When seeking to grow your business across borders, it’s the mindset that matters
‘Research at UNSW Business School into the various cognitive processes and skills that come into play when an organisation is making a ‘growth play’ across borders shows that only those who are prepared to make a mental mindset shift succeed’
Hong Kong is such an international centre we often forget that elsewhere, they do things a little differently. And by failing to acknowledge that, many managers sent overseas accidental blunder and don’t land the deal, get a promotion or secure a contract to launch their company into a new market.
Before you hop on a flight out of Chek Lap Kok to set up a new business overseas, it may be worthwhile taking a few hours to stop and linger in the airport lounge. Gift yourself some precious time to think about how to make sense of the new business environment that will confront you. How will you know which actions and information are going to be crucial and what will be just noise, distracting you from really understanding how to create a successful new business?
For example, think about how you exchange business cards – there is a great ceremony in Japan, but in London they are handed over with little attention and then on the next day used to check you have the right mobile number. In the US, you will be expected to talk at great length about your plans for an initial public offering – but in Italy such talk would get at best odd looks. In South Korea, great store is set in learning golf as part of executive training. In Australia, such skills would be pointless and more weight is put on just how many hours you are prepared to spend on the shop floor.
Every country is different, and if you expect it to work in a similar way in an increasingly global world, you will be sorely disappointed.
Research at UNSW Business School into the various cognitive processes and skills that come into play when an organisation is making a “growth play” across borders shows that only those who are prepared to make a mental mindset shift succeed.
Now, we know that businesses are capable of making such a move, but we understand very little about how they go about it as a “sense-making” task. What then are the management considerations and cognitive processes that can separate a successful expansion into a new territory from an unsuccessful one?
In the paper, “Managerial Cognition and Internationalisation”, I along with Andre Sammartino undertook a detailed study into how decision-makers think through and determine an internationalisation decision.
We were granted rare access to senior executives and board members engaged in a foreign direct investment decision, and we found substantial heterogeneity in the “mental models” these individuals used to make sense of opportunities a new country brought.
One of our many findings is the identification of no less than seven knowledge domains that enable decision-makers to engage in the complex tasks of determining where and how to expand their firm’s activities.
Some of these domains come out of existing theory, where there are three dominant domains that have been long understood to matter to foreign expansion decisions. These are location (where might we go?), firm-specific advantages (what are we good at?) and governance architecture (how should we structure the investment?). While we found that these three domains were important, there are four further domains that are equally as critical, including the value proposition (where does value lie for us?).
Within each of these domains lies the knowledge of how to answer each question to truly determine whether a foreign opportunity is really right for your business.
Just think – is the law different overseas? You may have picked a great location everyone knows – but is it just on the tourist map and miles from the factory you actually need to be close to? You may have learnt about governance architecture in your home context, but is it correct for the new country? You may have studied in a business school about the importance of a CEO and a CIO, but talking about a CTO will not get you far in Britain where you will need to structure around a chief executive or even a director general.
The second crucial aspect to making sense of foreign investment decisions is that the knowledge domains are interactive and making an overall assessment rests on being able to marry or knit together the answers to each of the key seven questions. Your preferred governance architecture may be to enter new locations through joint ventures, but local firms may be unwilling to work with you because of local political sensitivities that favour domestic over foreign businesses. Yet, if you lack the capabilities to manage a wholly owned operation, then the value proposition may be significantly diminished or require a much longer time frame to achieve profitability.
Now, individuals vary in how they make sense of an internationalisation decision, specifically in terms of how they identify and connect elements within and across these knowledge domains. This individual-level heterogeneity stems from differences in their mental models of stored knowledge, based on different career and lifetime learning experiences.
It is those experiences that we want to define and frame in order to teach businesses the steps they should follow and the expertise they must develop internally or bring on board to be successful at growing internationally.
Until now, we have known very little about what distinguishes someone who is able to look at a foreign location and say “there’s a lot of noise here, but this is what’s going to create an opportunity for us, what’s going to present a risk and how we’re going to manage it”, to someone else who just imagines that international expansion is going to be easy, and they will roll out the same model they had at home.
In my research, I have found it is not just simply time spent in international operations, but a unique aspect of how an individual’s career has evolved that seems to endow them with the learning, knowledge and expert judgement to make a success of doing business over a border.
So far it seems that it is not about having been to foreign countries, but that you have experienced lots of different business contexts – different firms, functions, specialist roles and industries. You have regularly been in diverse situations in which you have had to take all of your assumptions about how business “works” and really stress-test them. That seems to be one of the ingredients for international business success.
Public relations and marketing campaigns often fall flat because a great concept in one country has to be sold in a completely different way in another. It is the reason why marketing literature from the US has to be almost completely rewritten for the British market: the hard sell goes down badly. Equally, American spellings of words have to be adapted to countries that take the British spelling, such as New Zealand or indeed Hong Kong. Spelling “colour” without a “u” means your expensive brochure goes straight in the bin. And that is just a simple example – think of how differently a board meeting is conducted in a family firm in South Korea and a firm listed on the Deutsche Boerse.
So, while you are sitting back in the business-class lounge at the Hong Kong airport reading this, take a long hard look at your international expansion plans. Our research shows that if you do not have both personal relationships with people in the city you are looking to enter and a lot of different business experiences, you are probably not going to get far. You need to know people who are in a position to make sure that anything you are trying to do will work in the context of the country you are trying to enter.
Really, it is boots on the ground with local talent that counts in business.
Elizabeth Maitland is an associate professor in the school of management at UNSW Business School. Julian Lorkin also contributed to this article