When a company fails internationally, the thud is heard round the world. A spectacular failure might take the shape of a genuine disaster, as in the case of BP’s oil spill in the Gulf of Mexico in 2010, 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.
Whether it’s bad marketing, sloppy operations, ill-advised corporate behavior or mere obliviousness to local culture, screw-ups happen. We asked Peter Cohan, co-author of Export Now: Five Keys to Entering New Markets, his 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.
In Part One, the top five overseas blunders were: Nestle in Africa (aggressive marketing of baby formula), BP in the Gulf of Mexico (oil spill, weak standards), SNC Lavalin in Libya (wrong friends), Walmart in Germany (wrong market) and Home Depot in China (not a DIY market)
Following are five more overseas flameouts to round out our top 10, and what international business can learn from them:
6. Mattel in China
In March 2009, the U.S. toy company opened a 36,000-square-foot Barbie store on Shanghai’s flashy Huaihai Road. Two years later, they shuttered the place and scaled back their efforts to sell Barbie in China. The skinny plastic doll was seen as too frivolous a pastime for Chinese kids. “Chinese parents, more than American parents, emphasize education. Toys can be seen as an indulgence,” says Lavin. That’s especially important considering Chinese families usually have only one child. “You’ll do anything for your child to succeed,” says Mittelstaedt. Disney, for example, has found success in China by tying its playful entertainment brand to a chain of English Learning Centers — kids aren’t just playing with Mickey Mouse, they’re learning new skills with him. If only Barbie could give MBA instruction.
7. Best Buy in the United Kingdom
Four years into a $1.1-billion joint venture with the U.K.’s Carphone Warehouse, U.S. electronics retailer Best Buy pulled the plug on the overseas operation, closing all 11 outlets. Part of the problem was cultural: Big box retail is not as widely accepted on the other side of the Atlantic. “Some things that work in the largest economy in the world don’t work in smaller economies,” says Mittelstaedt. “You can’t scale down the same way.” But Best Buy’s timing was also badly judged. The margin in electronics is growing thinner and thinner. Even major manufacturers like Sony, Sharp and Panasonic are in trouble. So much of the electronics retail business has moved online that consumers around the world use big box stores as mere “showrooms” for online rivals. “Best Buy has tried to compete with their own online presence and with a loyalty program, but then you see the inconsistent pricing. It’s confusing,” says Mittelstaedt.
8. Coke in India
In 1977, Coca-Cola left India when it refused to give its recipe to the India government and so lost out on one of the world’s biggest markets for 16 years. But Coke’s return in 1993 has not been entirely triumphant. A dispute that ran from 2003 to 2006 saw local governments ban both Coke and rival Pepsi, after an environmental group claimed the soft drinks contained high levels of pesticide. Some villages also complained that the bottling facilities were hogging local water supplies. Cohan says protectionism may have played a part in the demand for the Coke recipe; it may have been a strategy to give domestic players an advantage. And local politics probably played a part in the pesticide allegations. He thinks Coke made the right decision the first time in deciding to abandon the market—a company should never let its intellectual property fall into the hands of a foreign power. But when faced with the tainted-drink scandal, he says Coke could have acted more quickly. “You shouldn’t be quiet about it. You have to fight back in the media and present your side of the case.”
9. Korean Airlines in the United States
Between 1970 and 1999, 16 Korean Airlines aircraft were in serious accidents, killing more than 700 people. In the most shocking incident, a plane was shot down in 1983, killing all 269 passengers and crew, when the pilot erroneously flew into Soviet airspace. At one point, the United States Department of Defense prohibited employees from flying on Korean Air planes and the Federal Aviation Administration was considering banning the airline from America airspace. While most international failures result in companies failing to adjust to local expectations, the Korean Airlines’ problem was the opposite — the airline had failed to keep up with rising international safety standards, partly because of its corporate culture. Because of the strict adherence to rank, co-pilots and other crew members would not point out even the most glaring errors to the captain. “You just didn’t question the pilot,” says Mittelstaedt. The airline finally brought in American experts to re-educate the workforce so that all crew members would address any problem they saw. “It’s a lot less expensive to invest in more rigorous procedures than to have accidents.”
10. Ford in Europe Between 1988 and 2000, U.S.-based Ford Motor Company acquired European boutique brands Aston Martin, Jaguar, Volvo and Land Rover. But the automotive mammoth struggled with the luxury brands and in 2007 and 2008 sold them all off. Lavin points out that some mergers don’t work the way their proponents expected them to. “You don’t create aggregate value. Most of the time, one plus one doesn’t even equal two.” In this case, it turned out the mainstream-oriented, large-scale style of Ford was a poor fit for the niche brands. “They didn’t have a lot to add to the process. Ford couldn’t add any value,” says Mittelstaedt. “Companies fail when they export their model overseas, but they can also fail when they buy an overseas company. They usually want to scale it up, as oppose to letting it continue the way it was, but it doesn’t work that way.”
As Cohan puts it: “I remember looking at the Jaguars at that time and thinking, ‘They look a lot like Fords.'”