When a company fails internationally, the thud is heard round the world. A spectacular failure might take the shape of a genuine disaster, in the case of BP’s oil spill, or a cultural disaster, like marketing frivolous toys to serious Chinese girls and boys. Either way, the fallout can leave a company red-faced for years.
The irony of many international misfires is that companies that have proven domestic success are as likely—perhaps more likely—to slip up. They overlook how their established business model needs to adapt. They’d do better treating each effort overseas as a new startup.
“Companies can become complacent and arrogant and then they make mistakes when they expand overseas,” says Peter Cohan, co-author of Export Now: Five Keys to Entering New Markets and founder of Peter S. Cohan & Associates, a management consulting and venture capital firm.
Whether it’s bad marketing, sloppy operations, ill-advised corporate behaviour or mere obliviousness to local culture, screw-ups happen. We asked Cohan, his Export Now co-author Frank Lavin and Robert E. Mittelstaedt Jr., dean of the W. P. Carey School of Business at Arizona State University and author of Will Your Next Mistake Be Fatal? what can be learned from some of the most embarrassing international venture flameouts.
Here’s the top five, in no particular order. Look for five more international flameouts in Part 2.
1. NestlÃ© in Africa
Accused of aggressively marketing its baby formula in impoverished markets where clean water was not readily available, which caused children to be sick, NestlÃ© was hit with a boycott that started in 1977 and continues to this day in various regions around the world. “They went in and tried to convince people that this was the modern thing to do,” says Mittelstaedt. “They assumed there would be clean water, when there wasn’t any, and the natural method would have been perfectly fine.” While Mittelstaedt says it was the wrong product in the wrong market at the wrong time—NestlÃ© may have done better selling nutrients to mothers—Lavin says that niche marketing, perhaps focusing on affluent women who needed an alternative to breast feeding, would have given NestlÃ© a foothold in Africa without causing so much ire.
2. BP in the Gulf of Mexico
The 2010 oil spill was the largest accidental marine oil spill in the history of the petroleum industry, causing extensive damage to wildlife habitats, as well as local fishing and tourism industries. The oil and gas industry is unusual in that it’s global—cultural differences don’t have much impact except at the retail level. So, while the U.K.-based company followed the advice of experts in applying the same standards in its offshore operations as it did to its domestic ones, the problem was that BP’s global standards were weak and poorly executed. “They put money ahead of safety,” says Cohan. This made their branding, which positioned them as a greener kind of energy company, seem especially misleading. “The vulnerability you have in a disaster will be significantly greater in foreign markets,” says Lavin. “There is no home market good will.”
3. SNC Lavalin in Libya
Currently facing multiple investigations into alleged wrongdoings by former executives, the Canadian engineering and construction company, a global leader in its field, is learning a hard lesson about hanging out with the wrong crowd. While the courts will decide whether tens of millions of dollars in mysterious payments in Libya and other markets were illegal, what will hurt SNC Lavalin most is the perception that they were fraternizing with the regime of a much reviled dictator, the late Moammar Gadhaï¬. “Some people have a moral compass and some people ask what it’s going to cost me if I get found out,” says Cohan. “In a market like Libya, you have to make that moral choice before you even set foot there.” Although bribery and payoffs might be considered the cost of doing business in some markets, laws like the United States’ Foreign Corrupt Practices Act means that companies should always follow their home country’s rules, even if it gives their local competitors an edge. Then there’s SNC Lavalin’s questionable corporate governance. “Companies have lawyers for a reason,” says Lavin.
4. Walmart in Germany
After opening 85 stores over the course of eight years, the U.S. retail giant abandoned the German market in 2006 at an estimated cost of US$1 billion. Walmart’s domestic success is built on streamlined distribution channels, high-volumes sales and low prices—none of which fit into German culture or its regulatory regime. German policy and attitudes favor the “mittelstand,” small and medium-sized retailers that know the ins and outs of the country’s restricted business hours, intricate labor laws and multi-layered distribution systems. “Unless the German laws and the culture change, the whole thing that sustains Walmart’s model—which is their ability to discount heavily and to operate in some cases 24 hours a day—doesn’t work there. If you don’t allow them to differentiate themselves, it makes it very difficult for them to operate,” says Mittelstaedt. Worse yet, Germans are less price sensitive than North Americans. “They might even be skeptical of discounts and question the quality of the product,” says Lavin.
5. Home Depot in China The U.S. DIY giant entered the Chinese market in 2006 and opened 12 stores before they realized that most Chinese people don’t like to do it themselves. The company closed its last seven Chinese stores in 2012, absorbing a $160-million after-tax charge. Although China is in the midst of a huge building boom, it doesn’t have the same implications as in North America. And it’s not just that labor is cheaper in China. All those new apartment complexes and planned communities don’t need to be renovated yet. And then there’s the culture. In China, there’s status in having work done for you. “In developed countries, doing it yourself is seen as an enjoyable hobby. Even a stockbroker might do it,” says Lavin. “In aspirational, developing societies, it’s viewed as a sign of poverty.” Home Depot might have been better off as a wholesaler to contractors or selling appliances and accessories.