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In The Global Game, Bigger Is No Longer Necessarily Better
Established companies are rethinking conventional wisdom that says bigger is always better, aiming instead for global footprints better tailored to the times.
Photo Credit : Shutterstock
What’s your firm’s strategy for global growth?
In the past, companies have followed a well-trod path—what we might call “Invest and Grow Slow.” After carving out a beachhead in their home markets, companies would branch out into new markets, plowing resources into each one while also tweaking their products and services to reflect the needs and desires of local customers. It was a laborious process that for companies like McDonald’s took decades.
As my BCG colleagues and I discovered in our study of leading-edge companies, companies today are beginning to tear up this playbook and forge radically new growth strategies. This trend represents the third key paradigm shift described in our book Beyond Great out of the seven described in this article series.
Companies are rewriting their growth strategies in three key respects. First, they’re going asset light. Global expansion used to require heavy investment in physical infrastructure and boots on the ground—a big reason it took so long. Today, companies launching new offerings can use digital means and partner with local companies to rapidly enter new markets.
The Chinese electronics giant Xiaomi did precisely this, expanding into 80 markets within the first decade of its existence. In India, the company entered with a bare-bones team in 2014 and partnered with the e-commerce marketplace Flipkart to sell its phones online. Within just a few years, Flipkart had snared 27 percent of the market and was India’s number one smartphone company.
Digital players like Niantic in videogames, Netflix in streaming video, and Airbnb in travel have deployed asset-light strategies to go global fast, as have purveyors of physical products like the U.S wearables company Fitbit and the Indian motorcycle company Bajaj Auto.
What if you’ve already staked out a large global presence? Here, too, we see changes afoot. Established companies are rethinking conventional wisdom that says bigger is always better, aiming instead for global footprints better tailored to the times. Global banks like Citibank and HSBC are pulling out of less profitable markets, responding to changing regulatory environments and competitive conditions in local markets. At the same time, banks are expanding globally by offering new digital services or digitizing their existing ones.
Although physical scale still confers an advantage, a range of factors are causing companies to take a more nuanced look at their global footprints, including rising tariffs and other protectionist policies and uneven economic conditions in regions and inside specific countries. A BCG analysis performed for one of our clients found that this company could boost profits by up to 5 percent by focusing on fewer markets/regions and building market share in them. A winning strategy doesn’t involve expanding everywhere, but rather in those individual countries where you can grow profitably at scale.
If established firms are competing in fewer markets overall, they are also reshaping global growth by going deeper into those markets. Instead of standardizing their operations across markets, companies are adopting what we call a “local for global” strategy, building strong local teams and cultivating local partnerships in an effort to operate like a local company. In China, German industrial company Siemens has partnered with local companies and universities in an effort to design products and services customers in China want while also retaining a license to operate with local government. Siemen’s deep presence in China helps to insulate the company from economic downturns the company might experience elsewhere.
Some in your company might recoil at the thought of exiting or lessening your presence in certain markets. They might dislike the idea of handing over control of some aspects of your operations to local partners. But as difficult as it might be, overcoming such compunctions can position your firm for better, more profitable growth in the decades ahead.
In today’s global game, winning isn’t just about being bigger than the competition. It’s also about being smarter in terms of where and how you operate.
Boardroom comment by Rama Bijapurkar, independent board director and chairperson
Many Indian companies have globalized opportunistically via overseas acquisitions and JVs. The resulting portfolio glitters like ornaments on a Christmas tree but offers little in the way of synergy. Other companies in industries like pharma, ITES, textiles, and auto components have entered a profusion of overseas markets by exporting from India. They sell basic products and compete on price, often stopping at selling to middle men. Still others in banking and FMCG have followed the flag and entered diaspora-heavy markets.
These achievements are tremendous given India’s prior isolation and poor country image, but it’s time for Act II. The Christmas tree approach is dragging down business valuations. “We will be far more calibrated in our global business strategy,” says Mahindra, and many, including new economy companies like Oyo, Ola, will agree. The “export from India” strategy is losing its competitive edge for companies in generics, textiles, and ADM software. Moving beyond that will entail making more granular, globalization- selective market choices rather than simply focusing on proliferation. It will require looking beyond earnings to the creation of dominant market positions. Diaspora chasers must aim to serve the “mainstream” in the countries in which they operate.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.