WHEN GLOBAL STANDARDS GET OUT OF HAND – PART I
by Michael Gentle (also published on my blog at CIO.com)
What do Starbucks, McDonalds, Wal-Mart, Coca Cola, Disney, Daimler and Toyota have in common? They are all examples of global companies which, in the name of standardisation and “the one best way” of doing something, tried to transpose what worked in the home country onto other countries – with serious to disastrous consequences. Even more disturbing, most of these examples were not the result of complex cultural forces at play whose effects could only emerge with hindsight: on the contrary, they should have been obvious upfront through elementary due diligence. Worse, they were evident to any local observer - including often the company’s own in-country management team - who were unable to get HQ to adapt to local conditions.
In this article – the first of two parts – we will look at the challenges global companies face in areas like products, pricing, marketing and advertising. In part II we will explore the IT side and see why implementing standard processes and their supporting systems around the world is rarely as easy as initially thought by senior management in the home country or corporate staffers at HQ.
WHAT’S IN A NAME?
Probably the easiest thing to get wrong from a global perspective is something as banal as the product name. The infamous Chevy Nova was one of the first products in this category. Legend has it that this 1960s car didn’t sell well in Spanish-speaking markets because phonetically Nova reads as “no va”, which means “no go” – about the last thing you’d want to associate with a car. And if you think that companies have learnt their lessons from something as basic as this, think again. Sales of Toyota’s MR-2 car from the 1980s just never took off in France. Not surprisingly, because phonetically it reads as “merde”, which as anyone with even basic high-school French knows, is the proverbial brown stuff which usually heads for the fan. Fortunately, in a globalized world, such mistakes are now a rarity because product names are extensively “culture-tested” before heading for foreign markets. When they do crop up, they are usually the unfortunate result of an abbreviation of some company whose name was chosen well before it knew it had any chance of expanding outside of its home country. Real-world examples are CON, which in French means jerk, and GPT, which phonetically sounds like something you wouldn’t confess to in polite company.
YOU CAN HAVE ANY COLOUR COFFEE AS LONG AS IT’S BLACK
From product naming to something much more ambitious – actually setting up shop in a foreign country. Let’s use Starbucks as an example, since their current problems in breaking into the French marketplace are now beginning to make headlines. Starbucks’ success in the US can be summarised as bringing real coffee to a mass market who till then were content to fill up with the caffeine equivalent of regular unleaded. An aggressive location strategy, a creative array of menu items to cater for all tastes (read purchasing powers), and a homely decor to encourage all-day patronage did the rest. In short, Starbucks didn’t just bring coffee to the US: it brought “the coffee experience”.
Let’s now look at the French market that Starbucks entered in 2004. To start with, the choices for coffee are literally black and white – straight espresso or café au lait (ie with milk, taken only at breakfast, when taken at all). And since it’s the strong stuff that keeps you awake, people generally stop drinking it after lunch. Finally, you can get coffee anywhere in France at the many cafés, bars or restaurants within spitting distance of any double-parked Renault or Citroën. The US and the French markets were therefore diametrically opposed: one had no experience of real coffee and no mass distribution outlets; the other did – and had so for ages. In one you could innovate with a myriad different permutations and flavourings, with milk as the main volume ingredient; in the other you could have any cup of coffee as long as it was black. And finally, in one you could have all-day patronage and still be selling lattes at 9pm; in the other 80% of all coffee would be sold by 2pm.
So much for the big-picture differences, which are already pretty stark; but there is more. Starbucks baristas essentially run a labour-intensive coffee assembly line. With minimum wage in France at least 1/3 more than in the US, plus much higher taxes (20% VAT), you end up with the cheapest item on the menu – an espresso – costing 50% more than it would in any nearby café or bar. Finally, a soft cultural factor: baristas asking people for their first names (the Starbucks order reference #) in what remains a formal vous and tu culture crosses the formality line and sits uncomfortably with the average customer.
In short, the two markets couldn’t be more different. The US market is all about the “coffee experience”, whereas the French market is simply about coffee, period. Now given these radical differences, you could be forgiven for thinking that Starbucks – or indeed any competitor in the “coffee experience” space - would have to be pretty naïve to try to map its home country business model to what was in essence another planet, without some serious adjustments. And yet that’s just what it did. Belated attempts at localization (eg on the bakeries side you can now buy a baguette sandwich – oh là là!) – are, in my humble opinion, unlikely to stop the decline. Starbucks France lost €4.1m on sales of €23m in 2006 (figures from the April 2008 edition of Capital, a French business monthly). Its 3rd managing director, recently appointed, has his work cut out for him.
I’m not much of a betting man, but given the fundamental differences between the US and French markets, I’d venture that unless Starbucks does some radical turnaround trick, it will either pull out by 2009, or maintain a token presence in the high-density tourist areas. Which would be a pity for coffee lovers because, believe it or not, the quality of Starbucks espresso coffee is a cut above the low grade stuff that the average French café or bar increasingly now serves. Plus you have the choice of different coffees. If I’m not a betting man, I’m even less of a marketing man, but one thing is painfully obvious to any local: stop trying to convert the French to flavoured coffee and go for the fundamentals – the espresso staple. Drop the pricing on this menu item and set up a separate espresso corner which doesn’t require an order reference number and a 3-minute wait at the latte assembly line. If the locals start coming in for a quick espresso, who knows, after a while, they might start to sample the other wares.
Starbucks could also learn some lessons from Nestlé. In his fascinating book “The Culture Code”, Clotaire Rapaille explores how the more culturally-aware global companies adapt their marketing and advertising across different countries to tap into the appropriate “codes” for each culture. After many years of lukewarm sales of coffee in Japan - virtually non-existent in 1970 - Nestlé experimented with the culture code approach. Because coffee, unlike tea, had no place in Japanese culture - and therefore no emotional grounding in the average consumer - any marketing and advertising that aimed to get people to switch from tea to coffee stood little chance of working. So Nestlé had to first create a cultural foundation – necessarily a long-term journey – by introducing coffee-flavoured desserts to the kiddie market. So when this generation of children reached adulthood, coffee would be part of their cultural codes and they wouldn’t need to be “persuaded” to drink it. Shocked? Don’t be – it’s more common than you’d think; what do you think Ronald McDonald and kiddie birthday parties are all about? Even Hollywood scriptwriters implicitly understand this: in Pixar’s highly entertaining movie Ratatouille, the haughty, bad guy restaurant critic is won over to the hero’s cooking from the first mouthful because it took him back to his happy childhood days.
THE CULTURAL AWARENESS OF PULP FICTION
Let’s now compare Starbucks with that other icon of American foods, McDonalds, also in the French market, which can often be thought of as the Japan of Europe for certain products – ie another planet. The trials and tribulations of McDonalds in France have been well chronicled in the press, and focused mainly on their refusal to get into any really serious localization beyond certain basics. As John Travolta remarked to his hoodlum friend Samuel Jackson in the movie Pulp Fiction, in France you can get beer at McDonalds, and they call a quarterpounder with cheese a Royal Cheese! (view the full clip). In a country where food is an institution and a way of life, the refusal by McDonalds HQ to authorize serious localization in menus and decor – despite the pleadings of the local management team to do so – resulted in sales continuing to head south. Fortunately there is a happy ending. Many country-HQ battles later, and with ever- decreasing sales, the company relented. McDonalds in France was finally given the latitude to localize their menus and to tone down the garish red and yellow kiddie decor – and the rest is history. Today, France is one of the leading countries in terms of both revenue and contribution, not just in Europe, but world-wide. McDonalds Europe is headed up by a Frenchman – the first non-American to hold the post. He has successfully re-branded the company from a European perspective – with the lessons learnt now being applied in the US. Check out this good New York Sun article entitled McDonalds take Paris on the new, culturally connected McDonalds.
A MICKEY MOUSE BUSINESS MODEL
And now from food to fantasyland. When Disney opened Euro Disney in Paris in 1992, its second theme park outside the US (the other is in Japan), it applied the Disney business model – with disastrous results. The first area was in pricing. With only two weeks vacation in the US, a Disney holiday often represents the main vacation expense for a visiting American family, complete with hotel accommodation for at least 3-5 days. Pricing therefore reflected this, and was oriented more towards multi-day stays rather than day-trippers. While this formula has always remained valid for the many European visitors to the park, it didn’t pull in the locals in the expected numbers. Not surprisingly, because with five weeks annual vacation, a trip to Disney for a French family would represent only one of many mini-vacations spread out over the year. Since ticket prices were not geared towards day-trippers or overnighters, they were deemed expensive from a local perspective – not the best way to keep the park ticking over after the summer months.
Disney also fluffed other far less subtle things, starting with lunch. In Disney’s American parks, most visitors have a short burger or hot dog stop – and sometimes even eat on the go. Of course there are restaurants, but they’re probably not going to be very fancy – and needless to say, they would never have alcoholic beverages on the menu. It’s the other way around however for European visitors to Disney in Paris. They expect to be able to sit down for lunch in a decent restaurant and have wine or beer, which is considered part of a meal (which is why it’s never called alcohol, which only refers to the percent proof on the bottle). Needless to say, the strictly enforced no-alcohol rule did not go down very well with customers. The other cultural fluff was language: Disney staff, or cast members – colloquially renamed camemberts – were not even required to be able to speak French! Which in a country famous for its poor English didn’t exactly do wonders for enhancing the customer experience.
The combined effect of these three mistakes – pricing, the no-alcohol rule and the language factor - resulted in a disastrous first year for what was supposed to be a resounding success for Disney’s long-overdue first park in Europe. Needless to say, local Disney management had obviously pointed these things out to HQ, but to no effect. When the scale of the debacle became known, Disney did a rapid about-face and bowed to reality on all three points, resulting in business finally starting off on a normal footing.
THE FALL OF THE BERLIN WAL-MART
And now on to retailing and Wal-Mart, whose reputation as a highly centralized company run out of Bentonville, Arkansas, with little concession to local realities, is already well known. Centralisation reminiscent of cold war Russian economic planning has become the stuff of business school legend – eg, selling ice skates in Mexico, golf clubs in Brazil (where apparently the game is not popular) and shipping winter clothing to Argentina in November because overseas stores were required to run the same seasonal promotions as in North America (it’s the start of summer in the southern hemisphere in November…)!
Funny as these legends may be, they hardly dented the balance sheet. Wal-mart’s most embarrassing - and financially humbling – experience however, was its foray into Germany. Though its difficulties in breaking into this market were linked more to business than to cultural reasons – it was simply not competitive enough to capture any significant market share from the low-cost German retailers – it did display some cultural naivety on a grand scale. It implemented morning employee singing (the rah rah motivation chant), and the rule to greet people with a smile. Anyone who's visited Germany will know how totally out-of-sync this is with German culture. It would be as if a German retailer implemented a no-smiles policy in their US stores. Needless to say, these Wal-Mart “standards” were scrapped after a few years. As an International Herald Tribune article entitled Wal-mart; Lost in Translation points out, the smile rule was interpreted by some male shoppers as flirting – in much the same way as a no-smiles policy in the US could be interpreted by customers as being unfriendly.
By the time Wal-mart pulled out of Germany in 2006, it had lost over a billion dollars. The Tribune article above goes on to quote company executives as saying that the experience in Germany has become a template for how not to expand into a country. As a Wal-Mart spokeswoman was quoted as saying, "Germany was a good example of that naiveté." On the plus side, Wal-Mart has learned its lessons and is now applying them to a still aggressive, international expansion.
BECAUSE YOU’RE WORTH IT
Finally, let’s look at the challenges of global advertising. Many brand-name companies have had their fingers burnt with global ads which played well in the home market but were less effective – and sometimes disastrous – elsewhere. Coca Cola for example, recognised years ago that those ubiquitous toothpaste smile, beach and city ads had limited appeal outside North America. After the obligatory round of country-HQ boardroom battles on the subject, they finally relented in favour of localized advertising, with a consistent overall image, but tailored for local differences.
The book “The Culture Code” mentioned earlier when talking about Nestlé also explains how different countries react to different advertising messages. In the US for example, the culture code for a jeep is “horse”, so Chrysler’s Jeep Wrangler US ads feature the jeep exactly as that – a horse, in the wide open spaces. In France and Germany however, the culture code for jeep is “liberator”, since jeeps were indelibly associated with the arrival of Americans at the end of the Second World War. So in these countries the Wrangler ads stress themes like liberation and the freedom that driving a jeep brings.
Author Rapaille similarly explains how L’Oreal is able to market its perfumes in France with sensuous ads oozing seduction, because it forms part of French culture codes. However, because seduction in the US has negative connotations (the culture code for seduction in America is “manipulation”), L’Oreal had to go to off-code and use ads in which the theme was not seduction, but feeling confident – “Because you’re worth it”.
It should come as no surprise to anyone – except of course to some global advertising executives – that not only do different countries have different culture codes, they also have different dominant fashions, themes and concerns. Even in an age of globalisation, there are still significant lead times before these things cross borders and establish themselves. So it should be quite normal for different countries to press different hot buttons in their marketing and advertising. In fact, not to do so is bad business sense, because you could lose out on increasing sales by surfing off a local hot topic.
The high-tech industry apparently has still to figure this out. Most high-tech advertising today, especially in print, is global, with the same squeaky-clean, bland, insipid ads. Carefully crafted not to offend, they stare at you from airports, billboards and magazines from Los Angeles to London. For a sample, look no further than CIO.com and Computerworld in the US, 01 Informatique in France, or Computerwoche in Germany. You’ll see the usual cast of stereotypical people in office environments or the computer room trying to make a tired point. While such ads might be part of the culture code for IT in the US, they are not necessarily so in Europe. Fortunately though, some clever, provocative localized advertising sometimes manages to emerge in a sea of uniformity. Here are two real-world examples from Europe:
From a cable TV company: a TV screen shows a flattering picture of Angelina Jolie from the Lara Croft movie Tomb Raider, with the caption ‘Flat screens won’t be staying flat for long… ‘.
From a disk storage company: on the top of a full-page ad we read, ‘Which of the following two pictures holds the most interest for you?’ Picture N° 1 shows a beautiful, bikini-clad brunette lying on the beach with a ‘come hither’ look. Picture N° 2 shows an impressive array of disk drives in a computer room. The caption then reads, ‘If you looked at picture number 2, then you’ve clearly got a problem – a storage problem that is… ‘
While such ads are of course interpreted in the second degree by the locals, and are therefore seen as clever or funny because they are “on code” for the culture, the opposite would be true for other countries, say the US or Canada. So for readers who might feel offended by such ads, remember that it’s not a question of which single ad is “right” or the “best” to play world-wide, but more a question of which will have the most local impact and help to make the numbers. That trite and overused term “think globally, act locally” really does apply to global advertising, which should be a combination of consistent overall image and tailoring for local differences, with the ratio varying depending on what you’re selling.
WHEN I HEAR THE WORD GLOBAL, I REACH FOR MY CULTURE
Given the examples in this article, one could legitimately ask if the problems of cultural naivety in foreign markets is a particularly American malady. Exclusively? No. Examples: Daimler’s culturally-insensitive takeover of Chrysler, which set many teeth grating in Detroit, has been well chronicled (Google “Daimler Chrysler culture”) and surely ranks as a template of how not to take over a company; working in any Japanese company in Europe or North America requires a huge cultural effort; a well-known French restaurant chain fluffed its expansion into Spain by basing its opening hours on French time (as any visitor to Spain knows, people eat two hours later than “normal” meal times). There are many other examples, mostly from smaller players, which never make the headlines. I regularly read in the European business press about European companies that trip up in their first foreign market experience – within other European countries! – in the usual areas like product cultural fit, naming, pricing, advertising, the sales model, etc.
So no: cultural naivety is not an exclusively American phenomenon. But predominantly, it is. American companies get things wrong far more often. This is easily explained by a number of things. Firstly, because of its position as world economic leader, it has the most global companies. So statistically, there are more opportunities to make mistakes. Secondly, it has a fairly homogeneous market of over 300m people to whom it can successfully apply national standards that work. So a natural conclusion would be that they would also work abroad. Finally, the sheer size of the country, plus its huge distance from Europe and Asia, doesn’t encourage foreign travel and the cultural awareness that would result from it.
Europeans are necessarily more culturally aware - if only because historically they’ve been fighting each other for centuries… Then there’s the small size of most countries and their proximity to one another (most European capitals are within less than an hour’s flying time from each other). And at school, second languages – even third languages – are an integral part of the curriculum. Top universities and business schools often require not just a third language, but also 1-2 year study and internship in another country. So European managers and executives have a huge start in cultural awareness that their North American counterparts can only envy – due as much to the realities of geography as to any explicitly mapped-out cultural awareness programme.
So what are the solutions? Clearly, cultural awareness comes from exposure to foreign cultures, which in the real world means actually living and working abroad. The next best thing to actually living in another country is working there as part of a frequent-flyer, international role. When not blessed by geography as Europeans are, which implicitly encourages these options, American companies should put in place some sort of rotation scheme that actually gets senior management out of the US and into other countries. Of course this costs money – but it is a drop in the ocean compared to the bottom line costs of getting it wrong from a business perspective. Another thing that can be done is to try and build an international management team. The Anglo-American pharma company SmithKline Beecham (now merged into GlaxoSmithKline or GSK) in the 90s was an enviable example of this: it had a management team comprising half a dozen nationalities. Its CEO today is a Frenchman who has been living in the US since the 90s.
One final thing global companies can do is to be wary of affixing the word “global” to any job title, because that implicitly gives a person a mandate to do things globally, which may or may not be appropriate. When unavoidable – after all, they are global companies – the emphasis should be more on coordination and learning the local challenges from different markets (the locals will almost always know best) and less on directing things from the centre. A Global Marketing Director, to take but one of many examples, would have to be extremely naïve, ignorant or arrogant (choose your adjective…) to think that marketing can be directed from any one country and uniformly applied across the world without adaptation to local realities.
At the end of the day, there is no such thing as a homogeneous global market. Rather, it is a complex mix of different cultures, currencies, languages and legal systems. Getting it right on a global scale can result in enormous business leverage; getting it wrong can at best be an expensive and embarrassing mistake – and at worst a financial disaster that can lead to an ignominious exit, with red ink trailing behind. Just ask Starbucks, McDonalds, Wal-Mart, Coca Cola, Disney, Daimler and Toyota.
Next month in part II we will look at how the same challenges apply to IT systems, and how well-meaning corporate initiatives which are supposed to save money and streamline processes can sometimes end up having the opposite effect.
Finally, to end a serious subject on a light note, cultural awareness is best summed up by the following observation. European heaven is a place in which the police are British, the chefs French, the mechanics German, the lovers Italian – and it’s all organised by the Swiss. European hell is a place in which the police are German, the chefs British, the mechanics French, the lovers Swiss – and it’s all organised by the Italians!
Michael Gentle is a consultant with over 20 years of experience in global companies in Europe, North America and Asia-Pacific, both at HQ and in the countries. He is the author of IT Success! -towards a new model for Information Technology.