Penetrating Foreign Markets Fraught with Complexities, Hurdles. No Wonder So Many Companies Stumble.
By: CFO May 16, 2014
For every company that thrives in a foreign market, probably five companies stumble. The complexities of entering a foreign market can result in many strategic mistakes and missteps. Even businesses that eventually "win" in a geographic region can teeter on the edge for years.
Wal-Mart, for example, stormed Japan in the late 1990s, hoping to export its supply chain practices and “everyday low price” model to a distinctly different consumer shopping culture. The giant discounter struggled until recently.
Cross-border acquisitions in high-growth countries are particularly hazardous. Law firm Freshfields studied merger transactions valued at $750m or more since 2008 and found that 38 percent of the deals over $2bn encountered some kind of issue, the most common being regulatory probes (51 percent). About 22 percent of the deals encountered “disputes such as activist protests and quarrels with landowners and employees,” Freshfields says.
The problem is many companies move into new regions or countries without a firm grasp of the culture or the investment environment, or how the companies there operate; therefore, they get the risk-reward ratio wrong, says professor Andrew Karolyi, who runs the The Emerging Markets Institute at Cornell’s Samuel Curtis Johnson School of Management.