International Multi-Unit Leadership

Developing Local Leaders in International Multi-Site Operations

Chris Edger

• Publisher: Routledge
• Year: 2016
• Print ISBN:
  9781032837451
• eBook ISBN:
  9781317113911
• Topic: Business
• Subtopic: Business General
• Index: Business

In International Multi-Unit Leadership, Chris Edger builds on his earlier Effective Multi-Unit Leadership. First - showcasing up-to-date, contemporaneous case studies of market-leading international organisations - the book takes a cross-border perspective on leading from the middle in international subsidiaries that are committing significant capital to land-based multi-unit infrastructures. Secondly, it captures the zeitgeist of internationalizing hospitality, retail, service and leisure organizations facing challenges in relation to multi-channel/smart technology spread, divergent national cultures and emergent, imitative local competition. Thirdly, it addresses the conundrum that most subsidiary multi-unit leaders (regional, area and district managers) face, generating commitment amongst their unit managers and team members, whilst coping with their firm's country of origin-based control and change agendas. Continuing the themes that emerged in his earlier book, particularly around how multi-unit leaders (MULs) and directors are expected to expedite a number of competing and contradictory functions, the author finds that in subsidiary-based international situations, complexity and ambiguity escalates due to 'distance decay' and the level of internal and external contextual turbulence. Based on exemplary case studies, the author examines how high-performance MULs manage paradox and ambiguity within an international context and how organizations can deliver local effectiveness within a strategic framework determined by a policy-making centre hundreds or thousands of miles away. The research and case studies in this book will appeal to managers within international multi-unit enterprises, service directors wishing to train and coach others, students on any of the increasing number of multi-unit management programmes being run in business schools, and academics with an interest in internationalizing service-based enterprises.

CHAPTER 1 Introduction

In 2000, growth markets – any economy outside of the developed world that is at least 1 per cent of current global GDP (such as China, Russia, Brazil, India, Mexico, Korea, Turkey and Indonesia) – represented 13 per cent of global GDP. This subsequently rose to 25 per cent in 2011, being projected to reach almost 50 per cent by 2050 (GSAM 2012). This is in contrast to nations with developed status whose combined share of global GDP is forecast to reduce from 63 per cent in 2011 (it was 78 per cent in 2000) to 31 per cent in 2050. A major component of growth market, emerging and other market momentum will be the rapid expansion of these nations’ service sectors catering for consumptive demand created by urbanisation and ‘economic enfranchisement’ (ATKearney 2012, Sharma 2012). A vital element of this growth will be the (continued) extension and proliferation of retail, leisure, hospitality and service-based multi-site entities, many of which are owned by internationalising organisations seeking expansion outside of saturated, ‘no/low’-growth developed market terrains.

One of the main challenges – indeed a major inhibiter (Schneider and Barsoux 2003) – for these internationalising organisations is developing and retaining local talent in order to facilitate successful expansion of developed market multi-unit brands internationally into growth and emerging contexts:

In a decade examining retail expansion in developing countries, we know that new markets are only as effective as their workforces, and harnessing a local talent pool is crucial to reaching customers. Expatriates deployed from home markets provide much needed support in the early stages, but long-term success hinges on a skilled, reliable, and affordable local workforce. (ATKearney 2012: 22)

In my previous book, Effective Multi-Unit Leadership, I argued that in developed economies one of the most pivotal actors with regards to providing local leadership – delivering operational systems, brand standards and sales-led service within multi-unit organisations – was the multi-unit leader (otherwise known as the area or regional manager responsible for more than two units of the same concept). In this book I extend this thesis by arguing that one of the most important variables in internationalising multi-unit organisation success is what I term the ‘host country multi-unit leader’ (HMUL). Arguably HMULs fulfil a more complex and ambiguous role than their home country counterparts, being sandwiched between their units and ‘two masters’: both the owner and subsidiary/partner policy-makers. How do they optimise performance in this cross-national middle-management space bedevilled with cultural and interpretative issues – simultaneously satisfying the needs of their ‘two masters’, their staff at unit level and, most importantly, their customers? More importantly, given the dearth of local talent within certain markets, how do IMUEs (international multi-unit enterprises) nurture and develop this vital cohort which metaphorically ensures the ‘rubber hits the road’?

This book, based on primary research material garnered for this, and the first book, over the period 2007–2013, is an attempt address this question by asking: what are the key activities of HMULs, how do they discharge their responsibilities effectively and what are their most important personal characteristics? To this end the effective MUL framework proposed in the first book (which comprised some HMUL data input) will be used as a starting-point for the analysis, although, as will be demonstrated, significant differences exist, if not in the overall dimensions and make-up of the role, in expediting the role in a more complex international organisational space with, in extremis, major issues created by the dynamics of place and distance. From an academic perspective this book should make a contribution to an area that has hitherto been largely overlooked – most texts and scholarly research on internationalisation to date focusing on expatriate and ‘global management’ cadres rather than host country national management. For practitioners the book should offer internationalising multi-unit companies some best-practice insights into how they select, develop and retain a critical managerial cohort in their organisations.

1.1 Why ‘Host’ Country Multi-Unit Leaders (HMULs)?

The questions that arise from the subtitle of this book – continuing the arguments put forward above – are, first, why are HMULs such an important subject of enquiry and, second, why is it important to understand how IMUEs select, train and develop them? In answer to the first question, it is significant that whilst there is a plethora of literature relating to ‘international managers’ (Lane et al. 2009), there is very little commentary regarding host country managers. This is a mystery given the fact that

HCN (Host Country National) managers in a foreign subsidiary can be expected to afford a higher degree of control to the parent MNC than expatriates posted from the parent organisation. (Volkmar 2003: 93)

Local HCN managers with the appropriate language and leadership skills (that fit with extant national norms, values and behaviours) should, in theory, be expected to translate strategy into action far more effectively than their expatriate counterparts. In addition, given local customs, nuances and idiosyncrasies (specifically in relation to dispersed units and stores), ‘being intelligently local (for organisations) should include a greater role for local management’ (Quelch and Jocz 2012: 22).

But why does this book focus upon their activities and development? Like the first book, research for this text established that effective HMULs (i.e. ‘host’ regional managers, store directors, territory managers, city, area and district managers) stood out in comparison to their peers by exercising efficient managerial control and displaying values-based local leadership characteristics. That is to say that in addition to their designated managerial duties (i.e. checking systems and standards conformance) effective HMULs were extremely adept at taking centrally designed/derived frameworks, practices and policies and adapting them, within reason, to local markets. To this extent they required a high degree of tacit knowledge and judgement as to how to meld policy, practice and product to the local market but also how to do this within certain ethical parameters.

However, in the case of HMULs it is their ability not only to apply their tacit and explicit knowledge in local marketplaces that makes them stand out as successful operators, but also – as valuable ‘eyes and ears’ of the host and owner organisations, respectively – to perform a valuable feedback function, ensuring that their multi-unit product ‘fits’ and evolves appropriately with regards to positioning, pricing, people and place. Hence the denomination HMULs: a high-performing cohort of ‘host country’ local leaders that, whatever the cultural or business context, optimise their portfolios by the application of local knowledge-based practices. But how do IMUEs and their subsidiaries identify and develop such a critical managerial cohort given the talent-based constraints they face in many markets? This conundrum forms the central point of enquiry for this book.

1.2 What Is the International Multi-Unit Enterprise?

Olsen et al. (1992) provide a useful definition of generic multi-unit enterprises as organisations that ‘compete in an industry with more than one unit of like concept or theme’. The international multi-unit enterprise can be defined as a geographically dispersed organisation built up from standard units such as branches, service centres, hotels, restaurants and stores (franchised or managed), which is aggregated into larger international geographic groupings such as regions, countries, divisions and areas (Garvin and Levesque 2008). Although international multi-unit enterprises may choose different ownership and contract structures in order to grow beyond their original country of origin base (see below and Chapter 2) these organisations now cross many geographic territories and industrial sectors such as retail banking, apparel, accessories, grocery and food retail, hospitality and leisure. Their international economic importance is signified by the fact that in some national contexts foreign-owned multi-unit enterprises can account for a high proportion of annual FDI (foreign direct investment), making a crucial contribution to domestic GDP growth in ‘growth’ and ‘developing’ markets.

1.3 History of the International Multi-Unit Enterprise

The growth of the multi-unit enterprise from the late nineteenth century in ‘developed’ national settings was facilitated by five interrelated factors such as industrialisation/urbanisation, new technologies aiding the mass production of goods, the rise in economic buying power of a burgeoning middle class, the development of advanced transport infrastructures and increased consumer demand for consistency, affordability and quality (Edger 2012: 8–11). Similar forces have acted as drivers for multi-unit proliferation in ‘growth’ and ‘developing’ markets albeit other factors such as commodity wealth, the international flow of capital, growth of smart technologies and ideological repositioning from planned and/or command to liberalising free market economies (certainly in the case of the former Soviet Bloc and China) have had a significant impact upon the upwards trajectory of multi-unit internationalisation over the past 30 years. This section will, first, consider the four main phases of internationalisation and, second, reflect upon both internationalisation successes and failures.

The first phase of multi-unit internationalisation followed a so-called ‘developed to developed’ pattern of expansion (Benson and Ugolini 2003). Here multi-unit enterprises facing saturation in their home markets and/or spotting opportunistic market gaps or avenues for geographic ‘roll-up’ opportunities, moved into ‘developed’ foreign markets (clustering in major conurbations first) that were characterised by a strong rule of law, high levels of consumption and solid extant supply chain infrastructures. Early movers in the twentieth century were the ‘dime retailers’ FW Woolworths expanding into the UK from the US, although it was not until the latter part of the century that fast food retailers (i.e. McDonalds), ‘hard grocery discounters’ (Aldi and Netto), apparel (i.e. C&A), banking (i.e. Barclays), mid-market grocery (i.e. Ahold and Carrefour), furniture (i.e. IKEA) and home improvements (i.e. B&Q) began a process of international roll-out or ‘roll-up’ (Bower 2001). It is notable that one multi-unit enterprise form – hotels (i.e. Hilton and Holiday Inn) – extended their reach beyond developed territories from the 1950s, but this was mainly to cater for travellers and tourists from ‘developed’ economies.

The second phase of internationalisation, so-called ‘developed’ to ‘growth’ market expansion, which gained real momentum from the 1990s onwards, was caused by the market ‘pull’ factors elucidated above, but also ‘push’ factors such as the expense (i.e. cost of land, labour and goods) and harsh competitive environments in ‘developed’ contexts:

In the past five years, US-based Walmart, France-based Carrefour, UK-based Tesco and Germany-based Metro Group saw their revenues in developing countries grow 2.5 times faster than revenues in their home markets. (ATKearney 2012: 2)

This phase can be divided into two major waves. First, the aggressive expansion of food retailers into the ex-Soviet Bloc territories (i.e. Tesco, Aldi and Carrefour) and, second, as China liberalised its laws of retail ownership in the early twenty-first century, a huge drive by western multi-unit firms to gain access to the dynamic urban conurbations of the world’s most populous, fastest-growing economy. During this period the success of premium goods multi-unit enterprises (i.e. Burberry, Gucci, etc.) in opening up territories in the Middle and Far East was also a significant parallel development. By 2012, some of these markets had been relabelled from ‘growth’ to ‘mature’ (i.e. ex-Soviet Bloc countries Poland, Hungary and the Czech Republic) with regards to certain sectors such as grocery retail and home improvements. However, significant growth potential remains in countries such as Turkey, Brazil, Mexico, China and India (particularly following 2011 retail liberalisation), where due to education, technology, demographics and increased productivity, demand for goods and services from standardised multi-unit enterprises is likely to remain high for the foreseeable future (O’Neill 2011).

The third phase of international multi-unit expansion, occurring at present, is the push into territories now denominated as ‘developing’. Some of these markets – such as Sri Lanka, Malaysia, Philippines, Chile and Peru – have huge potential when assessed in terms of market attractiveness (demographics, education, inflation and debt), country risk (rule of law and political stability) and market saturation (competitive environment). Multi-unit enterprises that have deployed capital and/or expanded into these markets during 2011–2012 include: Sri Lanka (Benetton, Mango and Levi’s), Indonesia (Yum! and IKEA), Malaysia (Debenhams and H&M), Philippines (Topshop, Uniqlo and Quiznos), Peru (Gap, Zara, Brooks Brothers and Yum!) and Chile (Walmart, Gap and Dunkin’ Donuts) (ATKearney 2012: 3–26).

In the future there is likely to be a fourth phase of multi-unit internationalisation where national ‘champions’ from today’s ‘growth’ and ‘developing’ markets seek markets in ‘developed’ economy environments (Wild 2012). The success of Nando’s (a fast-growing international casual dining chain with South African origins) might provide a template as to how they might succeed in developed environments through creative positioning (i.e. universal ethnic appeal) and market-leading operational efficiency (i.e. pre-pay casual dining format). Certainly Middle and Far Eastern investors and conglomerates have started to either take strategic stakes in ‘developed’ market multi-unit enterprises (i.e. Dubai Investment Authority’s stake in Sainsbury’s) or purchase or partially own leisure assets (i.e. Malaysian investment in casino groups in the UK).

As will be explored later on in the book, the process of internationalising multi-unit enterprises is fraught with danger. Whilst there have been numerous success stories – including Tesco in the ex-Soviet Bloc, McDonalds worldwide and Yum! in China – the process is littered with set-backs and failures. Notable examples of ‘developed’ to ‘developed’ transmission failures include Walmart in Germany, Sainsbury’s in the US and (more recently) Tesco in Japan/US and Best Buy in the UK. Also ‘developed’ to ‘growth’ expansion can result in serious set-backs. For instance, in China during the period 2011–2012, UK home improvement group B&Q closed two stores, Walmart abandoned a convenience store pilot in Shenzhen and Carrefour was forced to reduce its roll-out ambitions owing to a lack of prime and secondary site opportunities. One major factor in these and other multi-unit enterprise ‘road bumps’ has been the emergence of strong local competition (i.e. China Resource Vanguard and Yonghui multiple grocers in China that account for more market share than the global entrants) who possess ‘local knowledge and savvy management teams (which) allow them to develop rapidly’ (ATKearney 2011: 10).

1.4 Challenges of the International Multi-Unit Enterprise

Internationalising a domestic multi-unit enterprise model – whatever its home primacy and/or success – is bedevilled by risk. The section above touched on some of these dangers, but what are dominant challenges facing ‘developed’ internationalising organisations in ‘growth’ and ‘developing’ markets at this present time? Broadly speaking they can be subdivided into two categories: macro and micro. External macro challenges encompass three main factors: home market disruption, local market competition and smart technologies which threaten the viability of the internationalising multi-unit form which, by its very nature, requires huge levels of capital investment during all phases of its life cycle. Internal micro challenges include issues such as: whether to standardise or localise, leveraging local human capital, parent versus subsidiary tensions, ensuring consistency of standards given time, space and distance and, finally, dealing with the complexities of format, channel and contract proliferation. These will be considered in turn.

1.4.1 MACRO CHALLENGES

1.4.1.1 Home market disruption

One of the principal reasons why multi-unit firms internationalise is that they have created a domestic platform that has given them a degree of ascendancy in their home market (consequently there are limitations to their growth potential unless they seek foreign challenges) and/or they are in possession of what they believe is an inimitable product or business model that is capable of ‘conquering’ foreign markets (Rugman and Hodgetts 2003). Often the home country bases of these enterprises serve as the ‘cash engines’ for growth with profits and collateral (i.e. borrowing raised against existing assets) being deployed abroad. This model is fine as long as their foreign ‘excursions’ start making speedy financial returns, mitigating the upfront risk.

However, as discussed in my previous book (Edger 2012: 11–18), multi-unit enterprises operating within ‘developed’ terrains have faced formidable economic, consumer and technological forces since the 2007 economic downturn. The reasons for this major economic correction will not be reprised here; suffice it to say that the banking, sovereign debt and eurozone crises over the period 2007–2013 have had profound effects on ‘developed’ market consumer behaviour as labour markets have contracted, real wage levels have stalled and discretionary spend levels have fallen. Coupled with this, major developments in smart technology have altered the way in which people shop, with consumers being far more price conscious and savvy about where the best deals lie. Multi-unit enterprises that have been unable (or unwilling) to adapt their business models to this new multi-channel paradigm have either gone bust or suffered catastrophic market share losses/dips in profit performance.

What have been the effects of this ‘developed’ disruptive holy trinity – economic, consumer and technological – upon internationalising multi-unit enterprises? First, many firms have had to rein in their foreign ambitions due to restrictions on available funds. Responding to acute investor pressure, international companies such as Tesco, Walmart and Carrefour have been forced to seriously appraise their interna...

Table of contents

• Page
• Dedication
• Title Page
• Copyright Page
• Table of Contents
• List of Figures
• About the Author
• Acknowledgements
• Chapter 1 Introduction
• Chapter 2 Internationalisation Performance Factors
• Chapter 3 Activities and Issues
• Chapter 4 Ensuring Control
• Chapter 5 Generating Commitment
• Chapter 6 Implementing Change
• Chapter 7 Characteristics and Development
• Chapter 8 Conclusion
• Bibliography
• Index