account puts foreign entrants at a massive disadvantage. A second issue that characterizes all three cases is a lack of autonomy and trust in local management. This is perhaps most evident in the Amazon case. Amazon entered China in 2004 by acquiring Joyo.com, the country’s leading online book retailer. After the takeover Amazon replaced the complete management team with non-Chinese people who did not know the local market very well (Liu et al., 2019). Moreover, the Amazon China team lacked the decision-making power necessary to compete with aggressive, well-capitalized local players. Bradley et al. (2011) point out that such a lack of autonomy is especially detrimental when the country of operations faces sudden environmental changes. This was the case for Suzuki who were faced with drastic sales declines in the American market caused by the 2008 financial crisis (Soble, 2012). Suzuki’s inability to bounce back was partially caused by a lack of autonomy which prevented them from quickly taking measures to minimize the negative consequences.

Having discussed two key characteristics of failed internationalization attempts, it is now time to turn to some success stories. In this paragraph I will show that successful internationalization attempts can be described along the same two key characteristics. All three success stories mentioned in the introduction feature firms that were able to sufficiently customize their offerings to appeal to local customers. Netflix customized its content to fit each geographic market, offering a mix of local content and international content translated into the local language (Brennan, 2018). Moreover, in those countries where viewers primarily relied on cellular networks, Netflix put more emphasis on improving mobile experience. Domino’s Pizza also successfully tailored its product offerings, for example by scrapping beef from the menu in India and replacing it with a variety of vegetarian menu options (Rastogi, 2020). IKEA too did an excellent job in balancing global standardization with local adaptation. In terms of products, they are quite consistent across countries, scoring points with their simple, aesthetic designs (Shoulberg, 2018). When it comes to the delivery of this relatively standardized line of products, however, they truly adapt to local tastes. IKEA’s Indian stores, for example, offer on-site assembly services to adapt to India’s lack of a do-it-yourself culture (Shoulberg, 2018). Looking at the second characteristic of failed internationalization attempts, i.e. a lack of autonomy provided by corporate HQ, we can see that the successful firms featured in the introduction took quite the opposite approach. Domino’s Pizza adopted a franchise business model which provides local restaurant owners with a lot of freedom and autonomy to make changes to their offerings (Rastogi, 2020). This flexibility to adapt has significantly contributed to Domino’s successful expansion. Domino’s ex-CEO, Patrick Doyle, once put it like this: “Local knowledge and ownership are critical to our success overseas” (Buss, 2013). IKEA also utilizes a franchise business model which provides IKEA stores around the world with quite some autonomy to adapt to local trends. Every IKEA store has the freedom to adapt up to 20% of its product portfolio to fit with local tastes (IKEA, n.d.). This autonomy does not just lead to a more attractive value proposition but also an increased ability to capitalize on local trends.

So what can we learn from these successful and less successful international expansion efforts? What are the factors that drive international success? I believe that there is no simple answer to this question. There are so many factors that need to be taken into account when designing a successful international strategy. From the discussion above, however, two critical success factors do emerge. On the one hand, successful international expansions always involves a certain degree of local adaptation. Whether it’s customized video content, locally adapted menus or additional assembly services, companies need to find ways to create value propositions that are attractive in the eyes of local customers. On the other hand, a winning international expansion strategy requires a certain degree of subsidiary autonomy and trust in local management. Giving foreign business units the autonomy to make decisions improves local responsiveness and their ability to survive during periods of rapid environmental changes. Taken together, it can be argued that in today’s highly competitive international business environment it is no longer sufficient to go global with a one-size-fits-all approach. Rather, companies need to go globally local to win customers across the globe and drive sustainable growth.

References

Bradley, S. W., Aldrich, H., Shepherd, D. A., & Wiklund, J. (2011). Resources, environmental change, and survival: Asymmetric paths of young independent and subsidiary organizations. Strategic Management Journal, 32(5), 486–509. https://doi.org/10.1002/smj.887

Brennan, L. (2018, October 12). How Netflix Expanded to 190 Countries in 7 Years. Harvard Business Review. https://hbr.org/2018/10/how-netflix-expanded-to-190-countries-in-7-years

Buss, D. (2013, March 9). Domino’s Global Growth Feeds Pizza Chain’s Rising Success. Forbes. https://www.forbes.com/sites/dalebuss/2013/03/09/dominos-global-growth-feeds-pizza-chains-growing-success/

Cebeci, D. (2020, February 18). Why Amazon failed in China—The one that got away. Transport Intelligence. https://www.ti-insight.com/briefs/why-amazon-failed-in-china-the-one-that-got-away/

Ghemawat, P. (2001, September 1). Distance Still Matters: The Hard Reality of Global Expansion. Harvard Business Review. https://hbr.org/2001/09/distance-still-matters-the-hard-reality-of-global-expansion

Liu, N., Yang, Y., & Bond, S. (2019, April 18). Amazon to close China marketplace in shift to imported goods. Financial Times. https://www.ft.com/content/1ffe020c-6191-11e9-b285-3acd5d43599e

Platt, E. (2015, January 15). Target axes struggling Canadian business. Financial Times. https://www.ft.com/content/cb1425de-9cd0-11e4-971b-00144feabdc0

Rastogi, S. (2020, September 11). Domino’s localisation case study. Loc N Apps. https://locnapps14.medium.com/dominos-localisation-case-study-b65b058260e9

Shoulberg, W. (2018, July 30). Why Ikea Succeeds Around The World While Other Retailers Falter. Forbes. https://www.forbes.com/sites/warrenshoulberg/2018/07/30/put-another-stamp-on-the-ikea-passport/

Soble, J. (2012, November 6). Suzuki Motor pulls out of US market. Financial Times. https://www.ft.com/content/3cab8968-280b-11e2-afd2-00144feabdc0

What’s it like to be an IKEA franchisee? (n.d.). IKEA. Retrieved 15 April 2021, from https://about.ikea.com/en/work-with-us/what-is-it-like-to-be-an-ikea-franchisee