GLOBAL MARKETING

ONG ACCUSTOMED TO PLAYING a pivotal role in corporate expansion overseas, traditional country managers began to fall from favor in the 1980s, branded as an obstacle to the spread of globalization. Seeking to exploit the promises of worldwide communication, product standardization, and economies of scale, many multinationals reduced their country managers responsibility for decision making and prot and loss. Geographic power gave way to worldwide strategic business units or product directors operating from central headquarters.

In managing this transition, many companies adopted the transnational model.* It held that customer needs were growing more homogeneous throughout the world, so companies should no longer duplicate their manufacturing and product development in each national market, but should instead leverage their capabilities across borders to achieve global economies, respond to local markets, and transfer best practices. To implement the model, senior managers were expected to think, operate, and communicate along three dimensions: product, geography, and function. The transnational model appealed to corporate management as a means of both rationalizing costs and increasing control over far-ung overseas subsidiaries. It also represented a golden opportunity to root out entrenched country managers who behaved like potentates in their local markets, blocking headquarters eforts toward standardization, regional consolidation, or anything else that might encroach on their personal power bases. In superimposing product-dominated SBUs over their traditional geographical organizations, many multinationals relegated their country managers to little more than sales and distribution functionaries. Not surprisingly, the best and most entrepreneurial refused to accept demotion, and quit. Today, however, the role of country manager is again on the rise, powered by opportunities for growth in emerging markets. These opportunities have revealed serious weaknesses in the transnational model.
See Christopher Bartlett and Sumantra Ghoshal, Managing Across Borders: The transnational solution, Harvard University Press, Boston, Mass., 1989.

John Quelch is the Sebastian S. Kresge Professor of Marketing at Harvard Business School, and the author of many books and articles, including The new country managers, The McKinsey Quarterly, 1992 Number 4, pp. 15565. Helen Bloom is a communications consultant based in Brussels. Copyright 1996 McKinsey & Company. All rights reserved.

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John A. Quelch Helen Bloom

Emerging consumer markets have conrmed their value And shown that the transnational model is slow and complex Do you want an entrepreneur or a team player?

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The fall of the transnational

The models most fundamental problems are that it is based on two contradictions. First, though it viewed global rationalization as the key to success, it also sought to respond to local markets. In practice, people in the eld were told to be creative about satisfying local customer needs with increasingly standardized products, over whose design and marketing they had little inuence. Second, though the ecient transfer of best practices across a companys operations was supposed to be a means of beneting the consumer, improving customer value was seldom the motive for organizational realignment. The emphasis was more on cost reduction and tightening central control. There were many other weaknesses in the transnational model which were not revealed until the early 1990s when Eastern European markets unexpectedly opened their doors. To grasp the new opportunities presented by these Companies are bidding emerging and expanding markets the multifor slices of state-owned nationals needed entrepreneurial managers monopolies in markets at in the eld. Instead, what many had was all stages of development HQ-oriented product managers who lacked the geographic knowledge, political knowhow, exibility, and cultural sensitivity to assess the evolving environment and take appropriate action. Multinationals began to miss their strong country managers. Enter the new species of country manager to improve company performance in many critical areas.

Government relations
Good government relations have always been important to multinationals, but they are now more critical than ever. Gaining market entry into emerging markets, making contacts, winning government contracts, and inuencing regulations are all priorities. Partnerships with government bodies can also be vital. In emerging markets, joint ventures with government agencies or publicly owned enterprises may be the price of market entry. And as privatization gathers pace, companies are bidding for slices of state-owned monopolies in markets at all stages of development. As multinationals extend their activities to more and more countries, they must deal with many diferent types of government, sometimes in politically volatile situations. Moreover, they must be mindful not only of national interests, but of regional and global concerns. An IT company pursuing growth in France would probably need links with the French government,
This article is based on a study funded in part by the Division of Research, Harvard Business School and by the WPP Group.

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the European Union, the World Trade Organization, the Group of Seven, and so on. And though oten courted by governments keen to attract foreign investment, multinationals are likely to come under pressure during recessions, when politicians will be tempted to protect jobs with buy national policies Many multinationals have found and tarifs and other barriers. For all these reasons, companies will be much better served by a senior resident country manager who has good people skills, cultural sensitivity, the power to make decisions, and a direct line of communication to head oce than by a local sales or product manager, or a worldwide SBU director who periodically parachutes in from HQ. A savvy country manager with the right connections might, for example, have secured an exemption from a 1995 Vietnamese government export ban. The ban stopped the export of nished products of all joint ventures that did not source 60 percent of their materials domestically, threatening the survival of 70 ventures.

that global standardization increases local customers desire for personal attention

Local customers
Globalization notwithstanding, most multinationals still make the bulk of their prots on local sales. Moreover, many have discovered that global product standardization actually increases local customers desire for personal attention. These customers have seldom felt well served by their suppliers transnational restructuring. In the 1980s, Swedish telecommunications company Ericsson developed a transnational organization with seven worldwide SBUs. By the time Lars Ramqvist was appointed CEO in 1990, however, the SBUs were acting like independent companies, oten bumping into each other when approaching the same customers. To rebuild an integrated understanding of the companys markets, Ramqvist grouped sales by country and redressed the balance between product and geography, allowing it to tip either way according to the costs and benets of adapting a line of business to With global procurement local customers. When many companies jumped on the transnational bandwagon, they had an exaggerated notion of the sales they could make to global rather than local customers. They thought contracts clinched at their multinational customers central headquarters would deliver sales and prots the world over. All too frequently, though, these customers found themselves unable to make their local subsidiaries purchase from centrally appointed vendors. Most multinational suppliers

contracts, negotiated prices oten prove less protable than national accounts

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were unwilling to ofer the same prices and service worldwide; domestic competitors were oten cheaper; and staf at the customers HQ were reluctant to use their clout to push the point. Even when global procurement contracts did materialize, the negotiated standard prices oten proved less protable than national accounts. To add insult to injury, order fulllment depended on local oces that received little or no commission on global accounts, and hence had no incentive to be cooperative. Learning from these experiences, many multinationals have decided to realign their business strategies to re-emphasize sales to national accounts. This shit is particularly important in emerging markets. Many companies, especially young, born global ones, enter markets as suppliers to multinational customers. To grow, however, they must hire entrepreneurial country Multinational companies managers who can attract new local cusneed excellent local managers tomers. SwissSwedish engineering conto avoid being outanked glomerate ABB has reaped the benets by nimble local rivals of such an approach in Eastern Europe. Following heavy investment, regional orders rocketed from $225 million in 1990 to $1.65 billion in 1994. By 2000, Eastern Europe is expected to account for $3 to $4 billion, roughly 8 percent of the companys total sales.*

Local competitors
Multinational companies need excellent local managers not only to compete successfully with other multinationals, but also to avoid being outanked by nimble local rivals, as fast-food giant McDonalds was by Johnny B in the Philippines. Local companies are oten better placed to spot emerging trends and opportunities in their markets, and can quickly upgrade product quality and manufacturing eciency through joint ventures with global partners. As local competition hots up, multinationals may well need to customize their products and services. While Japanese companies were among the rst to see the advantages of standardized global products, many are now seeking to deepen their penetration of foreign markets through local adaptation. But this strategy is not proving easy for them to execute outside the Asia-Pacic region where their greatest market knowledge and experience lies. To succeed, it needs entrepreneurial country managers who understand local markets, who can generate ideas and opportunities, and who can operate autonomously within general guidelines. It also calls for an
Stefan Wagstyl, Woven into the fabric, Financial Times, January 10, 1996.

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HQ condent in delegating to such managers. Few Japanese multinationals can claim either.

Strategic partners
Most multinationals are responding to global competition by expanding their operations through local acquisitions or joint ventures. Such a strategy gives country managers an important business development role: looking out for local companies to acquire and, particularly in emerging markets, identifying A culturally sensitive country promising partners. Acquisitions and joint ventures oten turn out to have brand equities, distribution systems, and selling organizations that merit further investment rather than premature milking. The multinational usually gains some healthy local brands, with a few having potential for regional or global expansion. A culturally sensitive country manager is usually the best person to extract the maximum value from local brands, drive productivity improvements, and manage the integration of newly acquired operating units.

manager is usually the best person to extract the maximum value from local brands

Global brands
Despite growing crossborder convergence in tastes and styles within some consumer segments, the penetration of global brands is likely to reach a natural ceiling, particularly in emerging markets. When these markets rst opened their frontiers to Western imports, sales of global brands surged; ater the initial rush, however, growth has tended to slow. In the former East Germany, for instance, consumers are beginning to forsake premium-priced global brands for newly upgraded traditional domestic brands. Emerging consumer markets will expand principally through the mass marketing of medium- and lower-priced brands, many of them national. Though sales of global brands may rise as a countrys standard of living improves, their market penetration is unlikely to increase unless they In the former East Germany take on more of a national identity, consumers are forsaking global with their marketing adapted to brands for newly upgraded local tastes and needs. Volkswagens traditional domestic brands 1994 announcement that it had abandoned its one world, one car policy marked a recognition of this reality. Falling sales suggested that customers wanted models that satised their needs rather than the companys, so VW introduced a third more body styles, at the same time achieving economies by cutting the number of manufacturing platforms by 75 percent.

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ABOUT THE RESEARCH

This article is based on the ndings of the second phase of a two-part research project investigating the changing role of country general managers in multinational corporations. The results of the rst phase of research were summarized in a previous article, The new country managers, published in The McKinsey Quarterly, 1992 Number 4. Phase 2 of the research involved in-depth interviews with a broad sample of over 100 senior managers including country managers in more than 20 corporations. Its purpose was to rene further hypotheses formulated in phase 1 and, in particular, to establish the relative importance of certain key factors the economic and political environment, nancial and legal systems, distribution infrastructure, level of market information, and market growth potential in determining the role and task mix of country general managers.

When multinationals are weighing the pros and cons of local adaptation, they should recognize that country managers with P&L responsibility are better placed than head oce staf to determine how much must be invested to increase market penetration.

Ideas
New product ideas and marketing best practices the competitive lifeblood of any multinational are usually generated in the eld by people who observe and listen attentively to customers, not by company-culture-bound executives at global HQ. Companies that followed the transnational model and cut back on their country managers oten lost their best eyes and ears. Good country managers create an atmosphere that invites other employees to put forward ideas. They can spot possible winners, and allocate resources to develop them. As one of Nestls country managers commented, The ideas come from the markets. Nestls world expertise in pet foods is not in Vevey (Nestls head oce), but in the markets. This is especially true of product Companies that followed the categories that Nestl has entered via transnational model and cut back acquisitions.

on their country managers oten lost their best eyes and ears

Many multinationals make the mistake of viewing the transfer of ideas as a one-way street from developed to emerging markets. Yet the opposite ow can prove just as rich. Construction materials manufacturer Lafarge, for instance, is currently investigating whether to build cement plants in the West along the stripped-down lines used by its Turkish subsidiary. And KFC, known in the United States and Europe primarily as a take-away chain, learned how to operate large eat-in restaurants in Asia, and has since transferred this knowledge to other markets. So rife are emerging markets with outdated infrastructure, and so open to new ideas, that they oten leapfrog wealthier countries to adopt the latest

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technical standards. The worlds rst fully digital telephone system, for example, goes on line in Hungary in 1997. Continuing economic growth in emerging markets will yield a rich crop of new products, processes, and marketing ideas. Multinationals need country managers who can identify, exploit, and transfer these innovations to other subsidiaries and SBUs. To do so, these managers must be granted the authority and respect to inuence corporate strategic planning and resource allocation.

Organizational eciency
Under the transnational model, managers must oten balance product, function, and geography. In practical terms, a marketing manager for detergents in Sweden might have to report to the product director for Scandinavia, the head of the West European regional marketing team, and the country manager for Sweden. For many companies, such a system has turned into a nightmare of organizational complexity, divided responMultinationals need country sibilities, and delays. The transnational model presents four main organizational problems. First, because it calls on senior managers to cooperate in direction setting and decision making, it relies on mutual trust and understanding. Such qualities take years to build, and are simply not available in rapidly expanding multinationals or in new corporate subsidiaries in emerging markets. Second, the models emphasis on processes and taskforces, though intended to spur the transfer of ideas, oten slows decision making and bogs managers down in blurred lines of responsibility and time-consuming meetings. Conditions like these are especially frustrating for action-oriented entrepreneurs. Third, few managers are capable of functioning well within a 3D matrix. The restructurings of the past decade have trimmed the fat from many multinationals, leaving executives with more work and greater responsibility than ever. Their energy and efectiveness are stretched even further when they have to balance the business needs and personal politics of bosses pulling in three diferent directions. Finally, many chief executives have found that despite having rid themselves of potentate country managers, they have not been able to regain full control over their empires. Instead, they now have to contend with even more powerful SBU heads at global HQ. Oten far better informed about their lines of business than their CEOs, these individuals may represent a still greater political threat.

managers who can identify and exploit emerging products, processes, and marketing ideas

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Horses for courses

Their experiences with the transnational model have led many multinationals to rethink the respective weightings they give to global product divisions and locally based subsidiaries. No universal solution exists for companies seeking to reconcile the tensions of this product-geography dilemma. Which way the scales tilt should vary by line of business, depending on the degree of crossborder homogeneity in consumer buying behavior, competitive dynamics, and channel structures. In sectors characterized by rapid technological change, customers may be reluctant to wait or pay more for locally adapted versions of standard products. Here, worldwide product divisions may continue to dominate. Equally, few country managers are able to stay on top of the latest technology across a broad array of product lines. And in the most important markets, an SBU may have sucient revenue and prot potential to warrant running an independent country operation. But in other sectors, from food to cement, cultural nuances, natural resources, or government pressures demand that products, applications, and services are tailored to local conditions. Service-intensive businesses, from fast food to air express, and manufacturers that support their products with excellent service also need strong local management to ensure that the required quality is delivered to customers.

A choice of role
Exactly what role should a country manager be playing in this diverse new world? We identied ve diferent types of country manager that meet diferent market situations: The trader establishes a beachhead in a new market or is installed by HQ to head a recently acquired local distributor. Traders are entrepreneurial self-starters with strong implementation skills. They focus primarily on sales and distribution, with marketing responsibilities that also include channelling customer feedback to HQ, monitoring the competition, and identifying new ideas. The builders task is to achieve local market penetration and to develop a long-term business for the multinational not a potentates personal efdom. Carrying full responsibility for prot and loss, builders are entrepreneurs who are also able and willing to participate in regional and global strategy teams. The cabinet member is a team player who is assigned to a small- to medium-sized country and charged with building protability by coordinating eforts with neighboring markets. The emphasis here is on

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standardizing products and processes across a region. The extent of national autonomy in marketing and sales will depend on the particular product category and the multinationals portfolio of brands. If these brands are largely global or regional rather than national, for instance, the cabinet members role will involve less local initiative and more regional coordination. The ambassador operates in large and/or strategic markets where the multinational has several SBUs, each headed by a trader or a builder. A strong team player, the ambassador must coordinate activities across SBUs so that the multinational is seen as a single powerful entity. He or she handles top-level government and industry relations, integrates new acquisitions and joint ventures, acts as the undisputed link between the country and the CEOs oce, and ensures that HQ has a synthesized picture of the Cultural nuances, natural corporations local competitive position and resources, or government growth opportunities. The representative operates in large, developed markets where a worldwide line of business units dominate the productgeography matrix. Less powerful than the ambassador, with more of an administrative role, the representative focuses on government relations and legal compliance. It is common for an SBU director to double as a representative.

pressures demand that products are tailored to local conditions

How to choose
When trying to decide which type of country manager best meets their needs, companies should consider each markets stage of development, its growth rate, its size, their method of market entry, and their long-term corporate strategy. They can then select the individual whose personality, skills, and cultural background best t the required country manager prole.

The markets stage of development

Emerging and developed markets have completely diferent business environments. In mature markets, the economic and political climate tends to be relatively stable, with nancial and legal systems in place. Distribution infrastructures function eciently, and information is readily available. Most products and lines of business will already be established, so the main challenge is to achieve growth. The country managers suited to such markets are likely to be structured, analytical, rules-oriented executives who prefer predictability and like to plan. Team players rather than lone wolves, they are comfortable in the company culture and enjoy working with a support staf.

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In emerging markets, by contrast, the potential for growth is excitingly high. Economic and political environments are volatile, nancial and legal systems fragile, and market information sparse and unreliable. Country managers who succeed in these markets are likely to be exible, streetwise self-starters with a strong entrepreneurial streak. They think rules are made to be broken, see problems as opportunities in disguise, and prefer working in lean organizations. They possess both a nose for information and good judgment as to its accuracy. Cultural sensitivity, avid curiosity, willingness to learn, familiarity with the local language, and the ability to nurture relationships with government ocials are also essential Country managers successful in qualities. In developing talent, multinationals should recognize that it is oten more dicult for country managers to move between emerging and developed markets than to progress through diferent-sized subsidiaries of the same type. Some managers may be better at specializing in a particular kind of market, operating as, say, rst a trader and later a builder in potentially strategic emerging markets. Others might thrive as builders and then ambassadors in charge of progressively larger and more strategically important developed markets. Few can perform well in both situations. Those who can should be groomed for the CEOs chair.

emerging markets are likely to be exible, streetwise self-starters with an entrepreneurial streak

Market growth rate

All country managers should ideally be both entrepreneurs and team players, but diferent markets require a diferent balance between the two. The faster a market is growing, the more entrepreneurial its country manager needs to be. Where growth is slow, the country manager must seek prot through collaborative crossborder cost-cutting eforts. In a new market, every company needs its trader and builder. But once it has settled in, the growth rate of the market and the subsidiary will become key determinants of the country managers role. When one US-based courier service opened operations in Europe, its rst priority was to establish beachheads. Once that was accomplished, country managers roles adjusted to suit their particular markets. Faster-growing Italy and Spain, for instance, required more entrepreneurial country managers than Sweden and Benelux.

Market size
Large markets tend to be complex and diverse, requiring seasoned managers with experience of a wide spectrum of functions and relationships.

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Multinationals tend to do local manufacturing in their major markets, so country managers here usually need the product expertise and technical knowledge to oversee production and monitor quality. They should also be able to manage a large staf, conduct government and industry relations, and handle the media. Smaller markets are easier to manage, and the risks associated with a poor selection decision are less grave. Depending on its growth rate and strategic importance, a small market can be used to develop general management, test new ideas, provide a new hunting ground for an older trader, or capitalize on the mentoring skills of a senior executive who wants to slow down as retirement approaches. The importance of market size in determining the country manager prole depends on a multinationals maturity, its view of market potential, and its expectations of growth. The faster the subsidiary is expected to expand, the more frequently the country manager role will have to adjust.

Market entry
The way in which a company sets up a new subsidiary whether via a former distributorship, an acquisition, a strategic alliance, or a joint venture will inuence the mix of managerial and functional skills its country manager needs. In joint ventures in emerging markets, for instance, the country manager must oten act as mentor and help groom local senior management, Large markets tend to require including a successor. In acquisitions and strategic alliances the preferred methods of expansion in developed markets European multinationals tend to retain the chief executive of the acquired company as their rst country manager. The Japanese like to send a senior manager from HQ to sit beside the CEO of the acquired company to observe, learn, and oversee. Both approaches call for a cabinet member with strong cultural and product knowledge. American multinationals, on the other hand, are quicker to replace an acquisitions top management with their own executives in order to take control. Rightly or wrongly, their rst priority is to build prots rather than consensus, so they generally choose builders as country managers.

seasoned managers with experience of a wide spectrum of functions and relationships

Company strategy
The role that a market is expected to play in a corporations global strategy determines many of the functional skills a country manager needs. One major oil companys country manager for Japan, for instance, must be more

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of a nance expert than an oil specialist because the country is less important in terms of sales than as a base for commodity trading and a source of product, nance, and joint venture partners.

Changing needs
Just as there is no universal solution to the productgeography dilemma, there is no ideal prole for a country manager. The best approach for most multinationals is to employ all ve types of country manager, matching diferent individuals to diferent markets at diferent times. The largest market in any region Brazil, China, Germany, Japan, the United States is usually considered a must for any company aspiring to compete on the global stage. Here, sheer market size means the country managers role must be linked to the development stage of the multinationals The largest market in any region SBUs. Initially, the country manager needs is usually considered a must to be a builder controlling SBU traders. for any company aspiring to Once the business lines have put down compete on the global stage roots, the role becomes that of an ambassador leading and coordinating SBU builders. When growth in the market and the subsidiary stabilizes or slows, demanding crossborder economies from the SBUs, the country manager role changes again, to that of representative among a group of entrepreneurial SBU cabinet members.

Corporate experience reveals that the transnational model seldom works well in expanding or emerging markets that need to be developed by entrepreneurial managers working in the eld. Nor is it suited to the management styles of the Asia-Pacic region and the Americas, where clear lines of authority and quick decision making are critical and executive job mobility is high. The model is better suited to Western Europe, with its at population growth, progress toward a single market, emphasis on consensual decision making, traditions of long-term employment, and high tolerance of ambiguity. Even here, though, the jury is still out on how well the model actually works. Many leading multinationals have now turned their back on the transnational model. CEO Percy Barnevik has redened ABB as a multicultural multinational, commenting, The only way to structure a complex global organization is to make it as simple and local as possible.*
William Taylor, The logic of global business: An interview with ABBs Percy Barnevik, Harvard Business Review, MarchApril 1991, pp. 90105; The ABB of management, The Economist, January 6, 1996.

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Others have found a middle ground. Steeped in experience with former colonies, older European multinationals like Nestl and Solvay were hesitant to adopt the transnational model wholesale. Rather than rooting out their potentates, most opted for a gentler evolution of the country manager role. They gradually curbed autonomy, introduced crossborder teamwork, and organized cooperation with head oce SBUs, all the while holding on to valued talent in the eld. And when growth opportunities arose, they were ready to grasp them. Ultimately, the right balance between global product standardization (spearheaded by worldwide SBUs) and local customization (led by strong country managers) must be determined separately for each line of business. Multinationals must weigh the pace of technological development against the extent of adaptation and service their customers require. But whatever their choice, the post of country manager is rmly back on the career track of general management. And by 2000, it will be considered essential for new CEOs to have had hands-on experience of building businesses in both developed and emerging markets.

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