Management Today article

January/February 2003: Case study

The migrant experience: Challenges of setting up business in a new environment

As a young man in India, Sanjaya Sananda showed great promise in the field of chemistry. By age 35, he was Australian national manager, responsible for establishing operations to research and create products made of "safe synthetics", at SafeSyn Corporation, one of the industry's biggest firms.

SafeSyn was bought in the late 1980s from Amirecal Petrochemical. SafeSyn chief executive Indra Jnanum convinced the government of his country and a number of Asian investors that the company still had strong potential, and a future that might include the creation of intelligent synthetics and textiles. He said the world would soon benefit from materials that could be programmed to respond to heat and cold, to moisture and dryness; synthetics that could be made to be nutritious rather than toxic.

He believed all this could be done at a lower cost than was usual for existing manufacturing practices. He was one of a handful of people who had considered such ideas, and his innovative thoughts impressed those outside his circle. Jnanum also believed that the development of Asian industries along old Western lines could be disastrous for the global environment. He wanted to embrace the successes but avoid the mistakes of Western industries. No Luddite, Jnanum was a technologist to the core. Fortunately, he found a group of supporters prepared to make a long-term investment on the hunch that his assumption would be correct.

By 1998, Jnanum and SafeSyn had established links with governments, universities and suppliers across Asia and with a number of continental European countries. With a growing appreciation of environmental issues, governments generally provided SafeSyn with funding to establish research projects in conjunction with local universities. The role of these institutions was to assist in the development of new products or new applications of existing products in exchange for income derived from market applications.

Several governments had also given SafeSyn a tax exemption for SynBiot, its sister organisation. SynBiot developed educational programs that were offered through local universities to develop and impart knowledge on safe synthetics and intelligent textiles.

Jnanum's ultimate goal was to make safe synthetics widely available. Previous customers had been mainly large corporations or government agencies that could afford to pay the high prices of SafeSyn products.

Jnanum's strategy so far had involved creating a wide network of small, connected operations. The next stage of his plan was to establish similar operations in Britain, the United States and Australia. He chose Sananda to spearhead the Australian operation. But, within 12 months of his arrival, Sananda had learned that SafeSyn would have to find new ways of setting up in Australia.

The tax-exemption status SynBiot had enjoyed in other countries had not been granted in Australia, and no other government funding was forthcoming. This created extra pressure in managing cashflow and maintaining profitability. A drop in morale resulted, and SynBiot's volunteer staff prepared to leave.

The nature of the products being developed gave prospective employees and volunteers the impression that SafeSyn provided an exciting workplace similar to that of a creative computer software company. That was not the case. What they found was an environment that was productivity driven and highly autocratic. There was innovation in product development but not in the day-to-day operations.

This caused some confusion and tension between management and workers. Some of the Indian managers found it difficult to deal with the casual attitudes of the staff. The staff felt they were expected to follow routines that allowed less autonomy than they had expected.

Focused on preparing the official launch of SafeSyn in Australia, Sananda gave the rising tensions less attention than they deserved. Planned with great attention to detail, the launch was intended to bring together local academics, architects, textile manufacturers and related business people, and to showcase some of the initiatives that the company intended to make available to the public over the following decade.

The media had not given SafeSyn as much coverage as Sananda would have liked. SafeSyn had never relied heavily on public relations or advertising, preferring to channel its resources into the research and development of products and educational programs. However, the time had come for the organisation to develop a higher public profile, and the launch was to be the "kickstart" for a new branding and awareness campaign.

During one of their videoconferences, Jnanum asked Sananda: "What have you done to raise public awareness of our work?" Sananda explained that the public relations had been handled in-house, as usual, but it had not brought the expected response and perhaps a change of style was needed. Secretly he was not happy with all the video meetings. He thought that Jnanum was removed from the circumstances and needed to have greater personal exposure to the local situation.

Jnanum agreed that a change of style was needed but said that deadlines did not allow for it. Sananda offered to do what he could but countered that the deadlines were unrealistic in light of the cashflow situation.

Sananda felt trapped between the impatience of the CEO and the growing dissatisfaction of the workers. Among the guests at the SafeSyn launch was Daryl Dent, founder of Tri-Dent Architects. Twelve months earlier, Dent had offered to pay half the cost of a building in exchange for equity if SafeSyn could raise the other half of the funds locally through its own efforts.

Dent wanted to see some evidence that SafeSyn could persuade participants in the local market to join with it before he got involved too deeply. After a delayed flight from Mumbai, India, Indra Jnanum arrived just in time to welcome the academics, business leaders and guests. He was disappointed to learn that Sananda had not managed to secure formal agreements between SafeSyn and the prospective universities. Nevertheless, those present seemed genuinely interested in principle and seemed supportive. Based on experience in Asia and Europe, Jnanum and Sananda had no reason to doubt that most would
come on board.

The SafeSyn launch went as planned, with several researchers putting forward persuasive arguments for the development of intriguing products. A three-hour presentation of speeches by top management, supporters and community representatives concluded the event.

Dent was in the audience, listening intently and watching Sananda closely. His intuition told him SafeSyn had failed to raise the capital to secure a building. He was right. Jnanum also analysed the events, making a note that in future he would hire specialist consultancies to capitalise on the organisation's growing public profile and to assist in setting up operations in the remaining countries. Jnanum knew that other companies had started heading down the same track, and SafeSyn could not afford any more setbacks.

Two business leaders - potential suppliers and consumers - spoke of their specific interests in the development of safe synthetics, and the final 90 minutes of the launch was spent in mutual thanks and appreciation among senior participants and a brief acknowledgment of staff and volunteers. The dwindling audience looked quite uninterested and somewhat alienated. Nevertheless, it was an important public ritual in the culture of the SafeSyn organisation.

Within a few days of the launch, the staff learned of the funding crisis and, as expected, the volunteer staff departed. However, some of the employees unexpectedly quit in protest. One who stayed on gave Sananda a small plaque in appreciation of his efforts. It read:

"A leader is best when people barely know he exists,
Not so good when people obey and acclaim him,
Worse when they despise him.
But of a good leader who talks little,
When his work is done, his aim fulfilled,
They will say: We did it ourselves."
Lao-Tzu

Sananda shortly thereafter had a visit from Dent, who announced the withdrawal of his investment offer. This was not only due to SafeSyn's funding crisis but also because three of the senior academics he knew had retracted their support for SafeSyn's proposals. Was Sananda looking at a potential future competitor?

Questions

How could SafeSyn have improved its entry to the Australian scene? Should the CEO of this type of organisation have direct personal experience in the territories that the organisation enters? What are some ways of managing the cultural differences that led to a negative domino effect?Does an organisation with innovative products need to have a culture of innovation in its day-to-day operations?

Proposed Solution #1

Kari Pettersen is a director of KP Strategic Solutions and specialises in organisational transformation, implementing change programs with an emphasis on integrating people and systems into a comprehensive solution for a range of organisations. Kari has an extensive background in senior management and adult education and is a member of AIM.

Jnanum and Sananda have overlooked important management principles in their bid to establish SafeSyn in the Australian market.

Central to SafeSyn's failure is the fact that Jnanum and Sananda did not realise the importance of cultural differences inside and outside the company. This is apparent in the management of cross-cultural differences in the Australian operation.

The tension that exists between Indian management and local staff should have been resolved immediately to provide a consistent environment for all the company's employees. The fact that innovation in product development was not extended through all units of the organisation reflects a blinkered approach to management and a disregard for local customers.

This seems to stem from Jnanum's wish to avoid the use of Western patterns for establishing an industry globally. Culture in organisations is composed of the factors that determine the work environment: values, structure, function, communication, political landscape, workplace practices and expectations. It needs to be consistent and clearly communicated to all staff. This is not only important for motivating and keeping existing staff but can also have a profound effect on prospective staff. As a new entrant to the Australian market, SafeSyn is relatively unknown and needs to promote itself as an appealing, innovative organisation if it is to attract staff of the right calibre.

Failure to consider the importance of communications in the local market can lead to misunderstandings and mistrust among customers and potential employees. It is not evident that adequate business, market and cultural intelligence was gathered before Sananda established SafeSyn in Australia. His focus seems to be solely on the official launch.

The videoconferences between Sananda and Jnanum reveal the lack of a strategy to develop local market awareness of SafeSyn. Jnanum's method of winning investment support for SafeSyn in Asia will not work in the Australian market.

Jnanum seems to play down the importance of networking and communicating with local staff and potential customers. His distance from the development and launch of the Australian operation sends the wrong message to potential investors, supporters and staff. He is relying solely on the strength of the product. He needs to convince local investors that the Australian operation is part of a plan for global expansion and has the full support of SafeSyn's management.

There is no apparent agreed strategy for market penetration. The fact that Jnanum is disappointed that no formal agreements were signed at the time of the launch indicates that perhaps Sananda was not made aware of the importance of locking in alliances. There is also no evidence that SafeSyn has taken Daryl Dent's offer seriously enough to secure local funds for the cost of the building. SafeSyn has squandered the opportunity that a new-market launch presents: using it as a model for establishing operations elsewhere and protecting its products.

An extended understanding of innovation

Jnanum and Sananda have failed in managing innovation within SafeSyn. They have concentrated on the technical aspects, whereas innovation can be extended to every function in the organisation; not only covering research and development but also marketing, sales and operations. Innovation should be regarded as a process that makes organisations more customer and market focused.

SafeSyn should have started with a clear plan for entry into the Australian market. This should have been treated as a distinct project, with timeframes, communications, marketing, financial and strategic plans in place - all of which should have been communicated to staff. Given its lack of local knowledge, SafeSyn should have engaged an advertising or public relations firm to handle promotions and media relations ahead of the launch to develop awareness of SafeSyn.

It is crucial that the chief executive be involved in launching into new markets. Networking is necessary for success and it is important that CEO support is evident. This sends a strong message to potential customers and staff.

The cultural issues are not only of a cross-cultural nature, they are also a result of poorly defined organisational culture. The lack of a clear plan for the Australian operation was a cause of tension. The plans that were known to management were not communicated adequately to local staff. This lack created confusion and was ultimately attributed to cross-cultural differences. In such an important project, communication of goals would have contributed to a more focused team. Also, to forestall cultural differences, an adjustment of working styles to match the local culture is more likely to win trust.

To produce innovative products and services continuously, a company needs to create an innovation process that applies to the whole organisation. This means listening to market feedback and incorporating the knowledge into everyday activities.

SafeSyn's predicament is common to most organisations trying to secure "new beginnings" in a different socio-cultural environment; in this case, Australia is the new environment. The case study also highlights the chasm that exists between narrow engineering thinking (in this case, chemistry) and the potential of the information and communication technologies that are an integral part of globalisation.

Sananda, the person at the centre of this study, has experience in establishing operations primarily in researching and creating new products, not in marketing them. Furthermore, in terms of promoting their concepts and products, Jnanum and Sananda have looked only at established marketing models. This emanates from their obvious lack of appreciation of the potential of IT. An IT-based marketing model would have obviated the need to create a local manufacturing presence. Concomitant with its goals of making safe synthetics widely available to the masses, SafeSyn should have created in its first stage of expansion a marketing portal to facilitate deeper penetration into a computer-literate Australian market. Videoconferencing is the only indication that the company is using technology in going global.

Jnanum is technically brilliant and has enough charisma and clout to influence investors and governments that he is familiar with. However, despite believing himself to have a product that will provide immense value to the customer, he violates the principle of asking potential customers the basic questions. He has made no analysis of customer preferences, market size or penetration possibilities. Had this been undertaken earlier in the company's expansion efforts, some of the acute funding pressure that the company faces in Australia could have been alleviated by early sales of the products.

In light of the company's focus on Australia, bringing Amirecal to the table served no purpose. Furthermore, Amirecal itself brought nothing of value to the table except funds, which

Proposed Solution #2

Bhuvan Unhelkar (MDBA,PhD,FACS)is an internationally acclaimed consultant and is principal of MethodScience.com. He has written five books and published numerous papers. He is a winner of the Computerworld Object Developers Award.

Jnanum could have sourced in Australia if he had tried. SafeSyn later tried this with Dent, but without success. That Austrade (the organisation promoting Australian trade overseas) has not even been mentioned in the case study reflects SafeSyn's appalling lack of groundwork in Australia. Establishing contacts with Australian government bodies and universities suffered a similar fate. The ramifications of government policy on higher education in Australia (that is, making universities operate on a more commercial basis than before, and compared with their South-Asian counterparts) have been ignored or, perhaps, simply not understood. No wonder SynBiot ran into trouble too.

High context v.low context

The autocracy of SafeSyn comes from the fact that its directors and senior managers are from a "high context" culture (see Mary O'Hara-Devereaux and Robert Johansen, Global Work: Bridging Distance, Culture & Time, 1994, Jossey-Bass). In such a high-context culture, it is considered appropriate for the boss to be autocratic and, at the same time, to shoulder the responsibility for the wellbeing not only of employees but of their families. The authority of the senior person comes with a responsibility that reaches beyond the workplace. However, Australian workplace ethics are based on a "low context" culture.

This requires that senior management keep within a narrow scope of involvement with employees. SafeSyn has not understood this crucial difference.

Although the innovation in product development required "breakthrough" teams, the running of day-to-day operations required a "traditional" team that reflected the local culture. A customer relationship management (CRM) system such as that of Siebel or PeopleSoft would also have been useful, as it could have helped to handle the human resources (people) side of the organisation.

A CRM system could also have helped to implement the personalised service demanded by customers, suppliers and corporate clients that Jnanum first asked Sananda to concentrate on. The candid low-context nature of the Australian workforce becomes evident in the end from the plaque that they gave Sananda.

SafeSyn also suffers from the culture of "volunteer work". Outside the university environment and the association that SafeSyn has with research organisations, there should be no need to factor in provision for any volunteer work. Instead of aiming for such work, SafeSyn should have established formal research alliances with the universities in the region, inviting students to participate in "action research" - implementing and testing their work in real organisations.

This would have enticed the universities to participate with more depth in the work that was going on at SafeSyn and would have made the walk-out by volunteers more difficult, as their research future would have been linked to SafeSyn's future.

The local touch

Sananda did not have enough time to handle the rising tensions in the company. And, even if he did, he was not the person to handle the cultural peculiarities of the local workforce. He should have created a substantial human resources department and appointed a local person to head it. The Indian managers needed to undergo sociological training if they were to be enabled to understand the value systems of the local workforce.

Instead of being dismayed at the lack of acceptance of their authority, they should have tried collaborative management techniques.

Sananda should not have handled the launch, as he does not have the expertise to brand and launch an organisation. He is a technical genius working in an environment alien to him. He should have formed (or should have been allowed to form) alliances with Australian organisations; or, at least, should have tapped into the skills and potential of the local market.

Technology is never enough to attract the attention of a business audience. Thus, it was not surprising that however brilliant SafeSyn's technology was, it was not enough to bring in funding, in particular from Dent, who was rightfully concerned about the perception of this "early market" that SafeSyn was talking about.

Bringing Jnanum to Australia earlier would not have helped the situation. What was needed for public relations activities was a local company with a local face and a full understanding of the local value systems and culture. If SafeSyn did not have the funds to spend on these activities, the earlier goodwill should have been used to entice consultants into a partnership or an arrangement on an equity basis.

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