What Happens When Going Global Goes Bust?

Not every international expansion comes off as planned. Sometimes companies fail to make the local connection, so they turn tail for home. Others return because problems in their core business back home demand all of management’s attention. Still others feel that the stinging combination of local regulations, labor unions, and market expectations is not worth the aggravation or expense. Consider some examples:

• Wal-Mart closed down its German stores. After eight years of trying to replicate in Germany its success in North America, Wal-Mart fell victim to a variety of market maladies, including a flat economy, its own failure to localize to customer tastes, issues with regulators, and bruising battles with Germany’s biggest labor union. Germany wasn’t the U.S. retailer’s only problem – earlier this year it shut down operations in Korea and shared growth pains with its partner in Japan.

• General Motors pulled out of two international investments. Last year GM decided not to exercise a five-year-old put option to buy Italian automaker Fiat, and earlier this year chose to break off its seven-year relationship with Japan’s Fuji Heavy Industries, the parent company of Subaru.

• Canada’s Jean Coutu Group pulled out of the U.S. drugstore market, ending its experiment with the 1,549 Eckerd stores it had acquired in 2004.

• Earlier in the decade Gateway retreated to its home market. With sales weakening against Dell and HP, the company announced in 2001 that it would focus on its lagging business in the United States. It shut down operations in Europe and Asia as well as abandoned its stores and manufacturing plants in those regions.

• In 2002 my research and consulting firm, Common Sense Advisory, hosted a Portuguese-language version of our Website for what we hoped would be hordes of Brazilian prospects. But when we looked at our WebTrends report for the first quarter, we found that that only my Brazilian business partner’s mother had visited the site. We figured that it would be cheaper for us to phone her more frequently than to keep translating everything into Portuguese. Thus, our non-English Website joined the legions of international Websites that went black.

None of these closures were painless. The companies involved felt the aftershocks of their withdrawals in stock price, reputation, credibility, competitive presence, employment, and legal obligations.

What are the options when an ambitious international growth plan comes up empty or doesn’t meet expectations? There must be 50 ways to leave a loser:

• Just pull the plug. Bailing out can be expensive, especially when you have employees in countries that do not follow the U.S. practice of employment at will. Employment laws in Britain and Ireland, for instance, required Gateway to consult with national officials and unions. Whether it’s regulatory obligations, union contracts, or the taxation aspects of permanent establishment, expect to pay the international piper.

• Sell out or buy out. GM sold off its equity in other companies like Fuji to Toyota and paid Fiat a whopping $2 billion to get out of its put option to buy the whole company. Wal-Mart sold its stores in Germany and Korea to rival retailers Metro AG and Shinsegae. Both GM and Wal-Mart paid heavily for their international adventures.

• Partner. Jean Coutu sold its Eckerd stores to Rite Aid http:/www.riteaid.com and took a 30% share in the U.S. drugstore retailer. This approach is the most win-win of the bunch, allowing the Canadian firm to participate in the market to its south but with less risk.

• Just turn out the lights. If your initial foray into the world involves Website globalization, remember that yours wouldn’t be the first firm to admit defeat. Because there is no physical investment in the local economy, this first global step of many companies is the lowest risk way to go international – and the easiest to get out of if your efforts fail.

If your international operations don’t look like they’re going to work out, what should you do? Obviously explore all your options, but note that there’s a lot of potential downside in shuttering an international operation, getting out of contracts, and laying off employees. Get your corporate legal counsel on your team. If you have business units in other countries, involve them as well. Your internal and external counsel may not have the requisite experience, but they can always call on their networks and affiliated firms that do. Practically speaking, make sure you fire your local lawyer last.

Don DePalma is the founder/chief research officer of the research and consulting firm Common Sense Advisory and the author of “Business Without Borders: A Strategic Guide to Global Marketing.”