TRANSPLANTING BUSINESSES

There is this article written by Greg Macabenta that came out at today’s issue of the BusinessWorld (April 22, 2009, page 4/S1, “On transplanting a Business”). The article is about “transplanting” a successful “homegrown” (which in this case, the Philippines) business model to a foreign country, which in this article refers to the United States. Specifically, the authors warned about the mistaken notion that a proven business model could be replicated in another country and still be successful. This is because “foreign” consumers have a markedly different needs, wants, and taste compared to the “local” consumers, i.e., consumers from the home country that the business originated. As such, the author opined that most business going international usually took two routes. The first route is to play on the niche of a “natural consumer” group, specifically the immigrant group from same country as the business. The other route is to go mainstream, i.e., to sell to the general consumers of the host country not just to a specific group. Most “transplanted” businesses taking the first route would eventually take the second route in order to expand and break free from a limited market segment. Quite an interesting article actually since the author utilizes his own experience to write the article. I remember during my business school years when I’m taking up Global Marketing. The one and only commandment of Global Marketing is adaptation, i.e., a business’ product, brand, and marketing strategies must “adapt” to the local conditions of the host country. The notion that “one size fits all” is quite “blasphemous” (for wanting a better term) in Global Marketing because different people has different needs, wants and taste both individually and collectively as a national/racial/religious entity. However, there are some “high profile exceptions” to this “core truth” of Global Marketing as some brands seemed to defy this core logic. One such case is the Tokyo Disneyland theme park and to a lesser extent the Hong Kong Disneyland theme park. Disneyland is unabashly an American theme park and yet, it not only thrives in a thoroughly un – American environment. It is rather successful. Paradoxically, one other “foreign” Disneyland theme park is a colossal failure, that of Euro Disneyland in Paris, France and French culture is part of the greater Western culture of which the American culture also belong. Another exceptional case that defies the adaptation logic in Global Marketing is Coke. A Coke is a Coke and is still a Coke wherever you are around the globe, be it in China, in Europe, in the Philippines or in the US. McDonald’s would also fit the bill but it has since allowed “local” menu content (a form of adaptation) in countries like the Philippines where it is lagging in market share. Quite contradicting, indeed. On one hand, logic portends that adaptation must occur in order for a product or a business transplanted into a foreign soil to succeed while certain cases dramatically prove that it isn’t the case. And this is where messr Macabenta’s insightful article proved useful. While products and its marketing might not need to adapt in foreign lands, business strategies and certain aspects of the business operations do have to adapt. For one, a company’s business model or competitive edge may not be useful in a foreign land (and this is the limitation of Global Marketing since it only concerns marketing). For example, a company’s competitive edge in the local market may hinge on it’s taste, which in turn hinge on logistical support to ensure freshness as well as on adept sourcing capabilities and it’s knowledge of the local consumer’s taste. Granting that the taste is acceptable to the foreign consumers on the host countries, yet the logistical challenge to ensure product freshness as well as the sourcing of some ingredients which is not available in the host country might severely cripple the company’s ability to replicate it’s competitive edge in the host country and hence, necessitate changes in it’s business operations in order to sustain it’s “perceived” competitive strength (which the host country’s consumers may not appreciate at all especially if it involved added cost and therefore translate into higher prices) or all together create a new competitive strength based on “new realities”. Another example would be, if the company is hugely successful in it’s local market simply because it’s business model dictates that it had to deliver it’s products or services as fast as possible but in a foreign country, speed of delivery may not be the “deal clincher” especially if the mainstream competitors are delivering as fast as the company or that the consumers of the host country doesn’t particularly value speed of delivery and instead opt for something else like quality for instance, which thus turned the wildly successful business model simply a “local” phenomenon. Taking this as a cue, it would be safe to declare that there is no international company that haven’t “adapted” to the local conditions and still be successful. Coke for instance has a markedly different and yet successful distribution strategy in the Philippines compared to other countries like the US or in Hong Kong, or China but even so, Coke is still Coke nonetheless. In short, what messr Macabenta advocates about businesses going global is that it has to adapt to the local condition that it is “transplanting”. Moreover, I think this adaptation theory is not only applicable to businesses that is going global but may as well apply to businesses being put up in a foreign soil by immigrants using the business model develop from “home” (the country of origin). A case in point here is the delicacy shops in Chinatown (in Manila). Most of the delicacy stores in Chinatown are set – up immigrants and are highly focused on a very particular market segment, mainly fellow immigrants. These Chinese delis sell food stuffs from mushrooms (I knew of 3 or 4 kinds of “Chinese” mushrooms), Wooden Ear (木耳), Hopia, Tikoy, Scallops, Chinese candies (like White Rabbit), to the more “exotic” stuffs like Stuffed Pork Intestine Sausage and the likes. And just like what messr Macabenta observes, the market focus strategy on immigrants though hugely successful in the early stages of the business would eventually reach it’s limits in terms of number of clients. Furthermore, the clientele base, as observe by messr Macabenta would sooner or later diminish as second or even third generation immigrants whose taste are more in tune with the locals shun their products. As this develops, most of these “specialty” stores are forced to go “mainstream”, i.e., cater to the locals other than the particular immigrant groups. However, going mainstream has it’s difficulties and challenges. For example, in the Philippine Chinese deli’s case, selling mushrooms, wooden ear, and scallop to the Filipinos would be futile since Filipino cuisine don’t actually use those stuffs. Some of the more exotic delicacies like intestine sausage don’t exactly appeal to the Filipino palate at all. However, the Philippine Chinese deli’s are pretty much successful in going mainstream precisely because it was able to adapt to the locals. Tikoy for example has become popular because it has adapted (by coming up with small personal sizes) to the Filipino’s gift giving tradition during major holidays (which in this case is the Chinese New Year). Now, it becomes an SOP to give and receive Tikoys during the Chinese New Years whereas in China and elsewhere where Chinese are the majority, such practice of giving Tikoy is less seen. Hopia, as a Chinese delicacy has evolved into a Filipino delicacy simply by adapting its flavor to the Filipino taste. Instead of the original mungo only variant, it now has ube….. Changes can also be seen from the way businesses are conducted by the Chinese delis. They no longer boxed themselves in Chinatown. A few of them actually branched out ostensibly to cater to the growing demand of the mainstream markets. As a conclusion, for any businesses “transplanted” from the home country and into a foreign country, adaptation is a must, be it in the product offering or in the strategies used or in the business models being utilized. Relying on a proven successful formula made in the home market doesn’t guarantee survival in the new foreign market much less success.