I recently gave a presentation to a graduate level class of MBA’s at UCI on the topic of international expansion. They had invited me to come speak about my experience with various international expansions I’d been associated with, such as KFC China and eBay China. The presentation was a lot of fun with a lot of questions and interaction with the students so I thought it would be worthwhile to share some of my thoughts on this topic with you as well.
When You Get International Expansion Right, The Results Can Be Amazing - The first case study I presented was KFC China. The “hero” of this story is Sam Su, who’s still in charge of KFC in Asia and has been the driving force behind its continued success. Sam graduated from Wharton and worked at P&G Brand Management in Germany in Taiwan before joining PepsiCo’s KFC International business in 1989 as Regional Marketing Director for the North Pacific (To note, I joined PepsiCo in 1990 and worked with Sam when I was head of International marketing).
Shortly after joining PepsiCo, Sam took over four failing units in China. It now has over 3000 restaurants in over 650 cities. A new KFC opens up for business every day in mainland China. Sam’s also in charge of Pizza Hut in China, which has over 600 units (500 casual dining and 100 delivery units). Operating profits have grown from $20m in 1998 to $600m in 2009.
How did Sam achieve such remarkable success? By following some fundamental principles early on and sticking with them, including:
- Focusing on getting the basics right (food quality, training, facilities)
- Forming well-crafted JV’s with local city governments (which helped secure prime real estate sites)
- Investing in major talent to form a core leadership team
- Making marketing key priority (especially investing in the story of Colonel Sanders as well as a kids character they created called “Chicky”, now more popular than Ronald McDonald!)
- Really understanding what drives Chinese consumers (i.e. families enjoying great meal together, celebrating birthday parties at the restaurants)
- Creating early wins and kept building on successful momentum
When International Expansion Goes Wrong, It Can Be Very Painful and Expensive – Unfortunately, the KFC China example doesn’t happen very often. Many international expansions are not successful. It’s safe to say most are at best modestly successful and too many are expensive failures.
While eBay has had a number of successful new markets they’ve entered, they’ve also had their share of failures such as eBay China. For perspective, eBay historically has either entered a new market one of three ways: a.) creating it as a “green field” brand (as in the U.K.), b.) buying an existing auction website and converting it to the eBay global platform and brand or c.) buying an existing website and letting it continue to operate as a separate brand and platform (such as the auction website in South Korea, which is the market leader). eBay chose the “buy and convert” option in China by buying EachNet.
Bo Shao is a Harvard MBA (Class of 1999) and after graduation, returned to China to create EachNet, which grew to be China’s largest e-commerce site. EachNet was purchased by eBay for $180 million in 2003. At the time of the purchase, it had an 85% market share and 2 million registered users. Bo stayed on with eBay until 2004 as chairman of eBay China (and is currently co-founder of Matrix Partners China).
Unlike KFC China, which was listening carefully to what the local consumers wanted and adjusted accordingly, eBay China focused on converting to a global platform (which had been done successfully in a number of European markets) despite numerous concerns expressed by Bo and the local EachNet team about doing this. In July 2003, eBay terminated the EachNet platform to transfer it to the global eBay platform and brand.
To put it mildly, this didn’t exactly go as planned. Traffic to the site dropped in half almost immediately and never recovered. Bo soon decided to move his family to U.S. and eBay sent a non-Chinese ex-pat team to Shanghai to run the business (the new head of the business was the #2 general manager from eBay DE, eBay’s largest international market).
Over the next two years eBay spent an additional $100m on improving the technology platform as well as marketing programs. While all of this was happening, a local site called Taobao was launched in 2003 as a free site and gained market leadership by 2004. After sustaining several years of deepening financial losses, eBay finally set up a joint venture with a local website but in effect withdrew from China in 2006.
What went wrong with eBay China despite spending hundreds of millions of dollars and some of eBay's best talent to get it right? I’d suggest there were several key reasons:
- We didn’t listen to the China team when it came to appreciating the risk of migration to the global site as well as how the look and feel of global eBay site would go over with the Chinese online consumer (i.e. “it didn’t feel Chinese” to them)
- We didn’t appreciate the risk of local competition such as Taobao (especially when they offered their product at no cost until eBay left the market)
- We didn’t recognize how big the problems were until it was too late (for example, the initial drop in traffic didn’t get reported until one month after it happened)
- We were unwilling to make tough calls and admit key mistakes while there was still time to do something about them
How To Successfully Expand Brands Internationally – Based on the work I’ve done in over 65 countries, I’d offer the following principles to keep in mind when you’re expanding your brand into new markets:
- Understand Your Target Audience – Do you really understand them from a demographic, attitudinal and behavioral point of view? What’s their pain point and how are you going to solve it for them? How’s that solution better than what the competition can offer? What assumptions are you making about your target that you need to double check?
- Agree on What’s Negotiable and What’s Not – Regardless of what business you’re in, always remember he following items related to your Brand are non-negotiable (i.e. they don’t change just because you’re expanding into new markets):
- Your Brand’s mission, trademarks and logos
- Your overall brand positioning
- Your core assets, products and services
- The selection of your marketing and agency management
- Your corporate values
If you make the mistake of compromising on any of these as you enter new markets, you’ll pay a high (sometimes fatal) price on the health and future of your Brand
- Inspire Passion Around Your Brand Vision – Do you really understand what makes your Brand special? Can you effectively communicate this to your international expansion team (especially new members of the team)? Great brands are never an accident... they’re a result of hard work, consistent strategy and flawless execution of the passion that made them successful in the first place from a dedicated, energetic team.
- Share Global Learnings and Best Practices - Sharing the right knowledge at the right time with the right people is invaluable in making sure your Brand captures and repeats its “playbook” in new markets. This lead me to create highly successful Marketing Colleges at PepsiCo and eBay as well as quarterly in-person meetings at various global locations to share such learnings and recognize key thought leaders.
- Measure Against Your Most Important Metrics - “That which gets measured gets done” is true. Financial metrics are important but don’t tell the whole story. You need to measure key consumer metrics such as your NPS (Net Promoter Score – more on this in a future blog).
Conclusion - “Those who don’t learn from history are doomed to repeat it.” This is especially true when you’re expanding a Brand abroad. “More sweat on the training field, less blood on the battlefield” is a reminder for all of us that by studying what’s worked to make your brand successful in the first place can be successfully applied in making sure that your Brand’s future has all the odds in your favor. Good luck!