Challenges in International Business Expansion: People, Leadership, and Organizational Dynamics

By Sabit Tapan, Partner, Global Key Account Development at Pedersen & Partners and Emin Birsel, Senior Executive and Board Member - International Markets.

Sabit Tapan in conversation with Emin Birsel - part III

Sabit: Emin, thank you very much for taking the time to talk again and share your experience in international markets. In the earlier sessions, first we talked about companies making go/no-go decisions to expand to international markets, and later we talked about go-to-market practices. This process brings us to the next level, which is about people. So, what are the critical people-related aspects of international expansion and how can companies increase their chance of success with the right strategies and people?

Emin: Well, it's good to be back and talk with you again. In our earlier discussions, we highlighted the strategic approach and opportunities international expansion presents. Managing the human side of this process is among the most critical factors for success. Let's begin by examining the role of the company board, particularly its composition and responsibilities.

Sabit: Indeed, the board plays a vital role. What specific role should it play in international expansion, and how can it contribute to the success of such endeavors?

Emin: Obviously, company boards are crucial and play a pivotal role in the decision-making and oversight of a company's international expansion efforts. The composition and responsibilities of the board can vary depending on company size, industry, and specific expansion goals, contributing greatly to its success. And that starts with the composition of the board which must be aligned with the objectives of international growth. A diverse board in terms of skills, backgrounds, and perspectives can provide valuable insights and expertise for international expansion. It can be beneficial to have board members with experience in international business operations. They can offer valuable guidance and insights. The responsibilities of the board can be explicitly directed towards the setting of the particular strategy and providing oversight for the implementation of international expansion. This includes evaluating potential markets, assessing risks, and approving major decisions related to this expansion. Boards should also assess and manage the risks associated with the expansion, such as political, economic, legal, and cultural factors.

On the other hand, the board monitors the financial performance of international expansion and ensures that appropriate financial controls are in place. The board also ensures that the company complies with all relevant laws and regulations of the home country as well as the target market. It is crucial to have a board that understands these levers and variables. Hence, a board often serves as a source of expertise and advice for the company's management team and the CEO. They can provide insights, contacts, and guidance based on their collective experience.

Board members often bring valuable networks and relationships, and they should be chosen according to that into the board as well. This can include industry contacts, government connections, business partners, and connections in the target and international markets. And, finally, the board should be regularly updated about international expansion and should periodically evaluate the effectiveness of the international strategy. The organization and the fit of the organization to those objectives require necessary adjustments as you go along. So, it's very important to note again that the composition and the responsibilities of the board concerning the international expansion strategy of the company.

Sabit: Do you observe boards increasing the number of seats at the board, or utilizing advisors to the Chairman/Board during international expansion? Also, how does the board support the organization during the strains often associated with going international?

Emin: Let me start with the first question. How should the composition and the board evolve or change? Going back to our first discussion, the company needs first to assess its readiness for international expansion.

Within the assessment of readiness, I think it is the responsibility of the board to ensure that the company can start this initiative. And that decision must come with some preparation. This starts some time before that strategic move is kicked-off. The board is built with people who are open to that vision, and who can put that vision in front of them. So, if a company has done that due diligence work, they will be coming to the table with a board that prepares the CEO of the organization to that end which may or may not include increasing the number of board members. However, I have seen domestic companies that have included foreign nationals or people with international work experience on their boards, which prepares the organization and the company culture. There is no switch on or switch off in an international board. It's a long process.

The second question, about staying with the course of that journey; this is quite correct because this journey can be a long one. And the expansion is not a one-time event. You may choose to go to one market and then go-on to other markets. Ultimately, the execution of the strategy is done by the CEO and the leadership team of the company. However, the board must make sure that they are updated and informed regularly. They should ensure that key milestones are met, challenges are overcome, and financial performance is achieved. So, the board should provide the constancy of purpose and vision to the CEO and must stand behind that journey. Those stakeholders must be well aligned. But I think the board would be a very strong force behind the CEO and management team to stay the course.

Sabit: Exactly. Now, transitioning to the executive level, what is the role of executive leadership, and what skills are crucial for leading successful international expansion? Considering that sometimes the executives convince the board to go international, and in other times the board decides and then dictates to go international. What is the role of the executive leadership, and the critical skills and capabilities needed to lead a successful international expansion initiative?

Emin: The vision and the push for strategic expansion can come from the board, but also from the CEO and management team who see opportunities in the foreign markets, who see how to the leverage them. Hence it would be their role to bring those topics to the board’s attention to continue the growth and prosperity of the company. Regardless of how that has happened, the CEO and the leadership team ultimately lead the operations and the journey of this expansion. And certainly, there are additional sets of skills and a different playbook to win in this journey. And maybe I can name a few skills, or capabilities that this new expansion would require.

So obviously, managing a diverse and international team is a new and exciting challenge for many leaders. Leaders must understand and adapt to the cultural nuances and practices of the new market. This includes communication styles, decision-making, and work norms while ensuring that the company's values and mission are effectively communicated and embraced by all the international locations.

A very important topic is about building trust. Building trust is crucial for effective leadership, and this will require extra effort in an international context. Naturally, managing teams across different time zones, and different geographical locations requires effective remote communication, coordination, and trust-building.

Another critical point is deciding on how much decision-making authority should be centralized at the headquarters and how much the CEO gives away. Those roles, responsibilities, and performance expectations must be clearly defined. This is a lot more important in an international setting, especially when working across different languages, cultural barriers, etc.

To address these challenges, companies should consider appointing leaders with international experience and cultural sensitivity. And should invest in leadership development programs that specifically address those global leadership skills.

Sabit: Indeed, effective leadership is essential. Shifting to organizational aspects, how should companies handle mindset changes and structural adjustments during international expansion?

Emin: Adapting the organisational structure to international demands presents challenges but also growth opportunities.

Establishing systems for knowledge sharing, effective communication, and adherence to company values across diverse locations is crucial. Remaining flexible, responsive, and regularly evaluating and adjusting organizational strategies are key to success. The organization can also be significantly impacted, and with the right decisions, it can create a hugely positive momentum for success in the market.

The company's technological infrastructure should help the organization to make that transition along the journey. For the organization, ensuring effective communication becomes critical between the international offices, subsidiaries, and the central office. In my experience over the years, I've seen that so many of the problems are related to communication and making sure that the organization across different geographies understands practically the same thing from what has been said and the vision of the company.

It is also a critical task for the organization that all employees, regardless of location, understand and adhere to the company policies and values. That is an important binder for the company. Fostering a company culture that embraces diversity and inclusion helps that process very much. It is crucial to remain flexible and responsive to the unique challenges that may arise during the expansion process. 

Regular evaluation and adjustment to the organizational strategies will also be crucial for success. Those decisions can certainly be made along with the new talent and new organizations that have joined the now-expanded organization. Of course, I think the next area would be to talk a little bit about talent, which will make sure that success is achieved.

Sabit: Yes. You've mentioned that going international can create immense opportunities for some internal talent who can flourish with that opportunity. Yet, companies can also acquire new talent from the market. So, what is the balance? How can companies create and utilize these opportunities to develop talent and hire new talent during an international expansion journey?

Emin: Retaining top talent is crucial while identifying and developing local leaders is equally important. Companies should invest in recruitment, retention, talent development and cross-cultural training programs. Recognizing the potential tension areas within the organization and ensuring a supportive and inclusive work environment is key.

Mergers, acquisitions, or international expansions can create anxiety within the organization. However, it is the lifeblood of the company to make sure that the right talent, and critical employees, stay with the company, and they see a future within the organization. So, this is the critical way for organizations to survive and prosper in the medium and long term.

Retaining top talent in competitive markets is critical. But also identifying and attracting skilled local talent can be a challenge, yet a hugely rewarding experience. If the company is new in a market, that can be a higher challenge. However, my experience is that international companies usually have greater opportunities for employees than domestic companies.

Ensuring that the policies and practices are inclusive for all employees, regardless of nationality and cultural background is quite critical. Recognizing and addressing cultural issues in work-life balance, expectations, and practices have become more and more important for a lot of the younger generation of employees. It is also desirable to identify and develop local leaders who can effectively manage teams and navigate the local business environment.

So, while many companies will find a balance between transferring employees from their home market, organizations must also develop talent from outside the organization. Hence, future leadership roles should be open for new and existing talent in a newly acquired environment.

Sabit: This is a sensitive situation because we see many companies initially start expatriating their nationals to the target markets to have confidence in controls. Then after a while, companies eventually start adding local leadership talent or replacing expatriates with locals in those markets or geographies. Is that a general trend in how this can be most efficiently managed? Try and learn from mistakes; or benchmarking and analysing the potential in the market and then making decisions. Do you have solutions to this issue?

Emin: Transitioning from expatriates to local talent requires readiness assessment, preparation and transition management. Companies must assess if there's sufficient talent with the required competencies internally to fill positions and plan for growth opportunities. It's a phased approach that requires careful consideration.

The model that you described is very commonly used, and there are very positive sides to it. But I want to address several issues there. Usually, the model is to expatriate some employees, usually leaders, to the new organization.

And this can be not only for top management but also for critical functions such as finance and marketing. This brings numerous benefits. First, those people know the mother company. They bring the vision and the values of that company. Secondly, they also know the business. The third one, they would be huge assets for effective communication between the new market and the home market.

Now on the flip side, who is expatriated is an important issue. As we said before, this requires readiness on behalf of the company because the moment that international expansion is done and that expatriation must be done, you start asking yourself: Is my talent ready to make that move? Do they speak the language? Have international experience? Can they survive? Can they live not alone but also with their families in a foreign environment?

So, some companies with enough preparation ahead of time find those resources within themselves. And of course, the other growth opportunities once those expatriated talent leave. Is there enough talent in the company to fill their positions? So, coming back to the readiness of the company. I think those are some important questions to ask for.

During that journey, one of the roles of the expatriate teams has to be developing the local talent. This local talent should be ready to take over leadership at one point in time. And note that expatriation in a company ideally should be able to work both ways. I have seen examples where during the international expansion, talent from other markets move to the domestic market. They do assignments for an extended period of time. They return to that market or go to another market, and then they become a international corporate citizen. And that I think is critical. However internal talent is not the only resource available to the companies. During that journey, you must use external experts and consultants as well.

Sabit: Finally, the role of experts and consultants in international expansion, particularly in addressing people and organizational issues. How can they support companies in this complex journey? I served one-third of my career internationally and two-thirds helping companies to go international. I've seen many times shareholders, boards, and executives seek help and guidance when it comes to going international.

Emin: Likewise, across my career, I have seen a lot of external support, experts, and consultants playing vital roles in supporting businesses on the international expansion journey. External support in the form of cultural training, leadership programs, conflict resolution, employee engagement surveys, and performance management system design are invaluable. Experts help bridge gaps, offering insights and strategies to navigate the intricate landscape of international expansion. I want to give some examples that are relevant to our conversation today.

One of the things that I've seen effectively done is providing cultural training and workshops to help employees adapt to new work environments, to communicate and interact effectively with colleagues from different cultural backgrounds. I've seen a lot of external support offering leadership training programs to help managers develop the skills needed to lead diverse organizations and international teams. A skill set that was not necessarily relevant to them before.

Developing and implementing strategies to communicate effectively, to resolve conflicts and to facilitate the transition for employees is also very important. So, I've seen agencies and consultants helping conduct assessments with an external eye helping the company to improve the integration, to improve employee engagement, satisfaction, and morale during the expansion process. And maybe one last point on people-related topics is designing effective performance management systems and processes. In short, I think that by leveraging the expertise of the company internally, of its board, and of external experts and consultants, companies can navigate this complex international business landscape. There are a lot of success stories out there with companies who have done it well.

Sabit: Thank you, Emin. Our discussions provide valuable insights into the multifaceted aspects of international expansion, from the go-no-go route to market to the people and organizational issues. So perhaps in the next session, we can talk about what it feels like when you are there. How to continue the momentum of being new in a foreign market and at the same time keeping up with the domestic market challenges, then how to expand from the first market to the next one, to the region and globally. In our next session, let's explore the dynamics of sustaining momentum and expanding further in the target markets.

Emin: Agree. Thank you too, Sabit!