International Business Blunders

Lessons for Future Managers

Densil A. Williams

• Publisher: Emerald Publishing Limited
• Year: 2019
• Print ISBN: 9781787692220, 9781787692206
• eBook ISBN: 9781787692213
• Topic: Business
• Subtopic: Business internazionale
• Index: Business

Difference in the levels of progress between developed and developing countries poses significant challenges for firms from the developing world to operate successfully in markets in the developed world. However, as globalization deepens, firms in the developing world, like their counterparts in the developed world, are forced to look for markets outside of their domestic environment. Increasingly, firms in developing countries will have no choice but to look for markets in large and wealthy developed countries in addition to other similar developing countries. 

International Business Blunders will provide direct evidence from CEOs and international business managers within firms that have moved from their domestic market in the developing world to do business in the developed world. The insights from these cases will serve as invaluable lessons for other firms that are seeking to enter these physically and psychically distant markets. By highlighting the blunders that are made by firms that have braved entering markets in developed countries, this book will provide pedagogical examples of how to minimize the blunders that future managers might make. 

The book will serve as a valuable tool for international business managers, students in MBA programmes, and also scholars who are researching and writing in the area of business and management.

Chapter 1

Introduction

Background

Over the last two and a half decades, the direction and pattern of foreign direct investments (FDIs) flows have changed dramatically compared to the early period post-World War II. The direction was almost uni-directional during the period immediately after the world war when multinational firms moved their operations overseas more rapidly to generate greater value for their shareholders. The general pattern was that multinational enterprises from the rich developed countries in the North (mainly, North America, Western Europe and Developed Asia) were moving operations to other developed countries and also developing countries in the South (Peng, 2004). Fast forward to the 1980s, this pattern has changed significantly, thanks to the many intervening forces of technological advances; information and communication technologies (ICTs; the role of the Internet, mobile telephony and satellites); advances in transportation, which provided increased speed and lower cost of delivery; deregulation of financial markets, especially the removal of controls on foreign exchange and capital flows; and importantly, the new wave of neoliberal economic policy thinking with privatisation and free trade as the dominant ideological thinking that were working simultaneously. These forces have brought about a significant rise in multinational corporations from the developing world moving their activities to international and global markets that were once seen as forbidden by firms from these locations.

This pattern of behaviour was not only observed by academics (e.g. Cuervo Cazurra, 2012; Lall, 1983; Wells, 1983) but also supra-national policymaking bodies as well. Indeed, it is the United Nations Conference on Trade and Development (UNCTAD, 2004) which noted:

There has been much talk about the emerging new geography of international trade, referring to the growing importance of developing countries in North-South trade and the rise of South-South trade as well. It seems, however, that this new trend is not confined to trade relations alone. Similar patterns are also emerging in international investment flows, suggesting the possible emergence of a new geography of international investment relations…. Annual foreign direct investment (FDI) outflows from developing countries have grown faster over the past 15 years than those from developed countries. (p. 1)

Now that there has been a rise in multinationals from the developing world, both the academic and practitioner literature have started to pay attention to the characteristics, nature, patterns, strategies and general operations of these firms. Hitherto, there was very little attention paid to firms from these locations as they were not considered to be a part of the mainstream actions in the international business arena (Garvey & Shirley, 2015). Still, the general literature is replete with examples of how firms from developed countries behave when they enter markets in other developed and also developing countries (e.g. Buckley & Ghauri, 2015; Dunning, 1980; Lall, 1995; Peng, 2004; Peng & Meyer, 2016; Ricks, 1993). Very little is known about the behaviour, strategies and operations of firms that have moved from developing countries to do business in markets in developed countries (Barclay, 2015; Garvey & Shirley, 2015). Further, even where there is evidence of work on multinational firms that have moved from developing countries to markets in developed countries, this evidence is normally skewed towards firms from much larger developed countries such as India, China, Brazil, South Korea, among others (Cuervo Cazurra, 2012; UNCTAD, 2004). Generally, there is very little evidence on how firms from smaller, developing economies, such as those of the Caribbean and other Small Island Developing States, operate in the global economies. The efforts by a handful of scholars in this area (e.g. Barclay, 2015; Cuervo Cazurra, 2012; Garvey & Shirley, 2015; Williams, 2015; Wint, 2003) have provided a departure from the norm in this line of work. Still, most of those works focussed on the success stories of the firms and very little is known about the mistakes they have made while operating in more developed and sophisticated markets that are both psychically¹ and physically different from their home base. It is the aim of this book, therefore, to depart from this tradition and provide a detailed account of the blunders that firms, which have moved from markets in developing countries to operate in markets in developed countries, have made. These will provide valuable lessons for future managers who are aspiring and strategising to move operations from their domestic base to markets in developed countries across the globe.

Importantly, if firms from these developing countries are to continue to grow shareholder value and to ensure their long-term survival, they will have no choice but to seek markets outside of their domestic environment, as the competition from international firms is not restricted to their operations when they move out into markets in developed countries, but it also finds its way into their domestic markets. It is exactly because of this heavy competition in their small domestic markets why most of these firms will have to internationalise their operations either to other similar markets in other developing countries or to markets in developed countries.

So this book makes the unassailable assumption that international business operations will be key for the future survival of the firms (both multinationals and smaller firms) within the Caribbean region. Critically, however, international business operations in more psychically distant markets will even be more relevant given the wealth of the customers in those markets, as well as the large diaspora populations that reside in those locations. Therefore, multinationals and small- and medium-sized firms from developing countries like those in the Caribbean will have to get comfortable with operating in markets in large and developed countries. The lessons that are provided in this book will go a far way in helping managers to plan for their future entry into the international marketplace in these large and developed countries.

Focus on the Caribbean

The Caribbean is a fertile ground for this type of research given that not much is known about the behaviour of the enterprises from this location that have moved into markets in large developed countries, especially of North America, Western Europe and Developed Asia. Since the 1990s, a significant number of Caribbean firms have moved their operations into developed country markets in order to increase shareholder value, drive up their market-share and to ensure their long-term survival. Garvey and Shirley (2015) provided a detailed account in 15 case studies of firms from the Caribbean that have gone international and have operated in markets in large developed countries. While they provide an account of the struggles those firms face, the general area of work covers the successes, strategies and economic behaviour of those firms. This volume will be different, in that, it will focus on the blunders firms from this region made while operating specifically in the markets in large and developed countries. This will be similar to Ricks’ (1993) work on ‘Blunders in International Business’, but unlike Ricks’, the geographic scope is novel and unique. This uniqueness will add great value to the broader practitioner and academic literature, as hitherto, no work of this nature has been done on this geographic area.

The Caribbean is a diverse and unique geographic space. What is referred to as the Caribbean includes an arch of countries which extend southward just off the tip of Florida in North America to the seas Northwest of Venezuela in South America. With over 25 territories and a population of over 30 million people (this includes the Dutch, Spanish, French and English-speaking territories), it is reported that there are over 7,000 islands, cays and islets which make up the space we call the Caribbean (Garvey & Shirley, 2015). Clearly, with its rich heritage and diversity, the Caribbean provides a fertile ground for research of this nature. However, given the limitations of time, financial resources and also the key consideration of the research topic and what it hopes to achieve, the study was limited to the English-speaking territories of the region. These territories make up what is known as CARICOM, the regional integration movement in the English-speaking Caribbean. CARICOM has 15 member countries with the majority having populations of under 200,000 peoples. The larger countries of CARICOM are Jamaica, Trinidad and Barbados with populations of 2.9 million, 1.2 million and 292,000, respectively. Table 1.1 provides a brief summary of the key characteristics of these economies along with the major developed countries with which they generally do business.

Further, given the countries’ economic role and their political clout, they also have the greatest coverage in the region. Indeed, most of the firms that have moved from the region into international markets in the developed countries have their headquarters domicile in these three locations. The cases on the various blunders that these firms have made in their international foray into markets in the large and developed countries will no doubt serve as important information for other managers, from other developing markets, who are planning to do business in markets in large and developed countries. The lessons in the book will serve as vital tools that can be incorporated into international strategic planning sessions and management training sessions for executives. Further, unlike previous works on this subject, this book will focus more on the value chain activities of the firms rather than the individual case of a single company. This approach will make the results much more comparable and also generalisable.

Grounding the Work in Academia

Value chain analysis provides a useful theoretical foundation to ground the current study. A value chain can be described as the full range of activities that firms and workers do to bring a product or a service from its conception to its end use and beyond. The activities that comprise a value chain can be contained within a single firm or divided among different firms. Similarly, they can be contained within a single geographical location or spread over wider areas (Gereffi, 1994; Porter, 1985).

Since Porter (1985), the concept of value chain has been used in economics and management to shed light on a number of critical management and economic development questions. Indeed, there are various frameworks that have been used to better understand the behaviour of firms, industry sectors and the general performance of an economy. However, a closer reading of the extant literature seems to suggest that the most enduring of these is the value chain framework (Gereffi, 1994). The framework is used as a tool to organise firms, industries or economies into major activities that will allow for the clear identification of sources of value and competitive advantage. As such, the concept has found favour with many scholars in economics, management and the wider fields of business studies (Abecassis Moedas, 2006).

Research on value chain analysis has had a long history of development. For example, an early exposure to value chain work started when the French, in the 1960s, began mapping out the physical flows of commodities (Raikes, Jensen, & Ponte, 2000). The term filière, which means channel, was given to this flow. The filière approach examined the activities along the chain to ensure flows of supplies from the production stages to the final consumer. Indeed, it is this thinking that contributed to the concept of a chain, that is, flow of activities. This, therefore, became the most essential conceptual feature of modern value chain analysis.

Table 1.1: Characteristics of Countries Studied.

Sources: Various Issues of the IMF publication, World Economic Outlook, UNCTAD, Publication: Word Investment Report, World Bank and World Development Report.

Later, William Friedland (1984) introduced the concept of ‘commodity systems’ as a systemic configuration of labour and other inputs (both social and economic) towards the creation of a commodity for the final consumer. Also, in the 1980s, world system theorists coined the term ‘commodity chains’, which refers to a network of labour and production processes whose end result is a finished commodity (Hopkins & Wallerstein, 1994). Further, Gary Gereffi (1994) came up with the most coherent framework which defined global commodity chain (GCC) as ‘a set of inter-organizational networks clustered around one commodity or product, linking households, enterprises, and states to one another within the world-economy’ (p. 2). Gereffi (1994, 1999) developed the commodity chain approach that focussed on the firm-level according to four main dimensions: input–output structure, territoriality, governance structure and institutional framework.

Further, the edited work by Gereffi and Korzeniewicz (1994) led to the evolution of the commodity chain concept as micro-level relationships between individual firms for international coordination of production and marketing. For example, Bair (2005) made a poignant observation that commodity chains and value chains are two separate concepts, albeit, similar concepts. Bair (2005) observed that the value chain approach focusses more on the question of how interfirm relations are shaped by the internal logistics of sectors such as industry structure and production-process characteristics. Critically, the characteristics are more technical or organisational in nature, with less attention devoted in the value chain scheme to the external factors which shape chain dynamics and the distribution of value added along the chain.

While the concepts of value chain and commodity chain might appear to be different, it is important to note that since the early twenty-first century, the term global value chain (GVC) is being used more generally, irrespective of the conceptual direction of the dialogue. According to Gereffi, Humphrey, Kaplinsky, and Sturgeon (2001), the expression, GVC, was selected because it was perceived as being the most inclusive of the full range of possible chain activities and end products. Indeed, it is posited that GVCs explain how firms are globally interconnected, identifying the ‘lead firms’ and the contact they have with other firms within the value chain (Gereffi & Kaplinsky, 2001). Further, Gereffi, Humphrey, and Sturgeon (2005) pointed out that important costs in value chains are generated by global buyers even though they do not own the product.

Arguably, the biggest breakthrough in the value chain research came about with Porter’s (1985) popularisation of the concept, especially at the firm level. Michael Porter (1985) presented ‘value chain theory’ to analyse the network of activities in a firm that are geared towards the improvement of the production processes to capture greater value (Porter, 1985). However, even before Porter’s popularisation of the concept, researchers had already started to conceptualise chains as a single entity (Oliver & Webber, 1982). Forrester’s (1961) ‘Industrial Dynamics’ conveyed the idea of managing all components of supply chain operations as one big entity. Al-Mudimigh, Zairi, and Ahmed (2004) opined that supply chain, value chain and customer chains are the same. On the other hand, Rainbird (2004) refrained from interchanging ‘value-chain’ and ‘supply chain’. The consensus in academy on this issue is generally low.

Despite the lo...

Table of contents

• Cover
• Title
• Chapter 1 Introduction
• Chapter 2 Historicising and Theorising the Multinational Corporation
• Chapter 3 Marketing Blunders
• Chapter 4 Finance Blunders
• Chapter 5 Human Resources Blunders
• Chapter 6 Supply Chain and Production Blunders
• Chapter 7 Business to Government Relationships Blunders
• Chapter 8 Lessons Learnt and Concluding Thoughts
• References
• Index