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The necessity of good advice.

The Necessity Of Good Advice

Into the 1990s, globalization has taken on a new meaning. It's no longer just a matter of finding, as the dean of the Harvard Business School put it nearly a decade ago, the largest customer base in the most countries to sell the greatest number of an unmodified product. Today, it's geographical niche marketing that is making business run globally, as it defines and services a smaller, better targeted and, ultimately, more lucrative market.

Yet, companies pursuing this goal are finding that taking advantage of the unified European market - or the Eastern European, Soviet, Japanese, or Pacific Rim markets, for that matter - is more complex, time-consuming, and stressful than they expected. Despite the challenges, pursuit of success in these markets is going forward undeterred: U.S. companies, for example, have been seeking their niche in Europe in what has been called the biggest wave of investment since World War II. And as Europeans and Americans try to move into Japan, the Japanese, of course, are trying to solidify their position in Europe. But how do they go about doing it?

The answers to where, when, how, and how much in these kinds of situations used to come mostly from resources within the companies themselves, grown as the needs dictated. But today, internationally minded companies have such a broad range of choices before them that, working alone, it is unlikely that they could digest, compare, and analyze all the information set before them quickly enough to take advantage of opportunities before they slip away.

As the breadth of the expertise needed is increasing, and the size of players moving into the global arena has, in many cases, decreased, companies are finding that the outside advisers they used at home play an even more important role in achieving their international goals. Client needs have dictated that we, as a large professional services firm, deal on a global scale equal to their own. A firm that has a broad geographic outlook but narrowly focused specializations has become a necessity like never before, answering questions that companies never had to deal with before: * How do you deal with people who have never dealt with a profit-and-loss statement - as in many former East Bloc countries - because the concept of "profits" is totally foreign to them? * Do you "go" global on your own or by joining with rivals, suppliers, and customers to form strategic alliances that might result in a more successful venture but could lessen the impact of your own involvement? * What are the tax implications of putting your expatriates to work in France rather than Hungary (and what about Hong Kong)? * If a major component of your business is in the Middle East, should you open new headquarters in London or Singapore? * How can information systems enable you to improve your marketing and sales effectiveness in Eastern Europe, where the latest technology may not be available?

As corporate management seeks success, competitive advantages often lie in technological and organizational strategies. For example, we are seeing more precision and accuracy in targeting markets and developing sales systems that collect data in more detail than ever thought possible, thanks to the striking innovations in information systems. And while business style dictates to many companies that they enter a new market under their own steam, the right adviser may be able to point out the virtues of acquiring an interest in a player already in existence and show that it not only might be less risky but can provide a customer base as well as a means of distribution.

The risks could also be mitigated when the company's advisers know how to negotiate the local climate in such areas as financial sources, tax, and regulatory issues. A firm like ours, for example, started making its way through the Soviet bureaucracy long before any significant numbers of clients showed any inclination to enter the arena, because we know you can't do business there by express mail - they want to see "the color of your eyes."

Yet, there are instances when a company must absolutely have its own facility - as many non-European Community members believe they must in preparation for the unified market of January 1993. But should a Japanese chemical manufacturer choose a plant site in Britain or Italy (which might have the skilled labor and access to sufficient electric power, but great expense), or East Germany (where the spirit is willing, the labor cheap, but experience may be more than somewhat lacking)? The right advisers can help make these kind of site location decisions - not only helping the client make a logical choice today but forecasting how expensive each of the company's alternatives should be 25 years from now.

In a global economy, business will go wherever it can get the best return, whether it is 50 miles or 10,000 miles away. To be successful in so large an arena, a company not only needs broad perspective and knowledge, it has to be savvy enough to know where to find the expertise it needs, inside or outside of its organization.

RAY J. GROVES / Ernst & Young As it moves into a global arena, a company frequently faces questions it has never faced before. Where to find the right answers? The successful company, suggests Ray J. Groves, will be savvy enough to know where to find the expertise it needs - inside or, yes, outside of the organization. Groves is Chairman of Ernst & Young, the professional services firm which has operations in 600 cities in over 100 countries.
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Title Annotation:Special Section: Being a Global Leader; views of Ray J. Groves, Chairman of Ernst & Young
Publication:Directors & Boards
Date:Sep 22, 1991
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