Endeavor is proud to make public the following transcript and video from a panel at the 2011 Endeavor Entrepreneur Summit in San Francisco. The event, which assembled over 450 entrepreneurs and global business leaders, featured dozens of entrepreneurship-related presentations by top CEOs and industry experts.
Overview: This panel features leaders who have led and managed international expasion at their respective companies. The panelists discuss both the challenges and opportunities in going global, and their experience and advice with the Endeavor Entrepreneurs.
Moderator: Juan Pablo Cappello, Partner, Breenberg Traurig LLC
Diego Piacentini, SVP, International Retail, Amazon
Sal Giambanco, Director, Omidyar, Former SVP, Human Resources, PayPal & eBay
Claudia Fan Munce, Managing Director, IBM Venture Capital Group and Vice President, IBM Corporate Strategy
William Holtzman, Former Vice President, International, Handspring
Juan Pablo: Often when companies fail, it’s for the same reasons and sometimes the beginning of the failure has to do with misguided expansion strategies, so hopefully we’ll help you avoid all of that failure.
Juan Pablo: Lets start with Diego, my long time friend. Amazon was founded in 1994, and you guys have expanded into at least eight countries. In terms of that expansion, what makes you choose where you’re going to expand? What are your considerations before you get there? How does Amazon think through these strategies?
Diego: The answer is easy: we’re in the top countries in the world. We started very soon. When I joined in 2000, Jeff Bezos said “open.” Just the year before we were in the UK and Germany and then we went to Japan and then we went to France. A few years later we did China, just a few years ago we did Italy. Also with just those eight countries we have 50% of the business outside of the US, which means we were in the right countries. So it’s size, obviously, and for e-commerce you look at the status of the efficiency of the logistics, credit card penetration, internet broadband penetration. But you know that all those factors in those major countries at some point will be pretty much the same at a maximum level of efficiency.
Juan Pablo: And do those factors weigh into your decision as far as where you go when? In terms of priority?
Diego: Yes, for example we could have launched Italy in early 2000 but we waited until we had a very strong and efficient infrastructure of warehouses in Europe so we serve Italy and other eventual smaller countries from that infrastructure. But don’t forget that once you get to the top ten economies in the world, you pretty much cover 75% of GDP and the remaining 25% is very fragmented. Clearly this is changing. There are big economies that were not big ten years ago. But once you are in those top countries you really have a lot on your hands to manage and you do cover 75% of GDP.
Country Targets & Strategy
Juan Pablo: And in terms of the BRIC countries—Brazil, Russia, India, China—are those priorities for you?
Diego: Well, of those countries we cover China, and again we picked the biggest. It was a very easy decision. And China itself has our hands full in terms of growing the market segment share, taking care of the customer. There is one factor that is identical around all countries. Given our business model, everybody in every country loves infinite selection, everybody in every country loves fast shipping and everybody in every country loves low prices. I never heard Chinese customers say “I would love to buy from you but I wish it were a little bit more expensive.” No, it works in every country the same.
Juan Pablo: In terms of our audience, mostly entrepreneurs in the room, they’re in an emerging economy thinking about global expansion. Would you recommend that same kind of strategy of world domination? Hit the biggest market first? Or should they think small in terms of global expansion.
Diego: First of all, we have a direct presence in those countries, but we do export all over the world. Many people from Latin America, for example, buy from the website. It all depends on your business proposition, which is what is the unique value of my product and does the market it will go into want that unique value. There’s not a one size fits all recipe, it all depends on your unique value proposition. Am I going to be piling up on a plethora of singular services, or am I going to be selling something that is really different that that market will appreciate. So it’s way more about unique value than the size of the market. As you well know the rule, you know, “if I only would get one percent of the market, it never works, because getting that one percent is incredibly, incredibly hard.”
Juan Pablo: I know Bill, when you guys originally started Handspring, from what I’ve read, you guys initially, right from the very beginning, focused on a world wide global strategy. Was that something by design?
Bill: That really goes back to my boss Donna Dubinsky who had originally started Palm. She realized there was an opportunity there that had to be seized quickly, so she handed me a blank piece of paper to start with and I guess I’ve been doing international for about two decades now and a lot of the questions come down to what are your biggest challenges? Is it Japanese culture? Is it jetlag? Is it entering China? Is it currency? My feeling and my answer is none of the above. My focus has always been to get my company to do the right things for the international markets and that really starts with the head of the company, the president and the level below the president. If you don’t have that buy in, you’re pretty much guaranteed to fail. You have to start there or you will fail. I realize that a lot of the people in this room are the president and the next level of management at this point, but you will be hiring people, and when you hire people, you have to tell them when you hire them that their job will require international. I would put that in their performance review. Have a bullet point: what have you done for international this year. When I was VP of international at Handspring, I had input into all of the other functional VPs reviews and it was just a great way of keeping focus on the international business. The reality is your companies will lose focus. The appeal and the nature of human beings is you will begin to drift toward your domestic market. You understand the market, you speak the language, the currency is straightforward, you understand the business culture, so there’s just this natural orientation for your people to orient toward the domestic. There’s also short term profits there. Your international is the flip of that. International is much more complicated and the profits come much later. They do come, but that is the reality.
Hiring for Internationa Offices
Juan Pablo: How important was it for you to start hiring people with international backgrounds?
Bill: Oh, that’s all we hired. In fact the person who I put in charge of our European operation used to be the general manager of Apple Europe, for example. You always want to go out and hire talent, but it’s not as easy as it appears. In a lot of cultures, it’s very hard to get real feedback on people. Many cultures have a tendency not to share bad news, so you have to dig much deeper.
But getting back to the focus question and avoiding the appeal of the domestic marketplace, one of the things that I always engaged in was putting a lot of people on airplanes. I think if you get your senior management in the field where they really begin to understand the challenges and they begin to realize the challenges and so on, and the flip side of that, it makes them more responsive when they get the emails and the phone calls when there’s a name that they can attach to that.
To give you an example, I was in Europe last week and I walked past a store that was a San Jose company that sells a very innovative product that’s very difficult to understand and difficult to sell in retail. The good news is they created a great demo station for the US market, the bad news is the Europeans knew nothing about it. In a perfect world, that discussion would have started much earlier, they would have had a joint specification for what that demo station would look like, it would be flexible, and in a perfect world, they would actually be placing a joint PO so they could get an economy of scale going on it.
Another example of putting people on planes is when I was running Asia for Macromedia there was a big problem with the credit organization. I could not get credit for my international distributors. So I bought a bunch of plane tickets and I dragged the credit manager from continent to continent so he could meet with his peers and actually see the organizations in action. When you have that face to face and you see how people are working, it actually makes a big difference. In our case, the problem actually went away. I think the most important team to bring on the road first are the people who build and manage your products. If your products are not flexible, if it’s not localizable, you will be in a world of hurt.
Just a few notes on strategy: less is more, go into less countries than more countries, do less localization, focus. The old adage “do it right the first time” really applies here, because these markets have long memories. When you stumble into the marketplace, the press, your distribution partners, the customers, they remember it, and I’ve done more stumbles than I care to think about and it’s very expensive to try to recover from those kinds of mistakes. The bottom line is to really be successful. The final element is communications. You have to have voice conferences, regular emails, it has to be regular, it can’t be hit or miss. At least in my world, markets and products were changing on a weekly basis, so we had to create these kinds of vehicles to keep everybody in the loop so there were no surprises. The good news is when you do this properly, it’s a wonderful thing. When I joined Apple International in 1986, we were 15% of sales, and we were treated like 15% of sales. We were kind of like that crazy uncle who comes to Christmas that no one wants to talk to and kind of shies away from. The good news is today Apple has a market cap of $300 billion and 60% of that comes from the international world and that’s one reason why Apple is such a global goliath today.
Network Growth Strategy
Juan Pablo: As you’ve been chatting with some of the Endeavor Entrepreneurs here, do you think that they should focus in their backyard? For example a Chilean company, should they begin to cluster in the Southern Cone, and grow from there, or do you think they should consider making the leap to a much larger market, like the US, as soon as possible?
Bill: I think it really depends on your product and your service. For example during the mentoring session, I met a couple gentlemen from Lebanon who developed internet capability that was very specific to that marketplace. So it’s basically a no brainer to take that engine and bring it into other Arabic markets. I would say in general I agree with the Amazon strategy and where possible, focus on the bigger markets first, but be very selective. I can give you an example of a company I just came across that had fifteen different localizations at work and this was a small company. So they were just throwing out products all over the place, doing a lousy job, not established in Europe and yet they were localizing for all these weird little markets, and that does two things: it destroys your credibility in those markets and it destroys your internal credibility because you’re doing something stupid. And that is what you don’t want to do. What I realized, by the way, is the sales manager involved was exchanging a localization commitment for a purchase order and that just blows up everything.
Juan Pablo: Claudia, speaking of world domination—IBM knows a thing or two about international. We just heard a little bit about the localization of products, you guys seem to be masters of that. What’s the company’s experience?
Claudia: The company grew up as an international company, it’s not a new thought for us. Globalization is a concept that almost started at inception and it’s in the name of the company. I don’t know if you saw the big celebration that we’re having. A couple of weeks ago, we celebrated our 100 years. It’s the 100 year anniversary of IBM and in Brazil we’re 97 years old, in China we’re 76 year’s old, god knows why, this is long before BRIC, we said three years after forming a company that the first market would be Brazil. And of course China, Japan, we are 173 countries, we are local to all those 173 countries with 426,000 IBMers operating globally, plus about 100,000 partners, so globalization is not something that we sit there and say well let’s decide to do that. It is what we do. It is every product, every development, every strategy, as you heard. I’m part of the corporate strategy team. It’s really a very exciting time, because the IT industry and IBM’s business became so much more about integration than it is about product in the last couple decades. And with companies, entrepreneurial companies across the globe innovating different component solutions, we became much more of a global integrater. We have partners in Vietnam who are cutting deals with us and with our customers in the Netherlands. It just became an exchange of innovation. So different than the ideas that Bill and the other panelists are offering, you should also think about, in some cases, there is a strategic component of seeking out local partners to develop the local presence, to develop the localization of your product, to develop the distribution, to develop the ecosystem that you need to support it, including the people that understand the credit structure in that country. So for us it’s really about globalization, but not just global for IBM, it’s global in terms of all the partners, 100,000 plus companies. With all of these partners IBM is actually getting the same PO width, can deliver the solutions, integrate their different components, particularly for entrepreneurial companies. If you’re addressing the enterprise market, chances are you have one component of a much larger IT solution. There’s a whole solution architecture to solve whatever the new purchase order is and you’ll be a critical component of that. Of course I’m speaking for IBM. There are a few competitors of ours who want you to do the same thing with them. Seek out these strategic partners. If you have a relevant, innovative component then the ability that these partners have to bring you to the global scale is nothing that you will ever be able to achieve on your own. It doesn’t matter how much VC money you have, that is not the type of distribution that a major investor will fund you for. So if you find yourself in that position, take that into consideration. We, IBM, invest a lot in enabling new partners to go global with us. We do a lot of verification with your product, we provide a lot of software assistance, we provide a lot of marketing and sales assistance. We are all over the globe, as I said. Just this week at the innovation center, where we bring these new partners in and help them develop a solution, we have 40 different ones across the globe. So think about, how do I go global on the shoulder of a giant somewhere, because it will allow me to leapfrog ahead and scale much faster by leveraging the business infrastructure.
Role of Control in Expansion
Juan Pablo: That’s interesting because one of the issues Endeavor Entrepreneurs mention as they think about growing internationally is an issue of losing control. When I hear hundreds of thousands of employees and 173 countries, etc. How do you maintain culture and controls, while at the same time, ultimately after 77 years or 97 years in the market you need to be a local company?
Claudia: You know for us, ultimately it’s about the customer. Ultimately, we have no interest in locking in an exclusive contract with any partner and our customer doesn’t want us to have that. So if you look at the control, the only person who has any control is your customer. We’re not going to steal any ideas, the IT industry is moving so fast and we have different partners serving different geographies. If you’re in mobile billing, there are different companies serving the same functionality, but optimized for banking, optimized for transportation, it is ultimately about the customer choice. So you need to stay competitive with your product and rather than worry about the fact that someone is going to some how take control. If you’re not competitive, someone will come along and pass by the functionality and the quality, rather than trying to replace the functionality that you have.
Developing Human Resources
Juan Pablo: Great. So, it seems to me international expansion is kind of like getting married. The easy part is deciding that you’re going to do it, and the hard part of it is living with for the next 20, 75, 97 years. I guess from your perspective on the HR side, once a company decides, once you guys at PayPal, other companies you’ve worked with, eBay, once a company decides to go international, what are the other considerations from the human resource side.
Sal: Thank you Juan. I think the interesting thing about PayPal and eBay is that their international expansion strategies were actually quite distinct. The PayPal expansion strategy really followed or mirrored what Diego was talking about in terms of the Amazon strategy in terms of building it’s business from the ground up in the foreign markets. The eBay international expansion strategy was around acquisitions. It was actually acquiring similar organizations and businesses in local markets. So for example when you’re in acquiring mode, acquisitions can easily go awry for a whole host of reasons. I do think when you think about the culture and control question, those are the real questions—how do you get the right people involved. You have more control over that, I think, when you’re building from the ground up. With the PayPal experience, we were able to select our leaders from the ground up. It’s about hiring, whether it’s domestically or internationally, people, always, who share your values. Whether it’s PayPal, eBay or the Omidyar network today, it’s about having values-oriented folks whom you can trust and build a relationship with.
Juan Pablo: Going back to Bill’s point, have you found that that’s harder to do in the international markets?
Sal: I think hiring people is hard anywhere. It’s hard domestically, it’s very hard right now in Silicon Valley for certain skill sets. We’ve been talking about talent in my sessions the last two days. Hiring good talent is hard all over the world. Especially for organizations that are resource constrained. There’s another problem in developing markets. We’ve been talking about in advanced countries. In emerging markets the talent may not exist and if it does, it’s very expensive. So in developing markets, you may actually have to have a strategy around developing talent. It’s very complex, you can acquire talent from acquiring acquisitions, you can hire talent from competitors on the ground and build from the ground up, or you can hire or export or build from the ground up, too.
Juan Pablo: Let’s talk about that for thirty seconds each. That’s one of the things that the Endeavor Entrepreneurs are considering as they think about expansion. Some of them have been very successful in their local market and maybe they do have some resources to perhaps acquire companies in markets or to grow organically in markets. Bill, what was your experience at Handspring?
Bill: In terms of building a base of people?
Juan Pablo: It seems there are two approaches, and maybe they aren’t mutually exclusive—go and put your flag in the ground and start from scratch, or go and acquire something and start from something.
Bill: If I use Handspring as an example, we went and built our own subsidiaries throughout Europe, Japan, but in all the other places we would have people based at all the headquarters who would be managing distributors. It just wasn’t worth our time to put a ton of people in there with all of the other issues that go in back of that, so you start with distribution markets and as they begin to grow and become substantial, then you begin to build your own infrastructure, that’s how we do it.
Juan Pablo: And Claudia, I’m sure IBM is rolling out new products all the time.
Claudia: Both strategies work, depending on the geography. We have subsidiaries, we have joint ventures, we enter into all of these, today, major markets, but certainly 97 years ago Brazil was not a major market, through a lot of these local markets with local players, local distribution partners.
Juan Pablo: What are the main drivers for that decision, because I’m sure you guys do it all. But what makes you decide you’re going to go this way or that way?
Claudia: In many ways, it’s not very different than when you monitor venture investing. There are obviously multiple factors why venture capitalists start to invest in certain geographies: the stability of the political system, the monetary system, the market. So we have a blue print of the geography that we are investing in for today and based on where we see the opportunity going. We saw investment infrastructure going to places like India and China twenty years ago so we emphasized our capability in delivering to those markets. Today in the emerging geography, in Chile, where the Endeavor Entrepreneurs are, in Asia, there’s tremendous growth in countries like Vietnam, Malaysia. This kind of growth drives us to enter and to start investing in those geographies.
Growing Ground Up vs. Acquisition
Juan Pablo: And Diego, at Amazon have you grown your local operations from the ground up or have you acquired?
Diego: Most of the time we’ve built it from the ground up. We have a mixed model in, for example, China, where we went through an acquisition because it’s the only way to get into China. Or at least for the business we’re in. But all the other times we built it from the ground up because we have a model that is replicable, therefore at that point we do have the fundamentals of the business lined up, and we understand how it works so we can replicate the model. We’re talking to an audience of small entrepreneurs and we’re four very large corporations. The problems are somehow difficult. What everyone has to keep in mind is whatever model you use, international expansion is incredibly hard.
Sal: At the Omidyar Network right now, we’re a relatively small organization. We’re fifty people and we’re in the process of expanding. We actually just opened our office in Mumbai, and Mumbai is now 25% of our population. We just opened our office in the UK and we’re scoping out Africa and Washington, DC right now. Though DC is in the United States, sometimes it feels like a foreign country. I would say, in reflecting on the expansion of an organization our size, one of the things we’ve done is we’ve actually changed our leadership model. If you want to attract the best and the brightest, one of the things to keep in mind is that hub and spoke models often don’t attract the best and the brightest in an organization or a culture. Folks don’t want to be satellites; folks want to be a part of the core. We’ve adopted at the Omidyar Network what we call a distributed leadership model in which the managing directors of a particular country or region are actually governing partners of the organization. They don’t feel like outposts, they don’t feel like satellites. The folks we’ve been able to attract both in the UK and in India in particular are absolutely phenomenal.
Juan Pablo: Claudia, I believe IBM, at least in Latin America, has a similar strategy where there isn’t a headquarters, it’s more dispersed? Has that worked well for you guys in terms of how you operate?
Claudia: Every country where we operate—China, Brazil—we’re actually a local company. We hire locally, we have local leadership.
Juan Pablo: But in terms of regional management, you’ll have a LatAm regional marketing person in Brazil and CEO or CFO in Mexico.
Claudia: Absolutely. In each country there’s always a country manager and basically everything we do in this country this person is responsible for it. He or she does not have to dial back to Armonk, New York for every decision made for the local market, the local partner, the local investment.
Juan Pablo: One thing, Bill, that I think Diego touched on that I know a lot of the entrepreneurs focus on when they’re looking at this decision and whether to grow from the ground up internationally or whether to acquire is an issue of speed. Do you think that acquiring in the long run is ultimately faster, you have integration issues, etc. or can sometimes growing it yourself be equally fast?
Bill: I think the challenge with acquisition is sometimes, and I have been part of a few of them, is it all comes down to how you execute. Acquisitions can be great. If you acquire a great company and there’s a real simpatico between headquarters and the company you’re acquiring, it’s a great way to enter the marketplace. If that’s not the case, it can really be a disaster. So for me it’s more of a question of how you execute than which way to go. Each one has its pluses and minuses.
Trouble of Integration
Juan Pablo: Diego, is that the driver behind why you guys, where possible, have opted to do it yourself, because you thought the integration would be difficult?
Diego: No, not really. It all depends on what you’re doing with the company that you’re acquiring. First of all, the lesson that we learned if you acquire a company that needs to be integrated: you need to have a plan that says you’re going to take one year to integrate it and three years later it’s not done yet. On the other hand, you may acquire a company for the value of the brand and you want to leave it independent because it does a great job. We have a company that was acquired by Amazon, but everyone knows them by their name. Zappos is a great example; it’s Zappos, it’s not integrated, just a little bit at the back end, but nothing else. Amazon in the UK, in Germany actually, were very small start ups that were acquired in 1998 and were immediately integrated and became part of Amazon. Again, it all depends on the objective that you have, it’s not a one size fits all.
Juan Pablo: Claudia, one of the entrepreneurs said walking into the room, “oh great, there’s someone from IBM, I want to understand better these innovation centers,” which I understand you have in 39 or 40 countries. Can you just chat a little bit about how they work? I think it ties in a little bit to your point about getting on the shoulders of giants.
Claudia: I think it’s something that’s not as well known as it should be, this whole idea of investing in partnership, investing to enable partners to deliver their solutions to our customers. You were asking earlier about the control issue. People are a little bit concerned—you have your R&D center, you can come in and squash me, you can develop my solution once you see it, you can discover my secret sauce; what’s to keep you from taking over? One thing that’s very clear to us is IBM is a $100 billion a year revenue company. Of $100 billion dollars, thirty some percent of that is generated with partners, so you have to realize that the investment enables these partners and there is a very big financial impact on our own revenue base. The innovation center is there across the geographies where we’re absorbing these partners very rapidly into both the local market as well as the market region. Brazil is actually the number one geography where we are increasing the level of partnerships. There’s a lot of infrastructure investment with the World Cup in 2014 and the Olympics in 2016. There’s a lot of large engagement going into Brazil and a lot of local partners are coming along providing their own solutions as part of the whole architecture. The Innovation Center in Brazil, as one of the forty, is there to evaluate the partner solutions, to determine if it’s something that we need in the overall solution architecture. We have technical architects, we have our cloud solution, we have software, hardware, all there free for use; we have people to help you do the marketing, do the sales generation. It’s not goodwill when you understand how much dependency we have as a large integrator in these geographies to bring the best of the solutions into a big integrated stack to our customers.
The Partnership Strategy
Juan Pablo: Let’s talk about that for a minute, because there’s obviously the international expansion, building your own operations or acquiring, and you’re touching on the issue of partnering, which to me is a little bit like getting into the pool one toe at a time, a foot wet. Sometimes you suffer more in the long run than jumping in straight ahead. When you were at eBay or PayPal did you consider local partnerships, joint venture as a way to go? Or was that something you guys never really considered or found effective?
Sal: At PayPal and eBay, not really much of a strategy there. At the Omidyar Network today, everything we do is through our partners. We partner with and invest in organizations to try to have social impact for disadvantaged populations around the world, and all of our work is through partners. For example, Endeavor is one of our partners and Endeavor does tremendous work trying to generate and drive the entrepreneurship ecosystem in the regions in which it operates. So we try to help with the work of Endeavor. Linda talked earlier about the work that we particularly have done with Endeavor where we provide both financial capital and human capital for our partners and organizations. I often say that we don’t do any work at the Omidyar Network. Any work that we get done on behalf of disadvantaged populations is done through our partners. So it’s a very different mindset on how to think about partnership than when I was at PayPal or eBay.
Juan Pablo: What about at Handspring? Did you guys find partnering? Was it something you considered, joint venturing, as a way to test the market?
Bill: Absolutely. When we were trying to enter markets that we weren’t sure of, that we didn’t have the internal expertise for, whether it was for localization or market entry or whatever the factor was, that was a relatively painless way of putting a foot in the water. The key there is you have to have somebody directly responsible who supports that group, who returns the phone calls, is in constant contact, so just because you have an extended relationship with someone, you’re not done. You really have to have a person who’s there caring and feeding, communicating, making sure the corporation is delivering what it needs to deliver, because again, it gets defocused and you say, you know, “Who are those guys in Brazil again?”
Juan Pablo: Diego, what about you all?
Diego: In our business model, if partnership is the definition of equity partnership, we don’t do this. We usually either own, or we build it, because that’s the way our business model works. Once you get into partnership you have the complications of managing a partnership.
Juan Pablo: Is that a control issue?
Diego: It’s a fact that we believe we have a great strategy and that we can do things on our own and we do it this way. But it depends how a business model is built and the added value that you’re looking for. Again, this is the answer about equity. And then of course you do have business partnerships with other companies.
Managing Expansion: Controls
Juan Pablo: They said here that you have over 4000 people reporting to you from all over the world all straight in, sending you thousands of emails? That Blackberry burns out every fifteen, twenty minutes? That’s the other thing that as companies grow and particularly as they grow internationally the whole issue of human capital, controls on every level, a company like yours which has grown internationally quite quickly and quite successfully, what have been the keys as you’ve entered the markets?
Diego: In terms of managing an organization of this size, I don’t know how it was possible before video conferencing. It had to be really, really hard. You also have to think that if you’re in Seattle you start at 7am with Europe, and then finish late at night because then Japan and China start at 5pm. It is about having a set of processes—either through weekly business reviews, metrics that you monitor that allows you to be on top of things. Clearly you want the countries to run on their own, but you need to be on top of metrics, guidelines so you don’t have any surprises.
Juan Pablo: Sal, generally the Endeavor companies are well beyond startups, but they’re not world dominators just yet. In terms of kinds of controls, are there any practical tips or off the shelf solutions that help facilitate communications across a broad network of far flung offices?
Sal: I think one thing that Bill said and something that Diego just said that I think is really important is inexpensive communications like Skype, Skype video chat. It’s free, I think we all use it. We use it religiously at the Omidyar network. And something else that Bill said that I think is important is the idea of scheduling, how you schedule. Nothing shows respect like scheduling a meeting when it’s convenient to your folks around the world away from headquarters. If the global calendar is set by headquarters, it really does not send a respectful message around the world, even if more people might be unfortunately inconvenienced. So there are all these subtle issues around culture and control, I think those are the two key issues when you’re going from a human resource perspective. It’s about having the confidence, so you don’t need control. Personally I think control is an illusion. The best we can do is influence behavior and the best form of behavior is when behavior is self-generated. That I trust you enough to self-generate in the appropriate direction. That you have a true north, you have a true compass and when issues come up, you can actually figure them out in your local context.
Juan Pablo: Bill what did you guys find out? What did you guys do? What worked, what didn’t work?
Bill: As I said before, conference calls, emails are extremely important. We did try to schedule the timing that was easiest for everyone in the world. So for me that meant calling in at unbelievable times, local times while I was traveling. I must admit on occasion I did wind up snoring through some of the conference calls, it just gets to you after a while. Showing respect is really important, listening to the discussion about working with your people abroad, I thought about a speech I wrote once for the president of Apple International. To illustrate the challenge we called it the two heart speech. By that we meant for our people in the field they really have two hearts—one that’s beating for the local entity, local tradition, a certain level of control and input, and the other heart was that they were part of Apple, they were proud to be part of Apple and I don’t think there’s a very easy answer on that, but I think you really have to respect that. If you want drones that’ll follow instructions, that’s one thing. If you want thinking people, that’s a whole other story.
Regionality vs. Corporate
Juan Pablo: And at IBM, how do you balance that, what we often call regionality with the corporate?
Claudia: I think with the IBM way, the measurement is very clear. The country has the general manager. Our country general managers are rock stars. Even when I go, I have to really get the approval of these country general managers even though I outrank them. I have to make sure that they’re okay with whatever I’m going to do there, even though my niche, working with VC, working with start ups, is not within the scope of a country general manager. I enlist them, I enlist their support, their participation. Even our CEO goes to these countries, he steps on the stage, but he makes sure the general manager is on a higher platform. That level of trust, the measure of it, is if that country’s revenue falls short, they know exactly which throat to go for, who to choke. So that accountability, clearly reflected in the measurement, the respect and the trust, in our structure of the country general manager, has really worked very well. I grew up in IBM, 26 years and was the head of the research, business development. I have always known that if you go to a country, the very first person that you need to make sure that whatever you do contributes to his or her success is the general manager. It’s not my CEO, it’s not my boss in corporate, it’s whatever I’m going to do in that country needs to add into whatever that country general manager needs.
Advice on What Not to Do
Juan Pablo: That’s great. I think we have a few minutes left. I’m always surprised in these panels that it’s always much easier to get real definitive when we ask, what should people not do. I’m sure you guys here have seen a lot of things in terms of international expansion that really are faux pas, things not to do. I thought one thing we could do before we take a question or two is to go around and give a list of the top two or three things that you suggest people in the audience not do as they expand internationally.
Sal: I would have one important thing to say and that’s don’t settle. The early leadership team in the field is really important and I would hold out for the right person. I would actually not compromise and say well we have to get into that market, let’s hire the person who’s available, I would actually hire the right person, who’s going to build the right team. The people who have the right skill sets, the right behaviors at the right time for the organization is most important and I would just emphasize that.
Diego: From my side, which applies to companies that have to sell a product, don’t settle. It might be Endeavor Entrepreneur companies that sell, they’re designers, they sell retail products, they’re manufacturers. If you enter a new geography and you keep hearing that product is not culturally right for that geography, you have to change it three, four, five times, you’re in the wrong place. If you have to change your product, what you’re good at, too many times to adapt it to that market, you’re in the wrong place. The chances that you adapted it right are so tiny that you will fail. So either you have something that either by itself sells, again, it’s not a one size fits all answer, for example, I remember when I was at Apple…
Juan Pablo: As I said, being concrete, what have you guys done. We always say tropical lies in Latin America…
Diego: When I was at Apple, a German organization told us you should change the way that you advertise because everyone in Germany advertises the number of megahertz and Apple doesn’t do it, so we should advertise the number of megahertz. Which was stupid because Motorola microprocessors always had less megahertz than the other processors. For this German organization, Apple would have totally changed the strategy. On the Amazon side, for example we have fundamentals. One of our fundamentals is pricing. We always are the everyday low price retailer, and that’s our strategy. And whether in China or in Japan, other retailers have other strategies, it doesn’t matter to us, that’s our strategy. Japan says, in my market they’re way more promotional, they start pricing here and then they do promotions. We don’t do that, it doesn’t belong to our culture, it doesn’t reflect what Amazon is about. So we don’t do it in Japan. And guess what, it usually works. The other thing is company culture. Compensation, for example. Policies for your company. At Amazon you have salary, cash, and you have stock. RSUs. In Germany again, they say oh, everyone here wants corporate cards. Fine, if your compensation, your strategy is about making sure you reflect the culture of the company, it might be really hard, or harder to hire people without a corporate company card policy, but at the end of the day you hire the right people, because you hire the people who understand and believe in what your culture is about. This is why conventional wisdom would say I need to change my strategy to adapt myself, but the fact is if you change too much you lose your identity and you lose the value that you represent.
Claudia: I’m right there with what Diego just said. It’s really about coming in and achieving that balance point of learning and teaching at the same time. Too often, particularly in the US, we go into a new market, we bring in reference points from the large multinationals: what happened in Germany, what happened in the mature market, without really hearing the unique market needs and what the unique customer needs. The biggest mistake that I see coming in with the complete package, reference points, without really listening first and figuring out how to tailor that need locally.
Bill: I think the key word is listen. I think the nature of at least the American culture is we’re not very good at listening. I worked for a great guy named Bill Campell who worked for Claris at the time, and I think he put it best. “It’s hard to listen when your mouth is open.”