By Verne Harnish “Growth Guy”

Five years ago Eric Zuziak made a few minor changes to his website to be more visible to potential clients in other countries.  After landing an architectural job in Beijing, leading to another in Dubai, today 50% of JZMK Partners’ $11 million in revenue comes from international projects.  More importantly, it helped him source capabilities, like 3D CAD designers in China, which make him much more competitive in his domestic market.  And given the dramatic cutbacks in construction projects in the U.S. he doubts he would have survived without his international clients.

The single largest opportunity in the history of industry is before all of us.  Between now and 2020 over 1 billion additional people will enter the middle class, increasing the marketplace for our goods and services by 50%.  Five hundred million will arise in India, as their middleclass swells from 53 million to over 550 million.  An equal number will move up in China with the rest of the developing world running not far behind.

Let me share a simple way to penetrate these global markets so you’re profitable day one versus blowing a chunk of change on establishing a market outside your current sandbox.  But first…

Hidden Champions

We can all learn a lesson or two from Germany’s Middelstands – mid-size companies that serve as the engine behind Germany’s success as the #1 exporter in the world, beating the likes of the U.S., Japan, and China.  These mostly family owned, privately held businesses hold industry dominating market shares often north of 80% while generating insane profits.  Profiled in the 90’s best-selling book Hidden Champions: Secrets from the 500 Best Unknown Companies, the book highlighted several common straits that have led to their continued success.

In essence, these mid-market “giants” focus on extremely narrow market niches and then follow their market around the globe, like Goldman Produktions, which is the undisputed market leader in supplying expensive pigments in the dipping and coating of candles!  The key is to get in your competitor’s backyard before they get in yours.

And it’s the intel gathered and learning garnered by being geographically dispersed that provides these middlestands with their competitive edges.

Managing the Dragon

Jack Perkowski, author of Managing the Dragon, points out that there are two markets in China – the one that represents the 400 million Chinese averaging just over $8000 per capita income and the other 900 million averaging just under $500.   While the FORTUNE 500 companies are going after the wealthier foreign/local market, it’s the latter purely “local” market that is birthing competitors who are learning to build a business under hungry conditions.  As the weak are whittled away and the smart begin to move up to serve the wealthier Chinese market, they are hungry to expand internationally.

Case in point, Jack’s own firm manufactures automotive parts including piston rings.  When he first entered the Chinese market in 1994 there were 150 highly fragmented competitors.  However, instead of the market players consolidating as he would have expected, today there are over 400 manufacturers of piston rings in China, fueled by the motorcycles, agricultural vehicles and “inkfish” (single piston engines spewing massive amounts of black smoke) driven by the underlying local market.   This kind of competitive marketplace is making these entrepreneurial firms tough, smart, and savvy players itching to get into international markets.

Follow Your Customers

The first step in exploring international waters is asking your best customers if any of them have potential business in other countries –and have them take you with them – it’s that simple.  I have a close entrepreneurial friend who did precisely this.  He had an existing large company customer that was expanding into Russia and he offered to service them overseas as he is domestically.  Since he had an anchor customer he was profitable day one and has subsequently built a sizable business half way around the globe.

It was a similar path for my own company, following one customer to Canada (hey, you have to start somewhere) and then another customer to Malaysia where we’ve been hosting programs for seven years.  It was through those programs that we then met partners that have taken us to other countries in the region.  Today, 20% of our revenue comes from international business with a goal to be at 40% in the next three years, prompting me to move my family to India this past September as we further expand our business in the Asia and Middle East regions.  It was all through following one customer at a time.

And like Zuziak and his partners, we’re tapping into global resources that make us more competitive in our own domestic market like web and printing services in India, marketing help from our partner in Australia, and visibility in the Middle East through our partner in Dubai.

Doing Business Anywhere

Besides reading Perkowski’s outstanding book, I would pick up a copy of Tom Travis’ thin and very readable book appropriately entitled Doing Business Anywhere.  Having logged almost 10 million airline miles, Tom has been helping companies navigate international waters for over 30 years.

I realize how easy and comfortable it can be to remain focused on your local market.  However, the rest of the world isn’t waiting.  It is time to “get outta Dodge” and smell the curry!

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When entering into negotiations, we should always take into account cultural factors such as the educational or religious background of the person sitting across the table, but, says INSEAD professor Horacio Falcao, many people both underestimate and overestimate the cross-cultural aspects.

That’s something of a paradox, says Falcao, Affiliate Professor of Decision Sciences. In terms of underestimating cross-cultural factors, “People come to me normally and ask ‘how do I negotiate with the Chinese? And I would say which Chinese exactly do they want to talk to? Do you want to talk to the Chinese from Beijing or in Shanghai? The one who came from the countryside and moved to the city, or the one who was born and raised in the city?”

“There are so many Chinese … that it becomes really hard because they all have what? Different cultures beyond just being Chinese and that’s the underestimation (part).”

“People tend to only look at national culture when they go into international negotiations … but there is also educational culture, race culture, gender culture, a religious culture. All of these also impact the way people behave and they are all ‘cross cultural,’ which means that we’re underestimating the role of culture because we are only looking at the national one; but as negotiators, we need to try to understand all the others.”

This is because these cultural factors will help “us understand how the other person thinks and communicates, and therefore (we’ll) be able to negotiate and persuade that person better,” Falcao says.

On the other hand, if the person across the table comes from a similar background, we can also fall into the trap of making incorrect assumptions. “Why? Because with that second person, we might feel we are so alike, that we make so many assumptions that we should know and understand (each) other that we are going to run of the risk of over-estimating that proximity.”
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When negotiating with “someone I see is so different from me, I am going to be so extra careful through the negotiations … that I would actually run less of that risk.”

Falcao says we should regard every negotiation as a ‘cross-cultural exercise,’ adding that communication – the process in which people deal with each other – is a very important dimension in which rituals have a major impact.

“In Japan, you don’t say no directly,” he says, “you have to find a more indirect way to let the other person know and understand that you don’t want to do something.”

Training or coaching can help negotiators avoid some of the pitfalls. Falcao says he “would much rather have someone from the country (of the other side in the negotiations) help me understand what normally goes on, especially someone who has bi-national experience – someone who has lived in the country that you’re going to … so they can do the translation as accurately as possible.”

In terms of tactics, he advises a strategy of exploration, preparation and adjustment. “Istart with the assumption maybe, of Illustration of pairs of people with globe in backgroundat the very ‘get-go’, of zero: I don’t know. And why does that help me? That helps me to approach you from a learning prospective; I’ll start to try to learn as fast as I can about you to know if you’re friend or foe.”

That said, it can be wrong to assume the person across the table has to be either friend or foe. “The individual in front of you might be neither, or might be both, depending on how you approach them. If I already approach them as foe, they will reciprocate, if I approach them as friend, they might reciprocate as well.”

“So you need to really understand that one person there,” he says. You have to figure out how much you need to adjust or adapt to the person across the negotiating table. “In terms of negotiations, there are only two cultures: the competitive culture and a collaborative culture, friend or foe in a way.”

“We try to build a system that works for both of us,” he adds. “That might take time, but if you are talking about a long-term relationship, or a big value-creation exercise, or something that just matters a lot, then that’s the right way to do it. It might be a little harder, it might take a little bit more time, but you run much less risks and you are much more certain to be successful.”

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With the rest of the world beating a path to India and China to cash in on the rapid economic growth in those countries and tap low-cost manufacturing (China) and services (India), countless business opportunities have opened up.

As INSEAD Affiliate Professor of Entrepreneurship and Family Enterprise Patrick Turner explains, this has attracted two groups of entrepreneurs: local residents who are eager to launch companies of their own; and entrepreneurs from overseas, often from the US, who see new opportunities emerging back home. The latter comprises the returning diaspora – people who left their native country to study abroad and seek greater opportunities elsewhere, but who are now interested in returning home, bringing with them the education, experience and, often, personal wealth they have acquired overseas. The combination of these two groups represents a potentially powerful teaming up of ideas, experience and funding that is already resulting in success stories.
Different paths

In this respect, the situation in both China and India is very similar, although Turner says the pattern of entrepreneurship development in the two countries is very different. “Historically, both countries have had a very strong entrepreneurial record. Wherever the Indians have tended to go – in the UK or, earlier than that, in East Africa – they have tended to start their own businesses. And as far as the Chinese are concerned there are a lot businesses in the SME (small and medium-sized enterprise) fabric in today’s Malaysia or today’s Singapore for instance, which were formed by the immigrant Chinese when they first came here (to Singapore) a couple of generations ago.”

“But there’s been a difference in the development of both countries which has been absolutely crucial in the development of entrepreneurship, and that has been the Communist era in China in which, among a lot of other things, the development of personal capital, private initiative and private enterprise was essentially frowned upon and that epoch never happened in India,” he says.
China flag

Although both countries have traditionally produced entrepreneurs, the political campaigns initiated by the Chinese Communist Party, especially in the 50s and 60s, with its shunning of personal wealth creation and private enterprise, disrupted the flow of entrepreneurs. It is only since the introduction of paramount leader Deng Xiaoping’s economic reforms in the early 80s, that China has gradually developed a private sector.

Consequently, Turner adds: “In China they have been reinventing a capitalist, entrepreneurial venture system over the past 20-25 years, whereas in India they have just gone sailing forward on the crest of the wave formed by the opportunities from business process outsourcing and the IT boom.”
Entrepreneurial activity

Even in the early part of this decade, the degree of entrepreneurship activity – as measured by the number of people engaged in new and early stage ventures – did not progress nearly as quickly in China as in India. According to the Global Entrepreneurship Monitor’s report for 2003 – the most recent statistics available for India – 12.5 per cent of the total Indian working population was involved in opportunity-based ventures, whereas in China the figure was about half that at 5.5 per cent. Furthermore, while on trips to India, Turner says the young Indians he has met there seem to have “some grasp, if very incomplete, of what is involved in launching a new venture, whereas the young Chinese aspiring entrepreneurs I come into contact with seem to be much further back in this respect.”

This may, in large part, be because of the entrepreneurship environment in the two countries, Turner says: “You are more likely to become an entrepreneur if someone in your environment is, or has been one – your father for instance, or some other family member.” However beyond the family, a strong entrepreneurial community – such as the home town or cluster of towns in the home area – might also encourage some to turn to entrepreneurship. “It’s a matter of entrepreneurship appearing to you in those you see around you as a perfectly normal and widely practiced way of pursuing a career,” Turner explains.
Icons and networks

It also helps if your country has ‘icon’ entrepreneurs such as Bill Gates in the US or Sir Richard Branson in the UK. India certainly has some, of whom the best known is Narayana Murthy, co-founder of Infosys.
Narayana Murthy
In China, however, there are no ‘icon’ entrepreneurs or role models, although entrepreneurs have been gaining greater prominence through Forbes magazine’s list of the country’s 50 richest entrepreneurs.

India has an additional advantage over China in terms of entrepreneurship-oriented bodies such as the TiE network (The Indus Entrepreneurs) or Wadhwani Foundation, which seek to promote entrepreneurship by, among other things, organising workshops and seminars nationally. Founded by entrepreneur Romesh Wadhwani, the foundation funds various entrepreneurship education-related projects like the National Entrepreneurship Network (NEN), which brings together prestigious Indian higher education institutions and entrepreneurs.

Turner says nothing even remotely like this exists in China. However, that said, he expects India to lose this edge in the coming decade. With the emergence of companies such as Alibaba.com, which was founded by entrepreneur Jack Ma in 1999 – and in which Yahoo! took a 40 per cent stake for one billion usd in 2005 – China is already to starting produce its own iconic role models. It will then be just a short step to creating entrepreneurship support organisations, possibly financed by successful entrepreneurs of the new generation. Consequently both phenomena are likely to speed up entrepreneurship development in China and erase the advantage India currently enjoys.

By INSEAD

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