The Place of Culture in a Flat World
In April 2005, New York Times columnist Tom Friedman published the iconic book on globalization, “The World Is Flat: A Brief History of the Twenty-First Century”.
The title eludes to the perceptual shift required for countries, companies, and individuals in order to remain competitive in a global market where historical and geographical divisions are becoming increasingly irrelevant.
Per Wikipedia, “Friedman himself is a strong advocate of these changes, calling himself a ‘free-trader’ and a ‘compassionate flatist’, and he criticizes societies that resist these changes. In his opinion, this flattening is a product of a convergence of personal computers with fiber-optic micro cable with the rise of work flow software.”
Many readers, including this author, initially interpreted this as saying that the world is increasingly the same, diversity is going away. A re-reading of Mr. Friedman’s book, and subsequent writings, shows this is not exactly correct. He is proposing that the business world is adopting the same standards worldwide in order to compete with companies in other countries. A strong case can be made for this postulation.
Along comes culture. Dictionary.com defines culture as: “The quality in a person or society that arises from a concern for what is regarded as excellent in arts, letters, manners, scholarly pursuits, etc.; development or improvement of the mind by education or training; and the behaviors and beliefs characteristic of a particular social, ethnic, or age group.”
Businessculture.org says, “Culture illustrates the accepted norms and values and traditional behaviour of a group . . . ‘the way we do things around here.’ The culture of each country has its own beliefs, values and activities. In other words, culture can be defined as an evolving set of collective beliefs, values and attitudes.”
In my experience working in 68 countries over the past 42 years, culture is alive and prospering. In order to do business in other countries, you must be aware of the local culture and how it impacts business to be successful. Flatness is not as important as the culture with which you are dealing. In other words, you must be aware of the diversity in doing business that the local culture represents to be successful in today’s global business environment.
Robert Shaw, a highly experienced and successful global franchise executive based in Orange County, California, has studied the knowledge of local culture as a way to win in business. Mr. Shaw defines three major cultural types that you have to take into account to win in global business:
- Linear – Aggressive, time is money, task focused, individualistic, the “John Wayne” approach – North America, Australia and Northern Europe
- Multi-Active – Relationship comes FIRST and BEFORE business, top heavy hierarchy, only meet with decision-makers – Mediterranean, Latin America, Middle East and India
- Reactive – Relationships first, quiet nodding, listeners, group decisions – Asia (except India.) Nodding simply means they may understand what you are saying. Not that they are agreeing with you.
The aggressive ‘let’s get the deal done and go home’ that US business people often follow leaves no time to develop the relationships that most cultures value and require in order to get business done.
And here are a few cultural “no-no’s” to remember that Mr. Shaw and I have encountered over the years:
- White flowers as a gift in Japan – white is the color for funerals
- Showing the bottom of your shoes in the Middle East – dirtiest thing you can do
- Making the sign for ‘okay’ in Brazil
- Referring to Taiwan as a country in China
- Talking politics – sports and local culture are better topics
- Folding business cards – cards are expressions of who someone is and what they have accomplished
Terri Morrison, in her classic book, “Kiss, Bow and Shake Hands”, shares a few basic but critical cultural differences in doing business in key countries. In regards to meetings:
- In Brazil, lack of punctuality is a fact of life; be flexible about your counterpart’s (lack of) punctuality
- In China, punctuality for all appointments is important
- In India, Indians appreciate punctuality, but do not always practice it themselves!
The bottom line? While business processes may be flattening, cultures are not. To succeed in global business you have to add the cultural factor to your approach to people and companies in other cultures. Ignore the ‘non-flat’ local way of doing business because you think similar business processes are all that counts in a country and you will fail.
Cultures are what make the world an increasingly interesting place!
Ranking Countries as Places to Franchise Into – A Few Parameters
To enter a country, a franchisor has to find a licensee, secure trademarks, sign an international license agreement, train the new licensee, travel to their country and provide on-going support in order for the licensee to start-up and grow properly to produce royalties. Therefore, the biggest challenge a franchisor has in taking their brand global is choosing the right countries that will give them the best Return On Investment (ROI).
Some of the most important parameters the franchisor needs to know are: (1) the size of the consumer market that can afford their product or service in a country; (2) the legal environment and whether it will allow them to maintain control of their brand if a problem occurs; (3) how easy is it for a foreign company/brand to enter a country and what barriers to entry exist; (4) how easy is it to open a new business in a country keeping in mind that franchises are usually new business; and (5) what is the political and economic stability – or instability – of a country.
EGS has been evaluating and ranking countries as places to franchise on a quarterly basis since the founding of our company in 2001. We developed a tool for this – GlobalVue™. The latest issue – 2nd quarter 2014 – can be downloaded at the following link: http://edwardsglobal.com/index.php/globalvue/
EGS uses more than 25 information sources to establish and monitor these key parameters. Plus, EGS has associates under contract in 32 countries that keep us up to date on their countries. This is not a one-time evaluation, but a constant research project.
Things can change quickly in a country, taking it from being open to foreign brands and lots of local company investment to a downward market where new entries will fail. And economic parameters in a country can also begin to change for the better, which makes for opportunity for those franchises who are monitoring the world consistently.
Market size for your franchised products or services is key. Lots of people in a country does not automatically make for lots of consumers who can afford to buy your franchised products or services. Take Indonesia with a population of 240 million and a strong desire for US franchises. The consumer base for most US franchises is the middle and upper class, which is about 20% of this number. Still a significant potential market!
A few years ago the World Bank studied the occurrence of new investment by companies in a country. This is a very important parameter for franchisors because we need new investment happening to find licensees who will invest in our brands. The World Bank found that countries with annual Gross Domestic Product (GDP) growth of 4% or more are seeing new investment. 2-4% growth was ‘okay’. Less than 2% annual growth resulted in little new business creation. This makes sense and should be considered by franchisors looking at new countries to enter. If businesses are investing then we generally find consumers are also spending. This, or course, results in sales at businesses and royalties for franchisors.
Three years ago, Ireland was near the top of countries to franchise into. Today, unfortunately, their GDP growth rate is near zero and they are trying to recover from almost 20% unemployment. But Ireland is very receptive to US franchises and will come back in the future. So, it is important to keep up with global trends in order to focus your annual marketing on the countries most likely to give you a good ROI.
Another big challenge is how corrupt a country is because this directly impacts your licensee’s ability to do business and make a profit. And US companies are held responsible for how their licensees do business in their country under the U.S.’s Foreign Corrupt Practices Act of 1977.
Here are links for information on particular parameters mentioned in this blog posting.
(1) Political and economic stability can be research through these free online resources:
(2) The ease of starting a new business in a country is usually tied to the economic freedom to open a new business in a country.
www.freetheworld.com/release.html
www.heritage.org/index
www.fraserinstitute.org/programs-initiatives/economic-freedom.aspx
(3) Legal concerns are important to evaluate so you will know how easy or difficult it is to franchise in a country and whether you can protect your brand in the case of a problem.
www.franchise.org/IndustrySecondary.aspx?id=45874
(4) Corruption in a country impacts the ability of a business (franchise) to succeed. One of the best sources of information on country corruption can be found at the Transparency International website and on their Corruption Perception Index that measures more than 50 local parameters.
www.cpi.transparency.org/cpi2013/
The Certified Franchise Executive (CFE) Designation – A Global Standard
The global franchise industry covers 75 sectors and over 100 countries where the franchise business model is active. Millions of people around the world are employed in the franchise industry. A very high number of consumers around the world shop at franchised businesses.
Up until the early 1990s one of the major challenges to success in the franchise community was a lack of structured, best practices training for people at all levels in the global franchise community. It was difficult for franchise companies to quantify the experience of the people they hired to help grow their businesses.
Then the International Franchise Association (IFA) began developing certified courses in all aspects of franchise development, operations and management. From this came the professional Certified Franchise Executive designation. Today, many global franchise executives look for the CFE designation before hiring key members of their franchise team. We know their background and education. Many franchisors prefer to hire industry suppliers who have completed this certification.
At the just completed 54th annual IFA convention in New Orleans, the 1,000th Certified Franchise Executive received this now cherished industry recognition. Franchise industry members from Australia, Brazil, Canada, Indonesia, Saudi Arabia, Singapore, the Philippines and the USA received their CFE pins last month at the IFA convention. The IFA Educational Foundation has cooperative agreements with franchise associations and educational institutions in Australia, India, the Philippines, Singapore and Thailand to offer the CFE program to their members.
The now global CFE program is administered by the Institute of Certified Franchise Executives (ICFE), whose mission is to enhance the professionalism of franchising by certifying the highest standards of quality training and education. The ICFE offers a wide range of continuing education programs for professional development. Meeting the requirements of the program and completing the course of study leads to the Certified Franchise Executive (CFE) designation.
Certified Franchise Executives are bound by a strong code of ethics, have completed a significant number of state-of-the-industry courses and attended many industry meetings. Industry experience is critical to obtaining the CFE award. Each CFE must recertify every three years.
The International Franchise Association website has a special and detailed section on the CFE value, program and process:
Here are some quotes from highly experienced and successful franchise executives on the value of the CFE program:
“The CFE program provides a forum that supports continued professional development and adherence to the highest standards in franchising. It is also a wonderful way to form valuable relationships and generate new ideas from different perspectives.” Rosemarie Hartnett, CFE, President, Abrakadoodle®
“CFE is a commitment to oneself and your company to be the best that you can be and to share that with others within the franchise community. I have not only learned important information to bring back to my organization, I have also developed important relationships that have assisted me in developing Decor & You. Through this process I have also been able to share what I know with others and add value. It is a great thing to receive but also to be able to give back.” Karen Powell, CFE, Chief Relationship Officer/Franchise Source Brands International CEO/Decor&You
“At Snap-On, we believe in being a great franchisor, as well as a great tool company. Developing the management team that supports our franchisees is key to this endeavor. The CFE program facilitates this learning, and not only ensures our compliance to the principles of franchising, but also the critical nature of our relationship with our franchisees.” Barrie Young, CFE, President, Sales & Franchising, Snap-On-Tools Company, LLC
To download a brochure on the Certified Franchise Executive program, please go to the following link:
Infographics for the Franchise Sector
Wikipedia defines an infographic as “graphic visual representations of information, data or knowledge intended to present complex information quickly and clearly.”
http://en.wikipedia.org/wiki/Infographic
Our world moves so fast today that it is hard to get people to read long articles and sometimes even bullet point slides with few words. Infographics help overcome this barrier to communication. Infographics are simply quick to read and easy to understand data visualizations.
In the franchise industry – comprised of 75 different business sectors and over 3,000 brands in the U.S. – the International Franchise Association (IFA) does an excellent job of keeping its members up to date on franchising today through two infographics.
The first can be downloaded at the following link and quickly explains the scope of franchising in the U.S. today: almost 800,000 franchised business locations in the U.S. directly employing over 8.5 million people and producing 839 billion in economic output a year. This infographic also shows the different types of franchises. Food and hospitality accounts for 65% of all franchises in the USA.
http://emarket.franchise.org/EconomicOutlookInfographic2014.pdf
ADP, the payroll people who project employment from month to month, have recently started issuing a monthly National Franchise Report infographic that shows how many franchise related jobs were added and in which sectors. This PDFed infographic also shows graphically which industry sectors added and lost jobs during the month
http://www.adpemploymentreport.com/2013/December/NFR/docs/NFRDecember2013.pdf
There is an immense amount of data on these two one-page infographics that are easy to scan quickly instead of reading a long and detailed report, which most humans are now hesitant to do!
The World Economy Is Up! No, Down!
How to Choose Where to Take Your Franchise in 2014
Recent world business headlines have swung from euphoria on the growth of the world’s economy to mild panic that the world is falling down. “Global growth is now projected to be slightly higher in 2014, at around 3.7 percent, rising to 3.9 percent in 2015”, according to the World Economic Outlook (WEO) Update: “Is the Tide Rising?”, January 2014. This source goes on to say, “In some economies, there is a need to manage vulnerabilities associated with weakening credit quality and larger capital outflows.”
There is new pessimism about the BRICS countries: Brazil, Russia, India, China and South Africa. Latin America’s growth has fallen from about 6% in 2010 to about 2.5% in 2013. Some sources ask if the BRICS are in a midlife crisis. In fact three of the BRICS – Brazil, India and South Africa – are being called part of the ‘Fragile Five” with the other two countries being Turkey and Indonesia. (Source: World Economic Forum blog by Nouriel Roubini, January 24, 2014.)
There has been a significant fall in currencies of Turkey, Brazil, South Africa, India and Russian against the dollar in recent days. “Argentina woes weigh on EM currencies”, Financial Times, January 24, 2014.
Why are these emerging markets seeing declines? Is this caused by internal economic problems? Not exactly. Russia has seen a dramatic fall in foreign direct investment (FDI) due to rule of law challenges. Brazil has seen a fall in FDI due to protectionist government policies and the extremely difficult requirements to start up new businesses in the country. South Africa has real wage and union challenges, and the central bank controls payment in hard currency. Argentina, Venezuela South, both have huge inflation and a currency that is set against the dollar at an unrealistic level. Turkey is in the 12th year of the AK Party running everything and its leaders are seeing internal problems that are not good for FDI.
China seems to be cooling off in the manufacturing sector, which means less imports of commodities from various BRICS countries. But there is evidence that the central government is working hard to turn a government sector economy into a consumer driven economy. China remains a great market to sell into. Consumer wages are increasing dramatically, as is the discretionary income of the middle class consumer. India, despite the pending elections and bureaucracy, remains a country with over 250 million middle class consumers who desire western products and services and can pay for them. But it is absolutely critical to chose the country licensees extremely carefully.
But there is general agreement that what we are seeing today is not a repeat of the 1997 Asian currency crisis. The large emerging markets are much more diverse today and their middle class consumer base is dramatically higher than is was 17 years ago. Brazil, China, India and Indonesia are now ‘Engines’ of consumer spending, not tied completely to commodity export income or the economies of the first world. With a combined middle and upper class population of more than 600 million, these countries generate a high level of consumer spending internally
So, what do franchisors seeking to sell into the BRICS+ do? I submit that you do research to find out the real cause of problems in the emerging markets and focus your efforts in 2014 on those that are least likely to interfere in their economy and most likely to welcome FDI without protectionist policies. Watch for projections of 4% or more real annual Gross Domestic Product (GDP) growth – follow ‘The Economist” magazine’s weekly analysis. The World Bank sees real economic growth and new investment when the GDP growth rate is 4% or more in a country.
http://www.imf.org/external/pubs/ft/weo/2014/update/01/index.htm
http://www.voxeu.org/article/overstated-pessimism-over-latin-america
http://forumblog.org/2014/01/brics-midlife-crisis/
http://www.economist.com/news/economic-indicators/21595021-output-prices-and-jobs
http://www.cnbc.com/id/101364841
Bill’s Fall 2013 Asia Pacific Trip
From mid-October through mid-November I traveled approximately 20,000 air miles (see map) visiting 5 countries and 13 cites in Australia, Philippines, Indonesia, Singapore, China and Japan. The purpose of this trip was to meet with companies who were interested in acquiring licenses for U.S. franchise brands our company represents.
Australia had just gone through a national election that saw the pro-business party sweep into power. Everyone was very excited about the potential for growth over the next couple of years. The Philippines is seeing high growth and strongly desires U.S. brands, especially in the food sector. Indonesia continues to see good consumer spending growth despite some nationalistic moves by the government ahead of major elections in 2014. Singapore has recovered from the recession but is having some challenges with imported labor. All of these remain good places to take established U.S. franchise brands.
Singapore’s immigration challenges are interesting. For decades Singapore welcomed immigrants to help grow the economy to one of the most advanced in the world. Low wage workers are needed but citizens are becoming nervous about the influx of migrant workers. (Source: Stratford, ‘Singapore’s Immigration Dilemma’, 12/12/2013)
China is experiencing huge changes in 2013 associated with the once-a-decade Beijing government leadership changes. My trip to China this time was focused more on “2nd tier” cities such as Chongqing, Nanjing, Dalian and Shenyang. While these are cities with large populations – Chongqing officially has over 30 million people – they are often considered second class to Beijing, Shanghai, Guangzhou and Shenzhen. The 2nd tier cities are where the central government is focusing investment to raise the standard of living and to keep the population happy.
One of the very interesting trends now in the Philippines, Indonesia and China is the consumer’s focus on food quality and safety. Fast middle class consumer growth has far outstripped the countries ability to produce safe food locally. This seems to be a higher concern than prices. Especially for the new middle class young families with children.
A good sign on this concern is that US-based Smithfield Foods, a huge producer of pork, was recently bought by China’s Shuanghui International. And the UK-based Weetabix cereal was bought in 2012 by China’s Bright Food. (Source: Forbes, ‘Global Small Business Blog’, 12/20/13)
