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Finding global growth

Finding global growth

When we turn our attention to the subject of international growth at Bain we expected to find a fairly large number of companies who had used international as a way to drive performance improvement across their business.

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Finding global growth
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When we turn our attention to the subject of international growth at Bain we expected to find a fairly large number of companies who had used international as a way to drive performance improvement across their business. In actual fact it turns out that fewer than one in six or only about 17% of companies have achieved sustained profitable overseas growth over a five year period—a remarkable statistic.

Now the ones who were successful however, were extremely successful. They grew their companies and their international businesses at rates 2 and 3 times those of an average company, and the stock market rewarded them accordingly. So why all the disappointment, why so few relative success stories?

There appear to be five main reasons. Companies tend to attack too many geographies at once, which means they make an insufficient commitment to any one place. They tend to do an inadequate amount of local due diligence on the competitive environments and products and customers. They tend to enter geographies on the basis of—"we have to be there"—as opposed to having thought through whether or not they could achieve attractive leadership like economics in the new geography. They tend to fail to produce repeatable formulas for entering and managing growth in international markets which results in excessive variation, lack of control, and a high degree of complexity in their businesses overall. And then lastly, they tend to rely too long on expatriates in key executive positions and fail to hire sufficiently talented local executives early on to build the business in the way they need.

The companies who were most successful in international expansion combined an understanding of the cost structure of their industries with an understanding of their customer profile. So a naturally global industry would be one where there are global economies of scale and a customer profile with global uniformity as its defining characteristic. Companies in industries such as airline leasing or semiconductors can go to the world with a single value proposition and focus on global market share.

By contrast, industries that are naturally local have generally local economies of scale in their costs and locally distinct customer sets. Mobile phone operators and food retailers are example of companies who would be in this category. Each of which requires district tailor value propositions in each market. And what we found was that the success stories in our international growth studies were ones who internalized these learnings and did so from the basis of having had a very strong domestic core business as a springboard for their international success.

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