Blog Post 6 – ‘Culture through the lens of Strategy”
Responding to Strategies that fit Emerging Markets? By Tarun Khanna, Krishna G Palepu, and Jayant Sinha - HBR
In 2010, during the peak of western expansion into emerging markets, $1.1 billion dollar business deal to invest in Indonesian Coal mines ended in disaster. The shell company, owned by Nathaniel Rothschild was eager to get in on the wave of global expansion experienced by the rest of the market. Rothschild, miscalculated a number of critical political and regulatory steps when purchasing the mines located in Borneo. Failure to properly navigate the complex web of government and business entanglements, Rothschild would later call the transaction a “terrible mistake.” 1
The authors provide a framework which can be used to gauge the potential success of business strategy which seeks to take advantage of emerging markets. This framework, called an institutional context, is comprehensive, but fails to address a major consideration – customer culture. Heineken was a sponsor of the 1994 World Cup. Their beer bottles featured the flags of all participating countries – one of which was Saudi Arabia. On the flag of Saudi Arabia is a verse from the holy book of Islam, the Quran. The Quran forbids alcohol which prompted a major boycott from the Muslim community. 2 Similarly, Pepsico had no idea that their Taiwan advertising slogan “Come Alive With Pepsi” would translate into Chinese as “Pepsi brings your ancestors back from the dead.”
Each of the 5 criteria provided in Strategies That Fit Emerging Markets addresses cultural differences through a certain institutional context. It might be useful to add a six category “Customer Culture” which would allow for an analysis on the consumption side. ‘Product Markets’ somewhat encompass this category, but focus more on the market analysis and than actual consumer culture.
None of these marketing faux pas could alone be responsible for the failure of expansion into an emerging market, but they do provide telling insight into the impact of disparate customer culture when doing business abroad. In the example from Nathaniel Rothschild, the business expansion failed due to certain agreements which were improperly documented, vetted, and misunderstood – due to divergent business culture.