PwC discovered in research done for the report, that companies fall into three types of “globalizers,” each with different levels of success:

• Autopilot Globalizers: These companies (over a quarter of respondents) have either not rethought their globalization strategy since the downturn or said that it would be too difficult to change. Seventy-one percent of respondents agreed that companies in general follow a “herd mentality” when going into new markets rather than making careful preparations.

• Reactive Globalizers: These businesses are using globalization to cut costs and increase sales quickly to counteract the impact of the downturn. They tend to do better than average financially, though not by much.

• Effective Globalizers: These companies take time to build up operations from scratch and understand new markets, including the availability of things such as talent or superior R&D. The results speak for themselves: 65 percent of effective globalizers have outperformed their peers financially in the last year, against 36 percent of other firms.

While it wasn’t mentioned in the PwC report, since the global downturn began, the Kingdom has attracted more than its fair share of Autopilot Globalizers. Following the herd, they have stampeded to Riyadh in particular. They have no clue about how to do business in the Kingdom. All they know is that Saudis still have a growing economy, so there must be some money to be had, somewhere. Autopilot Globalizers are willing to promise almost anything to get a deal. They need that first Saudi reference client and then a surprising thing happens. Other Saudi firms acting on autopilot, and unwilling or unable to go about the due diligence required in selecting new technologies, sign up with the firm based on that initial Saudi sale. 

These Autopilot Globalizers put no resources into the Kingdom to support the local sales. Ordered hardware is shipped from warehouses outside the region. Spare parts are sourced when the need arises. And for every firmware, software or integration issue “remote access” is the solution. Saudi enterprises are suffering and productivity is being affected as the number of these Autopilot Globalizers increase and they provide their version of “service” to the Kingdom’s businesses.

According to Raman Chitkara, Global Technology Industry Leader, PricewaterhouseCoopers LLP, the herd mentality is frequently at the foundation of many corporate moves into specific countries. A company executive overhears a competitor discussing new clients in a certain country or a press release noting a large deal is brought to the corporate board’s attention. Suddenly, without much thought or strategic planning, business development executives are making their way to that city or nation.

“What the report is trying to highlight, is that when you look at the companies which have done well, those companies tend to take a long-term view of the market and a long-term view of their globalization strategy,” said Chitkara. “They consider the individual geographies and their potential both from a resource perspective and a market perspective. Unfortunately, not too many companies fall in this category of the most successful.”

Effective planning for a move into a new country requires that the technology company not only understands the logistics of doing business in that market, but also the business and consumer culture. Chitkara pointed out that it is not unusual for technology companies to earn up to 80 percent of their revenue from nations outside their home market. Those companies that become the most profitable are the ones who really understand customer preferences and tailor their products and services to meet those requirements. He said that Nokia comes to mind as a company that has “clearly understood what different buyers in different countries are looking for and they have adapted their products to the needs of the buyers.”

The PwC report emphasized that, “Despite the opportunities, globalization is not about growth for growth’s sake. Defining business objectives and developing the operational support plan to match those objectives is critical. Leading global companies achieving success in emerging markets are selective about the right expansion opportunities to ensure the right strategic fit for their organizations. They perform the necessary due diligence, collaborate as required and then execute effectively.”

Why don’t more companies become “Effective Globalizers” instead of settling for being “Autopilot Globalizers?” It may be because as a group, these companies reported to PwC that they do no worse financially than the norm — although they don’t perform better either. PwC found that Autopilot Globalizers “may achieve average financial performance because the practice itself is so common.” By simply setting up shop where other companies are already winning contracts, sales will be made. Companies may have the attitude that if they just parachute into an environment where sales are taking place, they’ll be able to figure out a winning strategy as they go along. In truth, only a minority of multinational technology companies are willing or able to localize sufficiently to maximize business potential when entering a new market.

Effective Globalizers take certain factors into consideration when going into a new country. Of importance in descending order are:

• Size and demographics of the market

• Intellectual property protection and the strength of the country’s legal system

• Level of the country’s technological expertise/education

• Exchange controls or controls on the repatriation of profits

• Level of technology infrastructure

• Level of other infrastructure

• Tax incentives

PwC noted that companies seeking to understand and engage with new markets begin with an in-depth study. Such local understanding not only improves sales, it helps show what else given economies might offer. Plus, while cutting costs and growth are the leading factors driving effective globalizers in their strategies, they are less dominant than for other companies. Instead, these businesses are much more likely than others to focus on important long-term drivers, including access to talent, access to new ideas and access to superior R&D. The PwC report would seem to support the Saudi government’s strategy in opening new R&D centers such as King Abdullah University of Science and Technology (KAUST) and funding thousands of scholarships for higher education. The Kingdom is already strong in the area of tax incentives and liberal in the repatriation of profits. More work needs to be done by the government however on the enforcement of intellectual property regulations and the enhancement of the nation’s technology infrastructure. The Kingdom will never be the huge market of China or India but it can become more attractive to high quality technology companies looking to build long term business relationships, rather than those simply interested in quick profits.

The PwC report concluded that while the financial crisis has dealt some serious blows to the global economy, it has not led to a diminishing of the globalization of business.

“A successful globalization strategy requires a thorough understanding of the markets and a willingness to stick to a long-term plan even while adjusting to the immediate risks and opportunities of the temporary economic turmoil,” Chitkara said. “Courage under fire does not mean just the courage to act where necessary. It also means the courage to stop, learn and think about the best course of action despite the clamor for a quick fix.”