Corporate Strategy Board

October 2001

Growth Across Borders

Strategic Challenges of International Expansion

STUDY OBJECTIVE
Companies that seek opportunities in international markets find KEY AUDIENCES
their efforts hindered by an array of social, political and Corporate Strategists
Business Development Executives
demographic factors that differ greatly among countries.
Business Unit Leaders
Understanding the risks that come from these differences and
incorporating them into decision making about international S E L E C T E D PROFILES
growth is essential for companies to effectively expand abroad. BellSouth Corporation
This study is targeted primarily at companies that have not yet Cemex, S.A. de C.V.
attained global reach, but even some large multinationals may find Jabil Circuit, Inc.
it of interest. The study presents case profiles that address the
following challenges:
◆ Evaluating Market Desirability: Balancing Opportunity and Risk
When Assessing Markets
◆ Choosing the Method of Market Entry: Balancing Speed of Entry
and Local Effectiveness
◆ Adapting Business Practices: Balancing Corporate Best Practices
with Variation Among Local Operations

© 2001 Corporate Executive Board

ii

Corporate Strategy
Board Staff

Corporate Strategy Board Research Team

2000 Pennsylvania Avenue NW Joel Whitaker
Washington, DC 20006 Rob Catalano
Telephone: 202-777-5000
Facsimile: 202-777-5100 Contributors
Michael Deich
166 Piccadilly Martha Piper
London, W1J 9EF
Mani Chacko
United Kingdom
Telephone: +44-(0)20-7499-8700 Kathryn Mann
Facsimile: +44-(0)20-7499-9700
Creative Solutions Group
www.corporatestrategyboard.com
Lead Graphic Design Specialist
Erin J. Pietrowski

Proofreader
Lisa Schievelbein

Associate Director
Annette Jones

Senior Director
Robert G. Headrick

Note to Members on Confidentiality of Findings

This document has been prepared by the Corporate Executive Board for the exclusive use of its members. It contains valuable proprietary
information belonging to the Corporate Executive Board, and each member should make it available only to those employees and
agents who require such access in order to learn from the material provided herein, and who undertake not to disclose it to third parties.
In the event that you are unwilling to assume this confidentiality obligation, please return this document and all copies in your possession
promptly to the Corporate Executive Board.

© 2001 Corporate Executive Board Catalog no.: CSB12UM2L

 iii

Table of Contents

With Sincere Appreciation • iv

Executive Summary • vi
Essay: The Challenges of International Expansion • 1
BellSouth Corporation: Balanced Market Positioning Assessment • 13
Jabil Circuit, Inc.: Market Entry Decision Rules • 23
Cemex, S.A. de C.V.: Standardization Stewards • 33
For Further Reading • 43
iv

With Sincere Appreciation

Special Thanks
The Corporate Strategy Board would like to express its gratitude to the following
individuals who were especially giving of their time and insight in the development
of this study.

Homero Resendez Scott Brown

Business Processes Senior Vice President
Cemex, S.A. de C.V. Strategic Planning
Jabil Circuit, Inc.
Gabriel Cervera
Business Processes Cynthia Beaulieu
Cemex, S.A. de C.V. Director of Corporate Development
Jabil Circuit, Inc.
Robin Moriarty
Corporate Planning
BellSouth International
BellSouth Corporation
 v

Advisors to Our Work

The Corporate Strategy Board extends its sincere appreciation to the individuals listed
below (in alphabetical order) who have so generously contributed their time and expertise
to our work.

Ms. Laura J. Buss Mr. David Pitt

Duke Energy Corporation Telstra Corporation
Mr. Mike Bradley Ms. Janet Pope
Telstra Corporation Visa International
Mr. Joel Davis Mr. Steven R. Pusey
The Gillette Company 3M Corporation
Mr. Daniel Gagnier Ms. Donna Rodriguez
Alcan Inc. McDonald’s Corporation
Dr. Dieter Garus Mr. Thomas Santel
RWE A.G. Anheuser-Busch Companies, Inc.
Sr. Alejandro Hollander Mr. Jay W. Scheerer
Cemex S.A. de C.V. A.T. Kearney
Dr. Steve Huckvale Mr. Robert I. Tomei
Moog, Inc. ACNielsen Company
Roberto Huertas Istillarte Sr. Guillermo Trigo
Endesa S.A. de C.V. Mavesa, S.A.
Mr. Pim Kamphuisen Mr. Simon Vasey
Heineken N.V. PowerGen Plc
Mr. Arnold Kuijpers Ms. Laura Wade-Gery
Rabobank Nederland Tesco Stores Ltd.
Mr. Bob Nemens
Diebold, Inc.
vi

Executive Summary
Growth Across Borders:
Strategic Challenges of International Expansion
“Going Global”: A World of Opportunity
Most books and articles about international expansion extol the unbounded opportunities afforded by
pursuing new markets abroad. Building a global enterprise promises access to growing foreign markets,
efficiencies from operating and selling on a global scale, and the ability to better serve customers that are
increasingly global in scope. It is a captivating image, but
it is far from the whole story.
True, globalization is accelerating as national governments Foreign Direct Investment (FDI)
strip away regulations that once severely limited flows of Billions of U.S. Dollars
capital, labor, goods and services. Indeed, some $1,400 $1,271
governments are finding themselves in “bidding wars,” $1,075
creating incentives to attract foreign investment.
Seeking to benefit from these regulatory shifts, companies $693
from Calgary to Cape Town are taking advantage of more $700
$478
open markets. Production by companies’ foreign affiliates $331 $385
now accounts for fully 10 percent of global GDP, roughly
twice its level in the early 1980s. Even the companies that
are slow to pursue international markets come under $0
pressure, as rivals use their increasingly global scope to 1995 1996 1997 1998 1999 2000
compete more fiercely in laggards’ own home territories.

New International Markets: Crucible of Assumptions About Growth Strategy

The pursuit of foreign markets places unfamiliar demands on decision makers. The early stages of a
company’s expansion efforts can be fraught with surprise and uncertainty. In the domestic context,
political, cultural and geographic forces are well understood, as are the means of monitoring and
influencing them. As a company enters markets with dissimilar socioeconomic conditions, the “rules
of the game” seem less obvious than before. Ventures struggle for reasons that never previously presented
difficulty, and traditional strategy tools seem less robust. New challenges throw previously unassailable
assumptions into question.

Finding the Balance: Strategic Decision Making for Varied Markets

How then to craft strategy in an international context?
Typical
Typical International
InternationalExpansion
ExpansionTrajectory
Trajectory The key is to balance a relentless quest for growth
Global
Global opportunities with a balanced and rigorous
➤

understanding of the risks posed by operating in foreign

➤

markets, and the unavoidable—but not

Degree uncontrollable—costs of managing those risks.
Degreeofof
Difference
Difference Zone
Companies must manage this delicate balance as they
Among
AmongMarkets
Markets Zoneofof
Assumptions
Assumptions evaluate the desirability of new markets, determine their
Failure
Failure method of entering selected markets and adapt their
Domestic
Domestic business practices to local conditions.
➤

Progress
Progress of
ofInternational
InternationalExpansion
Expansion
 vii

Evaluating Market Desirability: Balancing Opportunity and Risk

When Assessing Markets
Companies find it much easier to identify and evaluate economic
indicators of demand in international markets than to understand Balanced Market
social and political factors. However, understanding those Positioning Assessment
nonfinancial differences between markets is essential to effectively
prioritize new markets based on a balanced assessment of both (p. 13)
opportunity and risk.
BellSouth Corporation has applied this comprehensive approach to its
international operations, leading it to establish a focused regional presence in the Latin American wireless
market. Equally important, BellSouth systematically reviews its country portfolio as it introduces new
products in the region.

Choosing the Method of Market Entry: Balancing Speed of Entry

and Local Effectiveness
Competitive and investor pressures drive many companies to
prioritize “speed above all” when establishing operations in new
countries. In some cases, companies pursue acquisitions without
Market Entry careful consideration of alternatives because they are seen as the
Decision Rules fastest way to gain a presence on the ground and to obtain immediate
(p. 23) revenue. All too often, crucial facts about the acquired firm’s
corporate culture or local circumstances are overlooked until they
have hobbled the integration process, reducing return on investment
and slowing active engagement in the new market.
Jabil Circuit, Inc., breaks from this trend by carefully weighing the costs and benefits of both potential
acquisitions and greenfield operations in each new market. With this method, Jabil has avoided the
missteps of some of its rivals whose international operations have been hindered by integration challenges.

Adapting Business Practices: Balancing Corporate Best Practices with Variation Among
Local Operations
As companies establish new ventures in varied local contexts, assumptions about core business practices
come under increasing strain. Some methods considered integral to past successes seem to have detrimental
results when applied to customers and operations in new markets. At the same time, variation at the local
level can threaten to overwhelm quality control, internal coordination and efficiency. Companywide
consistency and local customization are both desirable, yet it is difficult for the approaches to coexist.
For most companies, striking the right balance is one of the most enduring challenges on their path to
global scale.
In many ways, Cemex, S.A. de C.V., has bridged the apparent
trade-off by creating an internal organization specifically charged
with managing a universal catalog of best practices. Cemex’s
“standardization stewards” document and disseminate standardized
processes but remain sensitive to legitimate reasons for local Standardization
customization as part of their hands-on engagement in local business Stewards
reviews. Moreover, they are evaluated based on their efforts to identify (p. 33)
business practices among local operations and new acquisitions that
may improve upon Cemex’s established standard.
viii
 1

Essay
The Challenges of International Expansion
 2 Growth Across Borders

Striving for Global Reach

International expansion, a mainstay on the agenda of corporate decision makers throughout the history
of business, is only increasing in importance as economic globalization progresses. Throughout the 1990s,
companies have pursued international markets with unprecedented intensity. Foreign investment and
cross-border mergers and acquisitions have reached record highs for several years running. Subsidiaries
based outside companies’ home markets account for an ever-increasing share of world production. The
coordination of this expanding international activity is enabled by the increasing ease of moving goods,
services, capital and people across borders.

Levels of cross-border investment are higher than ever…

Value of Cross-Border M&A Foreign Direct Investment (FDI)
1995–2000 Inflows, 1995–2000

$1200 $1,144 $1400 $1,271

$1,075
$766
Billions of $600 Billions of $700 $693
$532
U.S. Dollars U.S. Dollars $478
$305 $331 $385
$187 $227

$0 $0
1995 1996 1997 1998 1999 2000 1995 1996 1997 1998 1999 2000

Source: United Nations Conference on Trade and Development, World

Investment Report 2001: Promoting Linkages, p. 10; “FDI-Linked
Cross-Border M&A’s Grow Unabated in 2000,” UNCTAD Press
Release (27 June 2001).

…and international production is an increasing share of world output

Sales and Production of Foreign Affiliates, Indexed*
1982–2000

650

World GDP
Global Sales of Foreign
Affiliates
325
Global Gross Product
of Foreign Affiliates

0
1982 1991 2000

* 1982 = 100. Source: UNCTAD, World Investment Report 2000: Cross-Border Mergers
and Acquisitions Development—Overview, p. 4; UNCTAD, World
Investment Report 2001: Promoting Linkages, p. 10.
 Essay 3

Fewer Barriers at the Border

Governments around the world continue to reduce barriers to entry through trade agreements, deregulation
and lessened restrictions on foreign investment and on the movement of people and information. Companies
gain correspondingly greater access to previously untapped markets, not only for new customers but also for
lower-cost labor and production inputs. Thus, international expansion promises economies of scale and
scope that are unavailable through growth within one’s domestic market.

National economies are becoming increasingly interdependent…

World Globalization Index*, 1995–1998

Goods and Services Finance Personal Contact Technology

200
Indicators of economic
integration across
countries (e.g.,
international trade and
FDI flows as shares of
100
GDP, international
travelers per capita,
number of Internet hosts
per capita, convergence
of domestic prices with
0 international prices)
1995 1996 1997 1998
* 1995 = 100. Source: Adapted from “Measuring Globalization,”
Foreign Policy (January–February 2001): 56-65.

…as falling regulatory barriers reduce the economic importance of borders

National Regulatory Changes, 1996–2000

150
147
135 136 131

98
Number of
Regulatory 75
Changes
Types of Changes in FDI Regulations, 2000
16 16 9 9
More liberal
3 entry and
operational More sectoral
0 conditions liberalization
1996 1997 1998 1999 2000 18%
24%
16% More promotion
40% (i.e., incentives)
Favorable to FDI
More guarantees 2% More control
Unfavorable to FDI

Source: UNCTAD, World Investment Report 2001:

Promoting Linkages, p. 6.
4 Growth Across Borders

The Double-Edged Sword of Open Markets

While globalization expands opportunity, it also opens the door for others in the industry to encroach upon
the domestic territory that many companies once viewed as a reliable stronghold. Companies that were once
on opposite sides of the globe now directly compete, increasing pressure at home and creating a sometimes
frantic race to seize opportunities in newly opening nations.

Competitive Pressures Drive International Expansion

Drivers of Foreign Direct Investment*

Matching Competitors' Actions 78%

New/Shifting Consumer Needs 75%

Changes in Government Regulation 60%

Deregulation 56%
Responding to competitors’
Shifting Input Costs/Availability of Inputs 54% actions is a more powerful
driver of FDI than the appeal
48% of opening markets
New Technologies

Privatization 47%

Emergence of New Industry Segments 36%

0% 40% 80%
Percentage of Companies Identifying Driver
* Survey of 57 transnational companies based
as Being of High Importance
in the United States, Europe and Japan.

Fighting on Two Fronts

“If your competitors start to globalize and you do not, you become vulnerable to a two-pronged
attack. First, they can develop a first-mover advantage in capturing market growth, pursuing global
scale efficiencies, profiting from knowledge arbitrage, and providing a coordinated source of supply
to global customers. Second, they can use multimarket presence to cross-subsidize and wage a more
intense attack in your own home markets. Underestimating the rate at which competition can
accelerate the pace of globalization is dangerous.”

Vijay Govindarajan and Anil K. Gupta

The Quest for Global Dominance

Source: UNCTAD, FDI Determinants and TNC Strategies: The Case of Brazil, p. 86;
Govindarajan, Vijay, and Anil K. Gupta, The Quest for Global Dominance, San
Francisco: Jossey-Bass, 2001, p. 26; Corporate Strategy Board research.
 Essay 5

Finding the Balance in International Expansion

Expansion across borders presents distinct challenges not posed by domestic growth efforts. Variation
in customer needs, regulation, culture and infrastructure are often minor—or at least well-understood—
considerations within a company’s home market. Such differences often seem quite manageable in the early
stages of international expansion—after all, most companies’ first steps abroad are to neighboring countries
with similar business, political and social norms. But as expansion continues, differences become more
pronounced. The importance of fully understanding the business climates of potential markets and of
managing increased variation among international operations similarly increases. Finding the right balance
between pursuing efficient growth and customizing initiatives to market differences is a central problem of
international expansion strategy.

As companies venture into markets with unfamiliar norms and cultures…

Typical International Expansion Trajectory
➤

Global

➤ Zone of Assumptions Failure:

As companies enter markets
outside familiar regional, cultural
Degree of or linguistic boundaries, formerly
Difference
sound assumptions about business,
Among Markets
political and social norms prove
misleading
Domestic

➤
Progress of International Expansion

…the need to rigorously understand and manage variations

among markets becomes more acute
Three Challenges of International Expansion

Challenge #1: Challenge #2: Challenge #3:

Evaluating Market Choosing the Method Adapting Business
Desirability of Market Entry Practices

Balancing Opportunity and Risk
When Assessing Markets
In unfamiliar markets, companies find it
easier to assess economic indicators of
demand than the less quantifiable social,
political and competitive factors that must
be understood to evaluate risk
Balancing Speed of Entry
and Local Effectiveness
Companies that establish operations
abroad often use M&A to achieve speed,
but fail to assess carefully how cultural
differences increase the complexity of
acquisition integration, as well as the
importance of local partners
Balancing Standardized Practices with
Variation Among Local Operations
Companies hope to gain economies of
scale and scope by standardizing systems
and processes, but market circumstances
make it desirable to maintain appropriate
variation of business practices among
local operations

Source: Corporate Strategy Board research.

6 Growth Across Borders

Balancing Opportunity and Risk When Assessing

New Markets
Challenge #1: Evaluating Market Desirability—The fundamental fact of international expansion is that market
characteristics—economic, cultural, physical and political—vary between countries. Understanding these
differences underlies decisions about which markets to enter, prioritization among current markets and
positioning against rivals within markets, yet few companies evaluate indicators of difference as systematically
as they evaluate indicators of demand.

Tunnel Vision
“The problem [with market selection] is rooted in the very analytical tools that managers rely on in
making judgements about international investments, tools that consistently underestimate the costs
of doing business internationally. The most prominent of these is country portfolio analysis (CPA)….
By focusing on national GDP, levels of consumer wealth and people’s propensity to consume, CPA
places all the emphasis on potential sales. It ignores the costs and risks of doing business in a new
market.”

Pankaj Ghemawat
Harvard Business Review

Analysis of Market Characteristics Varies Widely

Well Understood Moderately Understood Poorly Understood

by Most Companies by Most Companies by Most Companies

Economic Geographic Administrative Cultural

Characteristics Characteristics Characteristics Characteristics
• Consumer incomes • Physical distance • Shared monetary or • Language
• Costs and quality of: • Common border political association • Ethnicity
–Natural resources • Sea or river access • Colonial ties • Connective social networks
–Financial resources • Country size • Political culture • Religion
–Human resources • Transportation or • Regulatory policies • Social norms
–Infrastructure communication links • Institutional weakness
–Intermediate inputs • Climate
–Information or knowledge

Source: Adapted from Ghemawat, Pankaj, “Distance Still Matters,”

Harvard Business Review (September 2001): 137-147.
 Essay 7

Seeing the World as It Is

As companies assemble a portfolio of international markets, effective resource allocation depends on their
ability to make accurate comparisons. Standard portfolio analysis compares countries based on purchasing
power and propensity to consume, but companies seldom adjust systematically for political or cultural factors.
Working with such selective information can grossly distort executives’ understanding of their own operations.
Sensitivity to Sociopolitical Differences Allows Intelligent Resource Allocation
Tricon’s New World View
Tricon Restaurants International (TRI) is the international arm of Tricon, which manages the
Pizza Hut, Taco Bell and KFC fast-food chains. To prune its operations, TRI conducted a
traditional country portfolio analysis in 1998. Dissatisfied with the result, TRI weighted its
findings—originally based purely on financial indicators of demand—to reflect social and
political distinctions between its international markets and the United States. The second review
yielded dramatically different, and more incisive, results.

Tricon Market Assessment, First Version

Based on Economic Indicators
$400
Canada Standard analysis based on
Japan indicators of wealth and product
demand portrays Japan as TRI’s
Per Capita leading market, driven by its high
Fast-Food $200
per capita income
Consumption
(U.S. Dollars)

$0
($5,000) $20,000 $40,000
Per Capita Income (U.S. Dollars)

Tricon Market Assessment, Second Version

Adjusted for Sociopolitical Differences
$400
Canada Adjusting for noneconomic
Japan
differences between markets—
e.g., cultural similarities and
Per Capita shared language between Canada
Fast-Food $200 and the U.S., versus more
Consumption pronounced cultural and linguistic
(U.S. Dollars) differences between Japan and the
U.S.—demonstrates that Canada
is in fact a much more attractive
$0 market than Japan for Tricon
($5,000) $20,000 $40,000
Per Capita Income (U.S. Dollars)
Note: Size of bubble represents Source: Ghemawat, Pankaj, “Distance Still Matters,” Harvard Business Review
estimated revenue opportunity. (September 2001): 137-147; Corporate Strategy Board research.
8 Growth Across Borders

Balancing Speed of Entry and Local Effectiveness

Challenge #2: Choosing the Method of Market Entry—For many companies, the imperative to move quickly
skews their market entry choices toward acquisitions rather than greenfield growth. The perceived urgency of
seizing international opportunities before competitors establish themselves and of protecting oneself against
potential takeovers often overrides any detailed discussion of alternatives to M&A. Without proper
assessment of noneconomic risks, unexpected challenges from integrating cultures and business practices
may well invalidate the benefits of speedy initial entry by delaying the acquirer’s ability to function effectively
in the new market. Greenfields require more time to build up, but they are less likely to become mired in
cultural conflicts.

Imperative for speed can prematurely …despite frequent integration failure

end discussion of alternatives to M&A… due to cultural differences…

They’d Rather Be Surveys of Acquiring Firm Executives

Fast Than Right

“Executives reported that they had not
“Competitive pressures [encourage] firms considered [cultural differences]
to access assets or restructure rapidly enough and had done so too late in
[through cross-border M&A].…As speed the acquisition process.”
has become a critical parameter, the
greenfield option is often ruled out as an “Failure to address cultural differences
entry mode at an early stage of corporate was the number one reported cause of
decision making.” acquisition failure.”
UNCTAD
World Investment Report 2000

…that, when fully evaluated, often argue for greenfield entry

Impact of National Cultural Differences Impact of Company Cultural Differences

Common Perception Reality Common Perception Reality

G A
➤ A G A G ➤
A G

The need to gain local market
knowledge and contacts with
government, suppliers and
customers drives companies
to choose acquisition over
greenfield
Greenfields established in
partnership with local firms
are often just as effective as
acquisitions and allow equally
rapid growth, unless the goal
is a major consolidation
A desire for quick entry can
equal or overwhelm concerns
about the challenges of
integrating companies with
significantly different cultures,
norms and business practices
A full accounting of integration
risks in dissimilar markets
often reveals a complex task
of overhauling deeply
entrenched work patterns
(much more difficult than
building a new business)

A = Acquisition Source: UNCTAD, World Investment Report 2000: Cross-Border Mergers and Acquisitions and Development,
p. 161; Hubbard, Nancy, Acquisition Strategy and Implementation, West Lafayette, Indiana: Purdue
G = Greenfield University Press, 1999, p. 70; Govindarajan, Vijay, and Anil K. Gupta, The Quest for Global
Dominance, San Francisco: Jossey-Bass, 2001, p. 33-36; Corporate Strategy Board research.
 Essay 9

Balancing Standardized Practices with Variation

Among Local Operations
Challenge #3: Adapting Business Practices—Particularly in the early stages of expansion, companies struggle
to leverage internal business practices that have proven successful in the domestic market while also allowing
for necessary local variation. Standardization allows a company to institutionalize high-performance
methodologies, but forcing inflexible mandates upon foreign subsidiaries and acquisitions can create
inefficiencies and alienate suppliers, partners and customers. At the other end of the spectrum, a holding
company approach allows local businesses to follow familiar practices but inhibits knowledge sharing across
businesses.

Companies Struggle to Balance the Benefits of Standardization and Customization

Relationships Among Internal and External Constituencies

Highly Standardized Approach Highly Customized Approach

• Emphasizes seamless flow within company • Emphasizes seamless fit with local market
• Seeks efficiency and scale • Seeks return on invested capital
• Preserves companywide consistency • Preserves local autonomy

➤
Standard ➤ Local
processes businesses
facilitate flow Company A Global only obligated Company B Global
of funds, Customers to achieve Customers
people and Served return on Must work
ideas among $ consistently corporate $ $ $ through local
units and HQ at central investment level
➤ and local
➤
➤

➤
➤

level
➤ ➤ ➤ ➤

Government Employees Local Customers Suppliers Government Employees Local Customers Suppliers
Arms-length Potentially Limited range Face Close Practices Familiar Costlier
relationship; unfamiliar of products coordinated relationship; support local product small-scale
consistent ethics work flow, available; buying power; easier to needs and selection relationships
standards across management company may preference for influence expectations
➤

company style, HR irritate local global

practices sensibilities companies

Attempts to find a “happy medium” are frequently stymied by mixed

messages and implementation conflicts; such efforts often hinder
internal coordination without overcoming local dissatisfaction

Source: Corporate Strategy Board research.

10 Growth Across Borders
 Essay 11

Managing the Challenges of International Expansion

In conversations with member companies representative of many industries and regions, a recurring theme
emerged—important opportunities are being missed as a consequence of failing to effectively manage the
three fundamental challenges examined in this report. Members spoke of assembling country portfolios
without a basis in clear analysis or coherent strategy, of floundering and retrenchment before new ventures
find their footing or are discontinued, of discord between the corporate center and local subsidiaries about
the appropriate degree of companywide process standardization.
Three member companies—BellSouth, Jabil Circuit and Cemex—stood out for having implemented
particularly rigorous and inventive approaches to managing these challenges. All are relatively recent arrivals
to the international stage—each has launched its major push outside its home market in the past decade—
making their methods more applicable to a company newly engaged in cross-border expansion than the
systematized approaches of many longtime multinationals. Furthermore, all three have outpaced their
industry peers in shareholder return as well as in international growth.

Case Studies in International Expansion

I II III
Evaluating Choosing the Adapting
Market Method of Business
Desirability Market Entry Practices

Balanced Market Market Entry Standardization

Positioning Assessment Decision Rules Stewards
(p. 13) (p. 23) (p. 33)

Revenue opportunities are Market selection and entry Documentation, dissemination

analyzed in concert with
sociopolitical risk factors
Assessment is applied to potential
markets and to new product
development in established
markets
guidelines promote choices that
support core elements of the
company’s business model
Direct cost–benefit comparison
of acquisition and greenfield
options for each market
and continuous evolution of
companywide best practices
Multinational teams of process
specialists ensure appropriate
local alignment and integrate
proven improvements into global
standards

Source: Corporate Strategy Board research.

12 Growth Across Borders
 13

BellSouth Corporation
Balanced Market Positioning Assessment
14 Growth Across Borders

BellSouth Corporation

Company Profile
Atlanta-based BellSouth Corporation provides telecommunications service—including
consumer and business voice, data and Internet service—to more than 44 million customers
in the U.S., Latin America, Europe, Asia and the Middle East. It is the incumbent local phone
company for nine southern U.S. states from Louisiana to Kentucky. In 1999, BellSouth
consolidated its U.S. wireless assets in a joint venture with SBC Communications, forming
Cingular Wireless, the second-largest U.S. carrier after Verizon Wireless. BellSouth manages
operations in Latin America, Europe, Asia and the Middle East through its BellSouth
International (BSI) subsidiary.

Five-Year Total Return to Shareholders Selected Statistics

Percentage Return Since 1995

160% ▲
●
●
▲
FY2000 Revenue US$26.2 B
▲ ■ ● FY2000 Earnings US$4.2 B
■
■ Market Capitalization
90% ▲ (October 2001) US$78.1 B
●
■ FY2000 Employees 103,900
▲
0% ●
■
▲ ■ Five-Year Average
●
(20%) Annual Return to
1995 1996 1997 1998 1999 2000 Shareholders 16.3%

BellSouth
U.S. Local Telephone Companies
S&P 500

Case in Brief: Balanced Market Positioning Assessment

• BellSouth prioritizes international markets and determines its positioning against rivals
based on thorough analysis of risks posed by country-specific variations in regulation,
infrastructure, customer preferences and competition, in addition to economic indicators
of demand for its services.
• BellSouth applies this approach consistently in evaluating potential markets and for
repositioning itself both regionally and within markets in which it is already established.

Note: All information presented in this case study is based on publicly available sources; Source: Compustat data; Hoover’s Online;
BellSouth Corporation has reviewed this profile for factual accuracy only, and has Corporate Strategy Board research.
provided general direction regarding market assessment processes and the creation
of a business case, and a general overview of BellSouth’s Latin American services.
 BellSouth Corporation 15

Rapid Exposure to International Markets

International Expansion in Context
Unlike its fellow “Baby Bell” local exchange carriers which have focused on geographic
expansion within the U.S. through mergers and product expansion into the domestic long-
distance market, BellSouth has pursued international expansion as a core element of its
growth strategy. BellSouth’s initial forays in the late 1980s targeted varied countries—
typically characterized by deregulating telecom markets and unfulfilled demand for wireless
services—throughout Europe, the Asia-Pacific region and Latin America.
BellSouth shifted its strategy in 1995 to assemble a pan-regional Latin American presence,
entering 11 countries by 2001 through a mix of greenfields, acquisitions and joint ventures.
At the same time, it has been divesting some of its holdings in other parts of the world.
BellSouth faces many competitors in Latin America, most of which have entered the region
via acquisitions of local providers. However, no competitor has yet established a full-fledged
regional Latin American service.

BellSouth International Presence

Country and Year of Entry

Denmark, 1992
(Exit Planned)

Germany, 1994
(Exit Planned)

Israel, 1994
(Exit Planned)
Nicaragua, 1997
Panama, 1996
Guatemala, 2000 Shanghai,
Venezuela, 1991 China, 1986
Colombia, 2000
Ecuador, 1997
India, 1995
Peru, 1997 Brazil, 1998 (Exit 2001) Australia, 1991
(Exit 1997)
Chile, 1991
Uruguay, 1991
New Zealand, 1993
Argentina, 1989
(Exit 1998)
Current BellSouth International Presence
Former BellSouth International Presence
Current Partial Coverage
Home Market

Source: Goldstein, Tally, “BellSouth Set to Sell Stakes in Mobile Phones,” Financial Times,
28 August 2001; Corporate Strategy Board research.
16 Growth Across Borders

Analyzing Opportunities and Risks

In the early 1990s, inconsistent systems, widely varying market conditions and limited control of local
decision making made it difficult for BellSouth to fully exploit its international operations. As a result,
BellSouth adopted a more balanced and comprehensive framework for analyzing each market’s potential
for growth and the costs of adapting to local idiosyncrasies. The new approach also carefully examines
the potential for new rivals to emerge as more national governments bring down barriers to foreign
competition and auction additional wireless licenses.

International Management Challenges, 1989–1995

Challenge Description Example

1. Duplication of Effort
Each local business develops full-fledged,
autonomous corporate hierarchy and
administrative functions, rendering them
unable to leverage regional scale while
inhibiting cross-business coordination
Each of BellSouth’s international businesses
maintains its own branding and advertising
groups, conveying an inconsistent message
to customers and failing to capture scale
advantages in media buying

2. Inconsistent Business Practices Local businesses maintain separate, Marriot International receives a different bill
incompatible systems and processes, making for each of its 11 Latin American accounts
it difficult to serve regional accounts and with BellSouth
frequent travelers

Balanced Market Positioning Assessment

Illustrative Criteria

Opportunity Risk

Demand for Offering: Market Socioeconomic Differences:

• Customer purchasing power Characteristics • Political stability
• Market population • Regulatory environment
• Customer product preference • Geography/topography
• Demographic trends • Transport and technology
• Unmet demand for telecom infrastructure BellSouth looks
services • Currency risk especially at
financial risks
Competitive Positioning: Competitive Established Competitors:
posed by hard-
• Markets opening to competition Landscape • Market share
to-quantify
• Unoccupied profitable niches • Product specialization
nonfinancial
• Local partners to ease entry Potential Competitors: factors
• Barriers to entry
• Cultural and linguistic affinity
• Regional proximity

Company Capabilities: Company-Specific Resource Commitment:

• Engineering competencies Considerations • Personnel
• Distribution/logistics • Capital
• Sales force management • Knowledge
• Brand management

Source: Mehta, Stephanie N., “BellSouth Expected to Launch Advertising Campaign in Latin America,” The
Wall Street Journal, 24 May 1999; Corporate Strategy Board research.
 BellSouth Corporation 17

Building a Regional Presence

Based on its market analysis, BellSouth decided in 1995 to focus its international efforts on building a
pan-regional wireless business across Latin America. Although no competitor had yet established a full regional
presence, BellSouth expected the window for early-mover advantage to close quickly. Thus, its plan prioritized
rapid market entry to establish market share and reputational advantage in as many countries as possible.
Assessment of Latin American markets…
Latin America Market Assessment, 1995
Key Decision Drivers

Opportunity Risk

Growth Prospects: Pent-up demand for
landline service indicates large potential
market for wireless relative to other BSI
holdings
Regional One-Stop Shop: Serve businesses
that operate across the continent
Wireless Roaming: Seamless access
throughout Latin American properties
Market Low Income: Lower ability to pay for
Characteristics high-end services with larger margins
than in Europe
Greater Exposure to Shared Events:
Political instability, economic
downturns and currency risk often
spread regionally

Open Position: No competitors have yet Competitive Race to Regionalism: Telefonica de

established a truly regional presence Landscape España, Telecom Italia and Telmex’s
Partners: Available local partners satisfy America Movil are actively pursuing
FDI requirements Latin America strategies

Regional Expertise: Similar languages and Company-Specific Diminished Knowledge Base: Regional
political and business cultures Considerations focus limits ability to leverage insights
Existing Relationships: Cultural and trade from operations in more widely varied
ties with BellSouth home territory, markets
including Miami and the Gulf Coast
Abundant Talent: Local labor is qualified
and affordable

…leads to focused regional expansion strategy

Become the leading pan-regional provider of wireless-based telecommunications services
Latin America
Population (2001): 502 million
GDP per capita (2000): $4,454
Latin America Strategy
Build on wireless services
Partner with
non-incumbent
local companies
Differentiate brand
Issue tracking stock
Elements of Regional Strategy
Enter additional markets through wireless license auctions; migrate
customers to higher-end products and services over time
Avoid alliances with incumbent monopolies tied to legacy landline
infrastructure
BellSouth operates under its own brand, capitalizing on international
brands’ connotation of better service and quality than local incumbents
Enhance visibility of Latin America operations and raise capital from
growth-oriented investors to fund further expansion

Source: Mehta, Stephanie N., “BellSouth Considers a Tracking Stock as Currency for Latin American Unit,” The Wall Street Journal,
2 February 2000; Romero, Simon, “BellSouth’s Down-Home Strategy,” The New York Times, 3 September 2001; Spiegel,
Peter, “The Crafty Globalizer,” Forbes (20 March 2000); Corporate Strategy Board research.
18 Growth Across Borders

Efficiencies from a Regional Presence

As a result of its early-mover strategy, BellSouth quickly established itself as one of the leading wireless
providers in Latin America. With its competitive position more secure, the company began to standardize
practices and systems across markets. Improved consistency and efficiency have enabled greater delegation
of responsibility by the BellSouth International center in its Georgia headquarters to local companies, while
improving coordination across markets.

Rationalization of Latin American Activities

Selected Activities, 1997–2000

Holding Company Model Coordinated Regional Model

1997 2000

Expansion Focus: • Advisory support for new operations Profit Focus: BSI’s
BSI’s corporate center corporate center
staff focuses on entering focuses on streamlining
additional markets and • New market selection corporate HQ and
assuring strong financial BellSouth BellSouth designing a regional
returns International International Latin American strategy
• Network construction/maintenance

• R&D/product development
Efficiency-Seeking
• Platform/operating systems Standardization:
Many functions are
rationalized across the
• Procurement region to reduce costs

Little
Standardization: • Advertising
Tolerance of
inconsistent • Supply chain management
business practices
and systems among
local companies • Billing systems
when they support
rapid market entry
• Network operating standards Focused Local
Differentiation: Select
• Customer-facing (brand) functions have remained
local to accommodate
local diversity and
• Customer sales market idiosyncrasies

Source: “BellSouth Launches First Pan-Regional Ad-Campaign in Latin America,”

PR Newswire (24 May 1999); Corporate Strategy Board research.
 BellSouth Corporation 19

Balancing Country-Specific Risks and Opportunities

BellSouth continues to add countries to its Latin American portfolio. A detailed evaluation of market
conditions in each country determines subsequent choices regarding mode and timing of market entry,
customization of products and services, and definition of a specific niche within the market.

Based on evaluation of opportunities and risks…

Guatemala Market Assessment, 1999
Key Decision Drivers

Opportunity Risk

Sizable Market: Largest in Central Market History of Political Instability: Thirty-six-

America by population and GDP
Potential for Higher-End Services:
550,000 households with incomes
of more than $10,000
Economic Resilience: Economy based
on increasingly diverse industries
Characteristics year guerrilla war not ended until 1996
Lack of Transparency: Concerns about
skewed deregulation process
Natural Disasters: Volcanoes,
earthquakes and hurricanes disrupt
service and increase network
maintenance cost

No Nationwide Rivals: Opportunity Competitive Well-Connected Incumbents: Three

for BellSouth, given rapid investment
Opening in Data Services: No major
incumbents in wireless Internet access
Landscape existing providers, two owned by
regional players Telmex and Telefonica
Others Eyeing Market: SBC
Communications, GTE and Vodafone
are potential rival bidders

Leverage BellSouth in Panama: Ability to Company-Specific Mostly Rural: Network build-out and
share existing HR practices, financial Considerations maintenance costs higher outside
management, IT systems and marketing Guatemala City
techniques

…BellSouth enters Guatemala market in 1999

Guatemala Strategy
Build market share by creating the first nationwide wireless network, then add profitable high-end services and local access

Elements of Regional Strategy

Guatemala
Population (2000): 12.6 million
GDP per capita (1999): $3,900
Guatemala City
Greenfield start-up Purchase cellular license in October 1999, with partner from existing
Panama operations fulfilling local ownership requirements
Build nationwide network Offer cellular service under BellSouth brand in Guatemala City area
beginning in October 2000; ultimately expand to entire country
Become full-service Fortify position as high-quality national provider by adding long-distance
wireless provider and data/Internet services

Source: “BellSouth to Cover 18 Departments by 4Q01,” Business News

America, 24 May 2001; Corporate Strategy Board research.
20 Growth Across Borders

Introducing New Offerings in Established Markets

With 11 million wireless customers in Latin America, BellSouth now views the region as a laboratory for
launching new offerings based on wireless technology. The market positioning framework enables BellSouth
to assess the readiness for more sophisticated services of specific countries that are already in its portfolio, as
well as to identify new offerings that can be disseminated profitably across multiple countries.

BellSouth applies market assessment approach

to new offerings in established markets…
Introduction of Wireless Local Loop in Venezuela, 2001

Caracas

Venezuela Strong Presence in Market: New Product: Wireless Local Loop

Population (2000): 24.2 million BellSouth’s Venezuelan subsidiary, Telcel, (WLL): Introduces WLL in April 2001;
GDP per capita (2000): $4,300 obtains 65 percent of the wireless market allows companies to provide broadband
since entry in 1991; also offers domestic access to office towers and large facilities
long-distance and Internet services using cellular signals

Key Decision Drivers

Opportunity Risk

Serve Offices and Large Facilities: WLL Market Challenging Geography and Climate:
helps Telcel reach new customers in Characteristics Increases maintenance costs for
locations with concentrated occupancy network of wireless towers

Protection from Major Incumbent: Competitive Competition from Regional Rivals:

Former telecom monopoly CANTV is Landscape Telecom Italia and Telefonica have
legally barred from participating in both secured WLL licenses
WLL auctions

Leverage Existing Network: Telcel’s Company-Specific Pressure for New-Product-Led Growth:

proprietary wireless network already Considerations Telcel already has 65 percent share
covers 98 percent of Venezuela’s of Venezuela’s wireless market
populated regions

…and around the region

Regional Internet Portal
Market: Latin America
2001 joint venture with StarMedia Network to create multiaccess portals throughout
Latin America, enabling BellSouth’s 12 million cellular customers to access personalized
information anywhere via their cellular phones and personal computers

Source: Lifsher, Marc, “BellSouth Unit Wins Auction in Venezuela,” The Wall Street Journal, 7 February 2001; Guthrie, Amy,
“BellSouth Investment in StarMedia a Welcome Hedge Bet,” Dow Jones Newswires (1 June 2001); U.S. Department
of Commerce, Office of Telecommunications Technologies research; Corporate Strategy Board research.
 BellSouth Corporation 21

BellSouth’s Latin American Operations Achieve Rapid

Growth and Increasing Profitability

BellSouth Latin America Customer Base Latin America Earnings (EBITDA)

1997–2000 Q299–Q201

12 11.1 $250 $222

$149
6.2
Customers Millions of $125
6
(Millions) U.S. Dollars
3.5
1.7
0 $0
1997 1998 1999 2000 Q299 Q201

Assessment
Key Benefits
• Systematic market assessment, including in-depth examination of noneconomic factors,
allows BellSouth to balance the appeal of untapped markets with a comprehensive
evaluation of risks due to differences from familiar markets.
• Consistent application of the market assessment framework to existing markets supports
astute allocation of resources and rollout of new products throughout international
operations.
• Attention to the likelihood of future entry of competitors informs BellSouth’s sequencing
of market entry and its positioning decisions within entered markets.
Applicability
• The risk factors that require deepest analysis vary by industry, depending on sensitivity to
differences in economic, geographic, political or cultural factors.
• Careful analysis of risks from sociopolitical factors is important for all companies, but it is
critical for companies that are heavily affected by regulation or that must make long-term,
asset-intensive investments that make exit difficult if circumstances change.
Implementation Consideration
• Gathering information about risk requires on-the-ground presence through company staff,
local partners and consultants.

Source: Notes to BellSouth analyst meeting, http://www.bellsouth.com/investor/

ir_speeches.shtml (28 August 2001); Corporate Strategy Board research.
22 Growth Across Borders
 23

Jabil Circuit, Inc.

Market Entry Decision Rules
24 Growth Across Borders

Jabil Circuit, Inc.

Company Profile
Jabil Circuit is one of the United States’s leading electronic manufacturing service (EMS)
providers. Its services enable communications, computing and other technology companies
to outsource product design, component procurement, assembly and order fulfillment. Jabil
emphasizes deep relationships with a relatively small number of customers compared to its
competitors; this philosophy is reflected in its “workcell” production model, which divides
each plant into semiautonomous business units dedicated to individual customers. Jabil’s top
five customers—Cisco Systems, Dell Computer, Marconi, Lucent and Hewlett-Packard—
account for roughly half of all sales.

Five-Year Total Return to Shareholders Selected Statistics

Percentage Return Since 1995

2,500% ●
FY2001 Revenue US$4.3 B

● FY2001 Earnings US$119 M

Market Capitalization
1,300% ●
(October 2001) US$3.3 B
● ■ FY2001 Employees 17,000
■
● ■ ▲
Five-Year Average
0% ▲ ▲ ▲
●
■
▲ ▲
■ ■ Annual Return to
(100%)
1995 1996 1997 1998 1999 2000 Shareholders 78.3%

Jabil Circuit
Flextronics International
S&P 500

Case in Brief: Market Entry Decision Rules

• Jabil sets consistent guidelines for locating international operations and choosing its
method of market entry based on the alignment of market circumstances with the needs
of Jabil’s business model.
• For each evaluated market, Jabil directly compares the costs and benefits of pursuing
potential acquisitions versus building a greenfield site, enabling the company to make
balanced decisions about the best mode of entry for each market.

Source: Compustat data; Hoover’s Online; Jabil Circuit, Inc.;

Corporate Strategy Board research.
 Jabil Circuit, Inc. 25

Outsourcing for Multinational Customers

International Expansion in Context
Jabil Circuit’s international expansion is based on increasing demand from its existing
customers as much as the prospects for reaching new customers abroad. Over the course of
the 1990s, the trend toward outsourcing production in the telecommunications, computing
and electronics industries has coincided with aggressive expansion by many technology
companies into international markets. Jabil and its competitors have been able to capitalize
on those trends by internationalizing their own production.
Unlike highly acquisitive competitors such as Flextronics and Solectron, Jabil grew
exclusively through greenfields until the late 1990s. A private company until 1993, capital
constraints led Jabil to hone its greenfield growth methodology. Given the importance of
aligning an acquisition with its unique workcell production model, Jabil has continued to
carefully scrutinize potential acquisitions.
Jabil’s early international expansion efforts, starting with Scotland in 1993, were all greenfield
operations. Since its 1998 acquisition of plants in Idaho and Italy from customer Hewlett-
Packard, Jabil has pursued cross-border acquisitions with equal vigor based on a market-by-
market evaluation of the prospects of both entry modes.

Jabil Circuit International Presence

Country and Year of Entry

Scotland, 1993
England, 2001
Ireland, 2000 Belgium, 2001

Hungary, 2000
Italy, 1998
Japan, 2000
Mexico, 1997 China, 1998

Brazil, 2000
Malaysia, 1995

Production Centers
Repair and Logistics Centers
Domestic Market

Source: Miller, Eric, “Jabil Circuits the Globe to Find Financial Success,” The Tampa
Tribune, 6 June 1999: 30; Jabil Circuit, Inc.; Corporate Strategy Board research.
26 Growth Across Borders

Decision Guardrails for Market Entry

When Jabil considers opening new facilities in the United States or abroad, it evaluates its options based first
and foremost on its ability to provide customers with a standard of production and service quality identical
to that of its existing plants. This is especially important given that many customers contract with Jabil for
production in multiple locations around the world. Jabil is equally attentive to a new site’s capacity to
support its unique “workcell” production model that underpins its close relationships with customers.

Jabil’s Expansion Guidelines Support the Requirements of Its Distinct Business Model
Expansion Guidelines and Corresponding Business Model Characteristics

Business Model Characteristic Corresponding Guidelines for Expansion

1 Reassign customer facilities: The most effective

Outsourcing To reduce capital
acquisitions are often transfers of plant capacity from a
Business Model expenditures and improve
customer rather than a purchase of an entire electronics
speed to market, electronics
manufacturing firm, since the customer’s production staff
firms outsource
is already familiar with the products and the facilities are
production—and in some
designed to make them
cases design—responsibility
to EMS providers

2 Think regionally: Expansion decisions are based on Jabil’s

Multinational Jabil’s production flows
ability to help its customers serve their end users throughout
Customers into supply chains that
a region (e.g., Western Europe, Southeast Asia)
cross national borders;
products are typically
3 Look forward in the value chain: Location decisions take
destined for end users in
into account customers’ cost of distributing Jabil’s products
many countries
to their end users

4 Ensure a “workcell-ready” workforce: Jabil chooses

“Workcell” Jabil manages production
locations where it can hire local staff that can learn its unique
Production Model for at least three
structure of production management
customers in each factory,
each served by a dedicated
5 Full control trumps alliance advantages: Joint ventures
self-contained business
unit; these workcells use inhibit Jabil’s ability to impose its workcell model; all else
standardized production equal, it is less costly to establish this model in a greenfield
methods to customize than by integrating an acquired company
services for their
designated customer

Source: Jabil Circuit, Inc.; Corporate Strategy Board research.

 Jabil Circuit, Inc. 27

Balancing the “Build or Buy” Decision

Jabil’s decisions about market selection and market entry method are intricately linked. For every area
under consideration, Jabil evaluates the costs and benefits of acquisition candidates and greenfield sites
with a standardized methodology. The approach facilitates an integrated examination of regional demand,
economic and political infrastructure, local plant capacity and the local workforce’s skill sets.

Jabil Weighs the Value of Acquisition and Greenfield Options for Every New Market
Market Entry Method Evaluation
Illustrative Questions and Weighting

Greenfield–Acquisition Assessment 1 = Slightly

5 = Strongly

Evaluation Questions Supports Greenfield Supports Acquisition

1. Is current demand in the region already fully met by existing
production capacity? “Yes” supports acquisition. 5 4 3 2 1 1 2 3 4 5
Customer Rationale: Building new capacity only makes sense if producing
Needs and for export to another region
Local
2. Does a potential customer have plant capacity that it is willing
Capacity
to transfer to Jabil? “Yes” supports acquisition. 5 4 3 2 1 1 2 3 4 5
Rationale: Staff and facility can continue production with minimal
disruption if acquired
3. Are local personnel with technical skills readily available?
Local “Yes” supports greenfield. 5 4 3 2 1 1 2 3 4 5
Talent Rationale: It is easier to train new hires in Jabil’s methods than
to change the embedded habits and business culture of acquired staff
4. Are local acquisition candidates encountering severe labor
problems or underperformance? “Yes” supports greenfield. 5 4 3 2 1 1 2 3 4 5
Rationale: Jabil lacks competencies for quickly integrating turnaround
companies that require major business culture change and restructuring
5. Do local manufacturers possess innovative or valuable capabilities?
“Yes” supports acquisition. 5 4 3 2 1 1 2 3 4 5
Local
Companies Rationale: Acquiring new skills is a much faster process than building
them in a greenfield context
6. Is the strategic premium for a potential acquisition greater than
the savings from avoiding greenfield construction costs? “Yes”
supports greenfield. 5 4 3 2 1 1 2 3 4 5
Rationale: Jabil is capable of efficiently building greenfield sites, reducing
the relative speed and cost advantages of M&A
7. Is political instability or corruption a serious and widespread
Political problem? “Yes” supports acquisition. 5 4 3 2 1 1 2 3 4 5
Climate Rationale: Jabil cannot leverage relationships with political power brokers
in unfamiliar potential markets Value of Greenfield Value of Acquisition

Jabil chooses its method of entry for each market based

on its evaluation of both greenfield and acquisition options
Source: Jabil Circuit, Inc.; Corporate Strategy Board research.
28 Growth Across Borders

Building Where Others Have Bought

Jabil has pursued different means of market entry in Eastern Europe and in East Asia, but for consistent
reasons. In each case, its judgment was based on the application of uniform decision rules to specific
circumstances in the market. Jabil chose Hungary in early 2000 as its base for European customers owing to
its technically skilled workforce and convenient distribution to markets in the West. Learning from the
experience of competitors, such as Flextronics, that struggled to integrate acquired Hungarian electronics
manufacturers, Jabil opted to build greenfield operations in a lower-cost area east of Budapest, but with
excellent distribution infrastructure.

Jabil Avoids Competitors’ M&A Missteps by Choosing

an Advantageous Hungarian Greenfield Location
Market Entry in Hungary
2000

Objective: Establish a central production and distribution facility for new and existing customers’ markets in Europe

1. Market Selection II. Market Entry Method

Potential Production Sites: Potential Entry Methods:

Central location, but Previous acquisitions by Flextronics

Czech Republic and SCI Systems incurred
highest costs in region
Acquisition prohibitively high strategic premium
and persistent integration expenses

Close to Germany, but Jabil builds new facility in

Poland
underdeveloped infrastructure
✓
Greenfield
Tiszaujvaros, northeastern Hungary,
capitalizing on low distribution and
construction costs and ability to

✓
Acceptable location, affordable build on available technical skills
Hungary skilled workers and improving
infrastructure
Rationale: Rationale:

Proximity to
Customers
Establishing business
in Hungary allows Jabil to
rapidly and inexpensively
provide contract
manufacturing services to
its customers in Europe
M3
$
Highly Skilled Rapidly Developing Low Distribution Excessive Acquisition Fresh Start with
Workforce Infrastructure Costs Premium Management
Hungarian workforce Hungary’s maturing Tiszaujvaros’s location Potential targets ask Building Jabil culture and
possesses technological infrastructure supports allows Jabil to build a excessive purchase methods into new
capabilities developed the efficient movement new facility on a newly premiums for facilities operation bypasses task
under Soviet-sponsored of goods, information constructed M3 highway, that would require of reversing established
electronics industry and people providing efficient substantial retooling management practices
distribution to Western
Europe without the costs
of Budapest
Source: Clark, Peter, “Fab Contracting Boosts Hungary,” E.E. Times, 26 April 2001; Echikson, William, “Taking
Hungary on a High-Tech Ride,” BusinessWeek (23 October 2000); “Jabil Circuit Opens Plant in
Tiszauvjaros,” Hungarian News Agency, 7 April 2001; Jabil Circuit, Inc.; Corporate Strategy Board research.
 Jabil Circuit, Inc. 29

Acquiring to Pave the Way for Greenfield Growth

In Asia, Jabil followed a greenfield in Malaysia with a major acquisition in China. In the near term,
the purchase nets Jabil one of China’s most technically proficient electronics firms and current contracts
with global companies outside of Jabil’s existing customer base. In the long term, the local management
team’s relationships with Chinese business and political leaders and its knowledge of domestic market
dynamics will position them well to lead Jabil’s future greenfield expansion as the domestic China
consumer electronics market continues to grow.

Jabil Enters the Complex China Market Through an Acquisition

and Lays the Foundation for Future Greenfields
Market Entry in China
1999

Objective: Establish facilities to serve electronics manufacturers selling to the Chinese domestic market
and exporting throughout Asia and the world

1. Market Selection II. Market Entry Method

Potential Production Sites: Potential Entry Methods:

Differences between China’s political

Jabil built a factory in 1995 to produce and business environment and those of
computer components mostly for export;
Malaysia
further expansion is deemed more costly
Greenfield North America make entry difficult
without the benefit of local insight and
than entering China established business relationships

September 1999 acquisition of Hong

Jabil enters China in 1999 to serve existing

✓
China
customers in Asia in the near term, as well
as to exploit future opportunities within
China’s burgeoning domestic telecom and
✓
Acquisition
Kong–based GET Manufacturing’s three
plants in southern China allows Jabil to
immediately expand its customer base
and obtain a company with talented,
electronics markets
experienced local management
Rationale: Rationale:

FDI

Proximity to Asia- Highly Skilled Liberalizing Acquire New Acquire New Acquire Local
Pacific Customers Workforce Economic Customers Capabilities Relationships
Establishing a presence China boasts many Environment Jabil acquires GET’s GET boasts production GET’s management
in China allows Jabil to comparatively China’s rapidly customer base, which capabilities—injection helps Jabil work with
efficiently serve its inexpensive workers liberalizing economic includes both new molding, direct-die Chinese regulators,
customers’ needs in Asia with engineering and infrastructure creates an business lines from attach technology—that suppliers and partners;
technological training increasingly manageable current customers expand Jabil’s service Jabil is better positioned
investment climate and several new offerings for further expansion via
multinational customers greenfield growth

Source: Levine, Bernard, “Jabil Looks to China,” Electronic News (9 August 1999): 4;
“On the Road to Asia: E.M.S. Expansion in China,” Investext Analyst Report,
24 November 1999; Jabil Circuit, Inc.; Corporate Strategy Board research.
30 Growth Across Borders
 Jabil Circuit, Inc. 31

Driving Bottom-Line Growth with Geographic Growth

Revenue and New Markets Entered Net Income

1996–2000 1996–2000

12 $160 $150
$3.6

$2.2 $95
Revenue Net Income

Hungary
(Billions of 6 (Millions of $80 $74
$1.5 $59
U.S. Dollars) $1.2 U.S. Dollars)
China

$1.1
$30
Mexico

Italy

0 $0
1996 1997 1998 1999 2000 1996 1997 1998 1999 2000

Assessment
Key Benefits
• Clear decision rules that are grounded in Jabil’s business model allow the company to
confidently factor in the costs of working around local circumstances that may not easily
match the model’s requirements; the guidelines also provide agreed-upon criteria for
declining to pursue expansion proposals that may have attractive financials but conflict
with Jabil’s way of doing business.
• Comparative evaluation of acquisition and greenfield options for all potential markets
encourages Jabil to identify profitable alternatives that would not be readily apparent
upon initial examination of a potential growth market, and obligates the company to
look beyond the industry’s conventional wisdom with respect to expansion abroad.
Applicability
• Directly weighing multiple market entry methods is especially valuable for companies
that are looking abroad because of a potentially attractive foreign takeover candidate;
even M&A prospects that meet a company’s investment criteria may prove to be less
advantageous over the long term than greenfields or alliances in the same market.
Implementation Consideration
• To ensure a truly balanced evaluation of greenfield and acquisition possibilities, it is
important to evaluate and compare them as capital investments based on financial criteria,
as well as strategic decisions based on qualitative criteria.

Source: Jabil Circuit, Inc.; Corporate Strategy Board research.

32 Growth Across Borders
 33

Cemex, S.A. de C.V.

Standardization Stewards
34 Growth Across Borders

Cemex, S.A. de C.V.

Company Profile
Cemex, the Monterrey, Mexico–based cement and ready-mix concrete manufacturer, is the
third-largest company in its industry behind France’s Lafarge and Switzerland’s Holcim.
The company derives more than 50 percent of sales from outside Mexico. Cemex has
operations in more than 30 countries on four continents, including Colombia, Costa Rica,
the Dominican Republic, Egypt, Indonesia, Mexico, the Netherlands, Panama, the
Philippines, Singapore, Spain, the U.S. and Venezuela.

Four-Year Total Return to Shareholders Selected Statistics

Percentage Return Since 1996
300% ●
FY2000 Revenue US$5.6 B
FY2000 Earnings US$1.0 B
● Market Capitalization
175% ▲ ■
■
▲
(October 2001) US$6.1 B
■
▲
■ FY1999 Employees 20,000
●
▲
0% ●
■
▲ Four-Year Average
(50%) ● Annual Return to
1996 1997 1998 1999 2000 Shareholders 26.2%
Cemex
Construction Industry
S&P 500

Case in Brief: Standardization Stewards

• Cemex establishes standardized business practices, known as “The Cemex Way,” that are
systematically mapped, cataloged and disseminated across all local businesses; moreover,
The Cemex Way constantly evolves to incorporate local innovations and superior practices
from acquired companies.
• Best practice standardization is enabled by a network of nine “E-Groups”—multinational
teams of process specialists and experienced managers—with a global mandate to align all
businesses with The Cemex Way and to identify and integrate potential improvements to
Cemex’s global standards.

Source: Compustat data; Hoover’s Online; Cemex, S.A.

de C.V.; Corporate Strategy Board research.
 Cemex, S.A. de C.V. 35

A Global Consolidation with Emerging-Market Roots

International Expansion in Context

The international cement industry is currently undergoing rapid consolidation. Industry
experts estimate that in the year 2000, the top 10 industry leaders owned 75 percent of
cement capacity in operation. As this trend continues, Cemex faces growing pressure to
either acquire or be acquired.
Cemex’s major competitors, France’s Lafarge and Switzerland’s Holcim, have pursued
acquisitions primarily in the United States and Europe. Cemex has also grown via
acquisitions, but it has focused first on markets with linguistic or economic ties—e.g., Spain
and Latin America—and subsequently on markets where customer needs are familiar—
e.g., developing countries such as Indonesia and Egypt, where cement is sold in bags rather
than in bulk.
In October 2000, Cemex became a major player in the United States with the acquisition
of the country’s second-largest cement manufacturer, Southdown, for $2.8 billion. Cemex’s
market portfolio is now more diversified, with 29 percent of production capacity in stable,
mature markets and 71 percent in developing markets with growing populations and
infrastructure requirements.

Cemex International Presence

Country and Year of Entry

Egypt, 1999

United States,
1994 Spain, 1992
Monterey, Dominican
Mexico HQ Republic, 1995
Costa Rica, 1999 The Philippines, 1997
Venezuela, 1994
Panama, 1994
Thailand, 2001
Colombia, 1996 Indonesia, 1998

Cemex Presence
Main Business Units
Domestic Market

Source: Fritsch, Peter, “Cemex Loves Its ‘Ants’ but Wants More: Mexican Cement Firm’s
U.S. Deal Goes Beyond Do-It-Yourselfers,” The Wall Street Journal, 2 October
2000: A22; Cemex, S.A. de C.V.; Corporate Strategy Board research.
36 Growth Across Borders

Setting Standards for an Expanding Company

As Cemex expanded beyond Mexico in the early 1990s, management encountered increasing difficulty with
integrating its international operations. Local managers often claimed that standard Cemex practices would
not be effective in Spain or South America. Hindered by expensive variation and duplication among its
businesses abroad, Cemex’s bid to become a global player slowed.
Noting that many of its established business practices had been adapted from acquired Mexican firms, Cemex
began cataloging and disseminating standardized business practices worldwide in the mid-1990s, an approach
that would come to be known as The Cemex Way.

Cemex catalogs standardized business processes…

“The Cemex Way”
The Cemex Way is the core set of best business practices with which Cemex conducts its business
throughout all of its locations. The approach was instituted in recognition of the need to build
“one Cemex” that is more flexible in response to rapid growth and maintains a consistent
customer focus worldwide.

Business Practices Cataloged in The Cemex Way

Commercial Controllership Ready-Mix Operations

Customer-Facing Accounting and Concrete Production and
Processes and Cost Management Processes Specific Quality Assurance
Logistics for to Ready-Mix
Cement Business Business Procurement
Sourcing and
Supplier
Relationships
Finance Human Information Planning
Cash Management, Resources Technology Analysis,
Bank Relations Roles and Network Budgeting and
and Capital Responsibilities, Architecture, Forecasting
Markets Compensation, Hardware
Recruiting and Software
Standards

…and aligns the entire organization with best practices

Elements of Business Practice Standardization
1 4
Assessment: The identification Evolution: The development and
and assessment of business ongoing reassessment of
practices currently used at either Corporate Center standardized best practices to
newly acquired businesses or ensure long-term effectiveness of
➤

existing business unit locations business processes and activities

➤

2 3
Dissemination: The adoption Accommodation:
and implementation of Customization of selected
standardized practices throughout practices to reflect specific local
the organization conditions
Business Unit Business Unit
Source: Cemex, S.A. de C.V.; Corporate Strategy Board research.
 Cemex, S.A. de C.V. 37

Clear Ownership for Global Best Practices

In the late 1990s, Cemex established nine E-Groups with worldwide responsibility for improving and
disseminating The Cemex Way. Each E-Group brings together individuals with a variety of functional
experience to assume responsibility for specific business processes, such as planning, IT, HR and finance
practices.

Each set of business practices is stewarded by an “E-Group”…

E-Group Organization

Responsibilities Nine E-Groups are responsible for assuring definition, documentation, implementation and improvement
of a specific set of The Cemex Way business practices
Coordination All groups assemble at least once each week, in addition to frequent informal consultation, to support
common initiatives and knowledge sharing
Implementation While E-Groups are responsible for assuring companywide alignment, implementation of specific plans is
conducted by country implementation teams that collaborate with the E-Groups
Improvement Each E-Group is responsible for seeking out superior business practices in the field and integrating them
with the elements of The Cemex Way under the group’s stewardship
Evaluation Group performance is evaluated by an executive sponsor against explicit objectives set at the beginning
of each year; objectives include speed and effectiveness of implementation plans and the business value
of improvements in The Cemex Way

…composed of experienced managers from diverse backgrounds

Typical E-Group Composition

Business Process Experts

• Individuals from a variety of
Cemex locations
• Proven experience and
recognition in specific fields

Group Leader
• Process expert with Executive Sponsor/Business Process Owner
proven track record • Corporate vice president responsible for
• Coordinates team strategic direction
activities and analysis • Oversees as many as three E-Groups

IT Support Human Resources

• Business process design • Supports design and
• Technology development implementation of “The Cemex
Way” throughout organization

Source: Cemex, S.A. de C.V.; Corporate Strategy Board research.

38 Growth Across Borders

Evaluating Local Variations

The E-Groups conduct thorough reviews of all Cemex businesses and new acquisitions to assess compliance
with The Cemex Way. Successful analysis and implementation depend upon the involvement of country
implementation teams—representatives of the local business who collaborate in every stage of the review
process. Following the comprehensive analysis of processes, systems and structures, the E-Groups finalize a
plan for compliance to be implemented by the local teams. Typically, only about 20 percent of a business’s
practices are retained due to undeniably important local market and legal requirements.

Local Business Practice Review

1. E-Groups Collaborate with Country Implementation Teams

For each set of business practices, E-Group Representatives Country Implementation Team
E-Groups work closely with local
employees who are familiar with Experts in HR, IT and Local employees from newly
business practices and culture; together, business practices acquired company or subsidiary
they assess all practices and identify
those that need to be aligned with
Responsibilities: Responsibilities:
The Cemex Way • Analysis of local practices • Advisory and support to E-Group
• Final decision regarding decision making
implementation of The • Granular implementation of plan
Cemex Way set by E-Group

2. “Gap Analysis” Comparison with The Cemex Way Practices

All local practices are documented 1. Processes 4. Organizational Structure

➤
and assessed for compliance with ➤ ➤
The Cemex Way ➤
➤

2. Roles and Responsibilities 5. Tools and Templates

Job ✓
Description ✓
✓
✓

3. Technology Infrastructure 6. Performance Metrics

3. Implementation Plan Developed for Alignment with The Cemex Way

Results of gap analysis are synthesized Business Process Analysis (Illustrative)

into actionable implementation plan
to be followed by local teams
To Align with Cemex Way
I. Human Resources
• In-house compensation processing
• Biannual merit increase
• Annual performance review procedure
II. Finance
• Annual budget setting
• Internal accounting standards
III. Legal
• Electronic document storage
• Ethics standards
Source: Cemex, S.A. de C.V.; Corporate Strategy Board research.
To Be Retained
• Internet recruitment
• Use of online training vendor
• Tax reporting
• Engaging outside counsel
• Compliance with local standards
Typically, 80 percent of
processes are replaced
with those prescribed
by The Cemex Way
Twenty percent remain,
primarily in response to
specific legal, market and
regulatory constraints
 Cemex, S.A. de C.V. 39

An Evolving Vision of Best Practice

Gap analysis also identifies local practices that can be adapted to improve on The Cemex Way globally.
In each business review, E-Groups specifically look for superior business practices that are evaluated with
the assistance of additional specialists and senior executives at the corporate center. The E-Groups are
empowered with making final decisions about the adoption of new standards. Fully 70 percent of The Cemex
Way has been adopted from companies acquired since the 1970s. Cemex’s active adoption of superior
practices has improved the effectiveness and consistency of its processes and has accelerated its transition
into the realm of truly global companies.

Thorough analysis and investigation of local business practices…

Evolution of The Cemex Way

1. Analysis 2. Evaluation 3. Adaptation 4. Dissemination

Practice

Practice Corporate Center

Cemex
➤
Way

Business Unit Business Unit

Identification of successful
and potentially transferable
business practice
E-Group meets with executive E-Group maps, reworks Practice is incorporated
sponsor to present the practice and adapts selected practice into The Cemex Way for
and obtain feedback regarding for use across the organization standardization throughout
its value and applicability all business units and new
acquisitions

….contribute to 70 percent of “The Cemex Way”

processes being adopted from acquired businesses
Origin of Best Practices Integrated into The Cemex Way
Selected Practices and Rationale for Adoption

Mexico, 1980s
Ready-mix dispatching system— Cash management system— Commercial logistics
Improved fleet management More robust cash flow processes—Standardized,
and logistics efficiency forecasting and management flexible IT platform for
of payments and collection distribution management

Spain, Early 1990s

Commercial cement decision- Bank relationship management—
support tools—Streamlined More rigorous controls and
metrics and budgeting better information for financial
process negotiations
Ready-mix production processes—
South America, Mid-1990s to Present More efficient plant management
Customer service Accounting—More streamlined technology and tools
management system— and frequently updated
Stronger customer care controllership, accounting and
culture cost management systems
Source: Cemex, S.A. de C.V.; Corporate Strategy Board research.
40 Growth Across Borders
 Cemex, S.A. de C.V. 41

Process Improvement Across Five Continents

Production Capacity and Major Acquisitions EBITDA and Sales

1992–2000 (Millions of Metric Tons) 1992–2000 (Billions of U.S. Dollars)

80 77 $6.0
65 Sales
57
50 51 EBITDA
45 47 $5.6
39 $4.8

U.S.
40 36 $3.0
Philippines

Egypt
Colombia

$4.3
Venezuela

$3.4 $3.8
Spain

$2.9 $2.6
$2.2 $2.1
$1.8 $2.0
$1.1 $1.2 $1.5
$0.7 $0.9 $0.7 $0.8
0 $0.0
1992 1993 1994 1995 1996 1997 1998 1999 2000 1992 1993 1994 1995 1996 1997 1998 1999 2000

Assessment
Key Benefits
• Detailed mapping of local processes and comparison with The Cemex Way processes and
systems enable E-Groups to strike a reasonable balance between universal standardization
and appropriate customization at the country level.
• Active search for local business practices that can improve Cemex’s global standard
processes supports continuous learning as the organization grows.
Applicability
• Cemex’s effort to identify practices that merit broader dissemination is especially valuable
for companies that regularly pursue acquisitions, as valuable knowledge is often lost in the
rush to integrate the acquired company.
• For companies contemplating the creation of a shared services structure to support a
multinational organizational structure, Cemex’s approach to standardization may provide
a less disruptive means of improving the consistency and efficiency of certain functions; it
also effectively lays the groundwork for introducing shared services at a later date.
Implementation Consideration
• The full involvement of local staff—as with Cemex’s country implementation teams—
is essential for enabling effective formulation and execution of standardization plans and
for identifying superior business practices that may not be readily apparent to people
without experience at the local business level.

Source: Cemex, S.A. de C.V.; Corporate Strategy Board research.

42 Growth Across Borders
 For Further Reading 43

For Further Reading

International Expansion—General

Bartlett, Christopher A., and Sumantra Ghoshal, “Going Global: Lessons from Late Movers,” Harvard Business
Review (March–April 2000).

Bryan, Lowell L., and Jane Fraser, “Getting to Global,” The McKinsey Quarterly 4 (1999).

Corporate Strategy Board, Developing Frameworks for International Expansion, Washington, D.C.: Corporate
Executive Board, 1997.

Corporate Strategy Board, Growth Through International Expansion at Middle Market Companies, Washington,
D.C.: Corporate Executive Board, 1999.

Forteza, Jorge H., and Gary L. Nielson, “Multinationals in the Next Decade,” Strategy and Business (Q3 1999).

Govindarajan, Vijay, and Anil K. Gupta, The Quest for Global Dominance: Transforming Global Presence into
Global Competitive Advantage, San Francisco: Jossey-Bass, 2001.

Luo, Yadong, “Dynamic Capabilities in International Expansion,” Journal of World Business (December 2000).

International Mergers and Acquisitions

Ghemawat, Pankaj, “The Dubious Logic of Global Megamergers,” Harvard Business Review (July–August 2000).

Hubbard, Nancy, “Acquisition Strategy and Implementation,” West Lafayette, Indiana: Purdue University
Press, 1999.

Lajoux, Alexandra Reed, The Art of M&A Integration: A Guide to Merging Resources, Processes, and
Responsibilities, New York: McGraw-Hill, 1998.

United Nations Conference on Trade and Development, World Investment Report 2000: Cross-Border Mergers
and Acquisitions and Development.

Globalization

Fraser, Jane, and Jeremy Oppenheim, “What’s New About Globalization?” The McKinsey Quarterly 2 (1997).

“Measuring Globalization,” Foreign Policy (January–February 2001).

United Nations Conference on Trade and Development, World Investment Report 2001: Promoting Linkages.

International Management

Bartlett, Christopher A., and Sumantra Ghoshal, Managing Across Borders: The Transnational Solution, Boston:
Harvard Business School Press, 1998.

Ghemawat, Pankaj, “Distance Still Matters: The Hard Reality of Global Expansion,” Harvard Business Review
(September 2001).

Govindarajan, Vijay, and Anil K. Gupta, “Managing Global Expansion: A Conceptual Framework,” Business
Horizons 43 (March 2000).