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Issue No. 31 (January / February 2002) -- Mark Satin, Editor
Selling U.S. products abroad:
I was a self-described “libertarian communist” in the Seventies, and in my heart I knew that the big corporations were evil. As the 21st century dawns, are most of us really so different? Don’t most of us still see big corporations as either basically Malign or basically Moral?
At Ralph Nader’s vaunted announcement for the Green Party presidential nomination in the year 2000, at the old Madison Hotel in Washington, D.C., the Harvard Law grad whose last book was published by Random House blamed Big Business for everything bad under the sun, from personal bankruptcies in the U.S. to poor living conditions abroad. You got the feeling that if a fly buzzed into his mouth during the speech, he’d have blamed the corporation that owned the hotel. (And threatened to sue.)
About the same time and just three blocks away, at the beautifully appointed American Enterprise Institute, George Priest -- professor of law and economics at Yale Law School -- gave a speech in which he kept coming back to the “moral virtues of capitalism.” If we have big corporations, then that’s what the market most values -- and what could be more “moral” than accepting the dictates of the market? His well-dressed and heavily-perfumed audience was made to feel so good.
Fortunately, a third way of seeing big corporations has been emerging among thinkers and activists who might call themselves “radical middle.”
Following M.I.T. (Sloan) Business School’s Peter Senge, author of The Fifth Discipline, radical middle thinkers see multinational corporations as at least potentially Learning Organizations. And the learning cuts both ways.
In this view, multinationals can and should shake nations and cultures up for the better, drag ‘em into the 21st century, provide tradition-bound citizens with new opportunities . . . SO LONG AS multinationals structure themselves in ways that promote organizational learning, and listen closely to their customers, and learn from the cultures those customers represent.
Over the last year, American products abroad have been much in the news. Children in Belgium fell ill after drinking Coke products -- and Coke’s ham-handed response outraged Europeans across the political spectrum. The French environmentalist who made his reputation smashing McDonald’s windows in Europe took his act to Seattle during the WTO protests -- to the delight of activists everywhere.
These episodes were received very differently by people depending on the model they had of multinationals.
To those who see multinationals as Malign, they added fuel to the conviction that multinationals need to be hemmed in as much as possible (and ultimately, of course, broken up).
To those who see multinationals as Moral, they were as froth on a great sea.
And to those who see multinationals as Learning Organizations, they spotlighted certain key questions:
Learning from us
To many activists, McDonald’s is as Malign a multinational as they come, Exhibit #1 of U.S. cultural imperialism.
James Watson, chaired professor of Anthropology and Chinese Society at Harvard, was intrigued by this hostility to McDonald’s among activists (and within his own cohort at the American Anthropological Association) -- so intrigued that he and four colleagues embarked on several years’ worth of research to determine how McDonald’s was being received by everyday people in five countries in South Asia.
The results, as published in his book Golden Arches East (1998), might surprise you.
It turns out that, on the whole, McDonald’s is wildly popular -- even though nobody’s really wild about the food.
Basically McDonald’s gives East Asians things that their own cultures won’t, don’t, or can’t (quite yet) -- things that actually-existing East Asians happen to prize, despite activists’ widely-publicized attacks on the company.
Quality control, for one -- something we Americans now pretty much take for granted. “McDonald’s’ strict quality control, especially regarding potatoes, became a hot topic of discussion” all over China, Watson says. Many East Asian restaurants are now trying to emulate the company’s “unwavering” standards for food freshness.
McDonald’s’ clean toilets are not to be sneezed at, either. “McDonald’s is widely credited with starting a revolution of rising expectations among East Asian consumers who had never experienced high standards of public hygiene in the catering trade,” Watson says delicately. “In Taipei, Beijing, Seoul, local restauranteurs had to match this new standard or watch their customers go elsewhere.”
Table manners are becoming less formal. Young people, in particular, are feeling freer to touch certain foods with their hands.
Attitudes toward work have changed among the young. Like many Americans, I worked at a series of low-prestige jobs (dishwasher, truck loader, cannery worker) before finishing college; but until McDonald’s came along, college-oriented East Asians often felt it was beneath them to take such jobs. “McDonald’s achieved the unimaginable, establishing itself as an acceptable employer of high school and university students.”
Widespread employment of teenagers in the fast-food industry has -- inevitably -- made them less dependent on their parents, more open to outside influences.
And McDonald’s’ less patriarchal employment practices have been a boon to women. In Korea, for example, women “expressed considerable satisfaction with the company’s openness and relative lack of hierarchy, which in their view led to greater gender equality than is normally the case in Korean business circles.”
Several authors in the Watson book observe that single men tend to eat quickly at the East Asian McDonald’ses and then leave (just like in the U.S.), but that the restaurants often serve as hangouts for women -- far more than in the U.S. “Women in all age groups tend to spend the longest time in McDonald’s, irrespective of whether they are alone or with friends. . . . [M]any McDonald’s restaurants in East Asia have become sanctuaries for women who wish to avoid male-dominated settings.”
They’ve also become sanctuaries for teenagers. In some locations they’ve “become the favorite hangout for primary- and junior-high-school students, who gather there every day between three and six in the afternoon. Many do their homework while eating and drinking in groups, sharing tables. McDonald’s is perceived as an acceptable recreation center for ‘good’ students [as opposed to] ‘tough’ students. . . . McDonald’s [doesn’t] discourage lingering students, even though they may buy little. . . .”
Watson’s conclusion: McDonald’s wasn’t successful in East Asia because of its wealth, power, advertising budget, etc. It was successful because East Asians wanted what it had to give.
Learning from them
Unfortunately, many U.S. multinationals failed to grasp another of Watson’s key points: McDonald’s was successful because it absorbed as much from East Asian cultures as it taught.
McDonalds’s’ leaders may have thought they were exporting the good ole American version of McDonald’s. (Evidence abounds that they did think this -- see, e.g., the laughably arrogant statements of various former McDonald’s executives in the “Exporting Americana” chapter of John Love, McDonald's : Behind the Arches, rev. 1995.)
But Watson’s book tells a different story, a story of mutual learning -- a story made possible largely because a couple of strong-willed Asian managers managed to convince the executives at McDonald’s’ Oak Brook, Illinois headquarters to give them a lot of rope.
Surely none of the executives at Oak Brook ever contemplated their restaurants becoming convivial sanctuaries for Korean women, or glorified study halls for industrious Japanese kids.
Surely none of them ever imagined that, by the turn of the century, Big Macs would be sharing the menu with Vegetable McNuggets in India, teriyaki burgers in Japan, McHuevos in Uruguay.
Watson refers to this mutual learning as a process of “localization,” and he gets it just right when he says, “The process of localization is a two-way street: It implies changes in the local culture as well as modifications in the company’s standard operating procedures.”
Throughout the Seventies and Eighties, inspired in significant part by (a shallow understanding of) McDonald’s’ great success, one big U.S. corporation after another established beachheads in other countries and produced the same soft drinks, soaps, cars, etc., that they had back in the States.
It worked -- for a while. But now, many of the firms that simply did abroad what they did at home are getting burned. Sometimes badly burned.
They each had to discover the need for localization, or Mutual Learning, that Watson’s book has at its core.
Coke is a good example. Under its last two CEOs, Coke promoted its exact same products all over the world. And that worked -- for a while.
But the scandal in Belgium turned out to be just the tip of an iceberg. Coke is floundering everywhere now. Its CEO was given the axe, and its new CEO, an Australian Baby Boomer named Douglas Daft, recently announced in mollified tones that the company’s global growth targets can’t be met.
More important, he announced that Coke would now be embracing local brands and flavors rather than seeking to displace them.
“They had the world’s greatest brand, and they believed that by the mere fact that Coke was Coke, they could sell it,” one prominent marketing consultant chortled to the New York Times (Feb. 6).
“In many parts of the world,” the Times added, “consumers have become pickier, more penny-wise, or a little more nationalistic, and they are spending more of their money on local drinks whose flavors or brand names are not part of the Coca-Cola lineup.”
Fortunately for Coke, in Daft it seems to have found an executive who’s got his finger on what needs to be done to drag a big corporation into the 21st century.
Three main strategies emerge from a long interview weaved into the Times article -- and all pertain to mutual learning.
First, Daft will be assiduously catering to local tastes. “You can’t apply a global standard of measurement to consumers,” he says, “because it reduces everything to the lowest common denominator.”
Second, he’ll be empowering local managers. “We had backups in Atlanta [constantly] monitoring [people abroad],” he says. “That was not so helpful to new product development -- or to morale. . . . You have to be in a place in order to understand it.”
Third, he’ll make Coke more responsive to social and political concerns abroad. One of Daft’s first acts as CEO was to reach out to Carl Ware, the company’s highest-ranking black official, who’s taken a special interest in educating consumers in the developing world. “Consumer democracy is becoming more and more of an issue,” says Ware. “We have to address it on a local basis.”
From flag-planters to learners
At the business schools, the transformation of multinationals like Coke and McDonald’s is being examined with exquisite care.
And over the last few years, a point of view has emerged that’s “radical middle”to the core.
Major scholars and consultants like Jerry Wind, Christopher Bartlett and C.K. Prahalad (all chaired professors at Business Week’s Top Five business schools) have begun saying something like this:
To succeed abroad, big corporations need to stop acting like all-knowing, all-powerful behemoths, and start interacting in constructive ways with their divisions abroad, with their customers, and with the societies their customers live in.
They need to spearhead a continuous process of mutual learning. . . .
For Jerry Wind, professor at Penn (Wharton) Business School and author of Driving Change : How the Best Companies Are Preparing for the 21st Century (1998), most multinationals today are “flag planters”; their foreign operations are “colonial outposts of essentially domestic companies.”
But 21st century markets “require globally integrated companies. The domestic and international units must merge so that the whole functions as a single organization, not a collection of fiefdoms or outposts. . . .”
With integration will come greater knowledge -- even a certain humility. The most effective multinationals will come to see themselves as “civic enterprises” with built-in “learning loops.”
For Christopher Bartlett, professor at Harvard Business School and co-author of Managing Across Borders (rev. 1998), most multinationals have become what he calls, disapprovingly, “global” corporations. Assets, responsibilities, and decision-making are all too centralized.
The result is a dysfunctional “headquarters hierarchy” model of organization characterized by infantilizing “superior-subordinate” relationships up and down the line.
What Bartlett wants to see -- and is beginning to see -- is the transformation of global corporations into what he calls “transnationals.”
“The transnational . . . builds flexibility in many ways,” he says. “It creates products with modular structures so features and styling can be differentiated [by nation or region. It permits a variety of] roles and responsibilities in [each part] of its organization. . . . [N]ational subsidiaries [are elevated to] strategic partners whose knowledge and capabilities are vital to the corporation. . . .”
As a result, a transnational corporation not only operates more efficiently than a global corporation; it “facilitates learning.” And it’s more responsive to consumers and to the larger social surround.
Most multinationals are still characterized by an “imperialist mindset,” says C.K. Prahalad of the University of Michigan Business School in an award-winning essay (now the lead chapter in Jeffrey Garten, ed., World View : Global Strategies for the New Economy, 2000). The imperialist mindset teaches that “headquarters knows best” and developing countries are merely “new markets for . . . old products.”
But, increasingly, multinationals are adopting a “new way of thinking.”
It involves a “complex blend of local sensitivity and global knowledge.”
It involves decentralization -- and coordination. For example, “As product development becomes decentralized, collaboration [among] labs in Bangalore, London, and Dallas . . . will gradually become the rule, not the exception.”
It even involves Salman Rushdie-like hybridity and intermingling (RAM #3): “As corporate imperialism draws to a close, multinationals will increasingly look to emerging markets for talent. . . . How many of today’s multinationals are prepared to accommodate 30% to 40% of their top team of 200 coming from China, India and Brazil? How will that cultural mix influence decision making, risk taking, and team building?”
To sum up: The new way involves learning, learning, learning. . . .
ISO . . . the new connectedness
Multinationals are here to stay, and to see them as intrinsically Malign is to forever see the world as an embittered outsider -- as a “libertarian communist,” so to speak.
To see multinationals as intrinsically Moral is no different, really. In both cases, what takes place inside the multinational is beneath your concern.
But to care, deeply, whether multinationals become Learning Organizations is to care deeply about what’s actually happening in the world. I call that caring the New Connectedness, because it gives us the impetus both to join such institutions and to change them from within.
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