Don Sull's blog

The final stage in globalizing is less a step and more a long march. After adopting a global mindset and giving their commitment teeth, executives must make a series of organizational changes–large and small–required to execute on their global strategy. To succeed on the global stage, a company must align its organizational realities with its lofty ambition.

Improving the organizational attributes required to compete globally often takes the best part of a decade, particularly for large complex enterprises. Samsung’s Chairman Lee was forced to realign most aspects of the group’s business model to deliver on his commitment to global leadership. When transforming their company to compete globally, owners and executives should focus on five key aspects of the organization: Strategic frames,  Along with the Samsung case described in an earlier post, CEMEX (a leading global cement producer), provides another example of transforming an organization for global competition

Strategic frames refer to what managers see when they look at the world, and include definition of market, focal competitors, and success metrics among others.  CEMEX executives shifted their focus from local to global cement players (Lafarge and Holderbank) in defining the appropriate scope of market competition. CEMEX executives sometimes characterized their international operations as a “ring of grey gold” comprising commitments to high growth markets (mostly in developing countries in a band around the Equator). By viewing their addressable market in global, rather than national or even regional terms, CEMEX was better positioned to play a global chess match where of attacks in one market often attracted retaliation in another market. Moreover, CEMEX began to measure success in terms of economic value added and how quickly it could bring acquired operations to CEMEX operational levels.

Resources include the tangible and intangible assets that are rare, add economic value, and are difficult to imitate. CEMEX’s internationalization accelerated with the bold US$ 1.8 billion acquisition of two large Spanish cement companies, which yielded a market leading 28% share in one of Europe’s largest, and at the time fastest-growing, cement markets. Though shareholders initially took a dim view of the acquisitions, the boldness of the investment created the needed urgency to turnaround the two Spanish companies. Moreover, the Spanish acquisition was followed by transactions in Venezuela, Colombia, and Chile. CEMEX also made strong commitment to having a superior IT platform to connect its plants. By 2000, CEMEX was investing 1% of revenues in IT, well ahead of its rivals in the industry. Not all of these investments in resources worked out equally well. The company’s investment in an Australian cement-maker, purchased with debt near the height of the boom, has been a drag on cash flows in the current downturn.

Processes are the formal and informal procedures used within a firm to get things done.  With its new internationalization strategy, CEMEX invested in two critical processes: opportunity identification and post merger integration (PMI). To identify new acquisitions, executives scanned the world and developed strict rationale to enter a new market which combined consumption potential and political risk. Once the decision to proceed with an acquisition was made, CEMEX formed a multi-disciplinary PMI team which would spend six months to a year on each company. This team would be in charge of improving the situation of the plant, replicating basic management processes and harmonizing cultural beliefs. CEMEX became so good at the PMI process, that it started setting up PMI teams to “re-acquire” existing operations in periodic intervals.

Relationships with external stakeholders, such as customers, suppliers, regulators, that enable a firm’s success. To fund its international expansion, CEMEX developed relationships with global bond and equity markets. In 1990 it was the first Latin American Company to list American Depository Receipts in the NYSE. In 1999 it also partnered with an insurance company and the private equity arm of the Government of Singapore to fund up to  $1.2 billion to purchase cement assets in Asia.

Values are the deeply-held beliefs that excite employees, differentiate them from competitors, and attract other stakeholders. CEMEX developed global values to hire top graduates from local schools in each country and invest heavily in training and development. CEMEX acquired a private satellite TV network for training and is increasingly using the Internet for training and development. More importantly, CEMEX wanted to preserve the basic elements of its strong culture, while adapting it to cut across multiple languages, cultures and religions – such as incorporating religious breaks in daily operations of its Indonesian plants.

This ends my series on globalizing.