Expanding to global markets is not a matter of visualizing the future and let the forces of universe act upon. The smart exporter knows that it is a journey that starts right from strategic planning where advisers define how, when and where to aim and an educated plan of action is developed.
Selling to international markets may be approached in several different ways, defining which way is best for your company is the job of the strategist, you, the company director.
This section is intended to comment on Cynthia A. Montgomery´s book “The Strategist – Become the leader your business needs”. Harper Collins Publishers, New York. 2012.
Disclaimer. Comments, ideas and points of view are the sole responsibility of the blog´s author. No part of the book is reproduced but its content is the source for all quotes.
Montgomery describes the personality, responsibilities and compromise of the leader with strong emphasis in strategic planning abilities. She mentions that strategy and leadership are mated and cannot be separated or worked out independently. The strategy is the sole responsibility of the leader, it is an active and continuous long-term function thus, it cannot be subcontracted or thought off once a year. When it comes to describing the objective of the strategy, Montgomery clearly estates it is to gain competitive advantage for your company in the long-term.
In defining the strategy to gain market share, leaders have to acquire sufficient knowledge of their market. Leaders have to be clear as to what is their competitive advantage, what differentiates their business to those of the competition and to be able to distinguish patterns or perspectives from the economy and their competition that may affect or help their businesses. On the other hand, beating their competitors involves the setting challenging goals, understanding that the strategy may be redefined on the run and finally that the final results are the sole responsibility of the strategist.
In a recent interview with Carlos slim, the richest man on earth these days, he was questioned in regards to their newest acquisitions in one side and frantic closures in the other side. He responded ” my group works by a philosophy: we will promote businesses that have great economic outlook to the future and will concentrate in those that make sense for us and what we know best”
This section describes how big corporations gain their position in the market but fail to increase revenues. The author explains the Masco case in detail and persuades the readers to think of their own actions in the case: your company has two billion dollars to invest in new businesses, how would you spent it.
The strategist in that case went on to purchase a business in a totally different market than that of his own expertise. The results were the loss of 650 million.
The acute reader may find what the author recommendations are to consider in a new acquisition:
- Market value. Is there sufficient market for a new player?
- Buyers. What percentage of the population need your product?
- Seasonality. Does your product sell by cycles?
- Growth. Are there good conditions for future growth?
- Competitiveness. What are the competitive advantages? Think of price, productivity, quality, delivery, profit margins, ROI.
One of the largest chapters in the book concentrates in the reason why Masco lose money. In summary, it remarks the common mistake of excessive self-confidence and overlooking the market conditions. The tendency of leaders to believe in their own strengths and capability to succeed in almost anything they start.
When it comes to deciding on a new acquisition, the leader needs to research on the effects of the industry on the new business. This involves the clear understanding of:
- the nature and influence of competition, how many similar companies exist, what are their strengths and weaknesses, etc;
- the acknowledgment of the balance of power, who dominates the business relation, is it the customer or the supplier, and finally,
- the accessibility to that market, how easy is for a new business to establish and gain its share and what other products are there in the market that customers can use in substitution of your products.
Why MASCO failed? Despite the indisputable business management skills MASCO leaders had with their faucet business, they did not have any competitive advantage int he furniture industry. They gained the market, true, but one of the most powerful forces -customers- had other ways of looking at MASCO products and alternatives to substitute them with.
A final advice closes the chapter:
- Define the competitive forces of your industry and how you respond to them.
- Fight the negative forces or be smart to leave, in time.
- Never underestimate the competitive forces.
Giving a turn to the catastrophe of MASCO, the author now presents a successful case. IKEA is a multinational corporation in the furniture industry. Incorporated by a Swedish 25 year old boy back in 1951.
Although, IKEA´s CEO had keen abilities for business, the big difference in his success was due to their very own philosophy of business, the purpose. The only thing that gave his business a differentiation from the competition. The book reveals that the single economic purpose of a company is just not enough to initiate a business venture, any company has to have a reason to exist other than the mere idea of generating revenue.
The readers are invited to define the purpose for their company, Purpose and competitive advantage must be explained together in the resulting statement.
The author also puts enough emphasis in the final objective of the strategy, that is, turning companies into a unique entity in the industry and not to defeat the competition.
An interesting new concept is outlined for identifying the company´s position in certain industry and that is the effect of the industry, measured by the average ROE (return on equity). ROE is the efficiency of businesses to generate revenues. The average ROE helps you locate your business among your competitor. A second concept, the effect of the firm, will demonstrate the impact of your business in that particular industry. Such new concept is the measure of ROE variability, the distance between your company and the best company in your industry and the distance between yours and the worst company in the industry.
knowing the magnitude of these two effects in your company, you can now define or redefined the purpose of your company en set the strategy.
Two more tools are discussed in creating the strategy: Creation of value, the way your company produces goods than can be appreciated by customers, and added value, the sense of satisfaction that keeps customer coming back.