By Zakon, Alan J.
Management Review , Vol. 77, No. 7
Advertising has always struck me as a distinctly American phenomenon, and certainly not the kind of business that involves serious international competition. Advertising requires deep knowledge of markets, cultures, and, most obviously, languages, and does not fall easily into the company of such internationally traded commodities as wheat, semiconductors, or airplanes.
Yet the world's largest advertising agency, Saatchi & Saatchi-DFS Compton, is a British company that now does more than half its billings in the United States, and the American agency, Interpublic, which ranks second, does more than half its business offshore. These are truly global competitors-not because they lead in import/export statistics, but because global networking is for them a way of life. They illustrate a concept of globalization based on communication and the networking of markets and ideas, rather than to-point movement of commodities and products around the world. Globalization is more than exports and imports.
These agencies, as Table I (page 57) shows, have enormous offshore activities in comparison with most American companies. In fact, they account for about 20 percent of worldwide advertising spending.
FOLLOW YOUR CUSTOMERS
In a sense, these companies illustrate the steps of building a global business:
* Follow your customers.
* Build a presence in new markets.
* Commit to the market.
* Leverage the power of the network.
One important way to build a global business is to concentrate on a key strength-your customers. If your major customers expand internationally, their coattails are a prime vehicle for your expansion. Alternately, failure to follow your customers means the will find new vendors offshore that inevitably will follow them back home again.
But following your customers is only a starting point. It provides a foot in the door-a base for expansion in the new market. The United Kingdom-based Saatchi & Saatchi DFS Compton, through a rapid string of acquisitions, built its presence in America to the point that it is more than double its business at home.
Following customers to build a presence in the new market depends, ultimately, on a commitment to be an indigenous supplier in that market. Many American companies used the strong dollar in the 1950s and 1960s to expand into Europe, but most failed to make a long-term commitment. Often American managements viewed foreign business as risky and demanded higher returns or "hurdle rates," a practice that made it impossible to compete with local companies that saw no need for a risk premium. More recently, American companies disinvested from the shipping business as the strengthening dollar in the early 1980s caused severe paper losses on American financial statements. No one can be successful in a foreign environment without a commitment to compete as an indigenous competitor, rather than an expatriate American operation. Consider as a positive example of commitment the statistics in Table 11 (page 57). The Japanese are willing to take huge cuts in profitability to build and/or defend their positions in America's marketplace. As Value Line (August 28, 1987) incisively comments:
"The immediate impact of the high yen/cheap dollar has been to devastate the profits of Japanese export-oriented companies without improving the trade deficit. The surplus is very long-lived. it stubbornly refuses to go down because Japanese exporters cling to their hard-won market shares and don't raise dollar prices very much as the yen becomes dearer. The yen began to rise in early 1985long enough [ago] for the new currency value to have an impact on trade. If cutting the dollar's value 45 percent doesn't cure the trade surplus, what will?"
LEVER YOUR NETWORK
Let's turn to the network-the flow of products, insights, and ideas within a global system. Toyota, for example, originated a global production concept for forklift trucks in the 1970s. …