The Deadly Sins of International BusinessGerhard Apfelthaler, 2014

www.deadlysins.info

Deadly Sins?• Patterns, wireframes, and

scaffolding• Christianity: not following (god‘s)

moral guidance• No biblical list, but some

references throughout new testament

• Christian thinkers (Augustine, Gregory the Great), monastic authors (John Cassian, Evagrius) and early Christian Writers (Prudentius‘ Psychomachia) compile lists and rank orders

• References and popularity of ‚7 deadlies‘ starts in 14th century, e. g: Alighieri‘s Divine Comedy; Chaucer‘s Canterbury Tales; Hieronymus Bosch, Tizian, Brueghel

Bosch, Seven Deadly Sins / Superbia

• Judaism: ‚avera‘=‚crossing over‘ - a moral trans-gression against god or man; three major ones.

• Hinduism: ‚papa‘ - wrongful act which creates negative karma

• Islam: Khati‘ah - anything against the will of Allah; two major forms (dhanb and ithm) – 70 major sins

• Buddhist: men and god are subject to universal law; intentions and actions against the Noble Eightfold Path, no „sins“, but 5 crimes and 108 defilements

Other Traditions

Dix‚ Seven Deadly Sins

Today

Music:– Kurt Weill & Bert Brecht, Seven

Deadly Sins– Franz List, Totentanz– Ice T‘s 7th Deadly Sin

Movies / TV:– Bedazzled (1967, 2000)– Seven (1995)– 7 Deadly Sins (2014)

Comics:– Digimon 7 Great Demon Lords in

Digimon– Seven Deadly Enemies of Man in

Captain Marvel / DC Comics

Ice Cream:– Eskimo/Unilever „7 Suenden“

Pride• Pride is deep pleasure from one‘s

own achievements; it is ego-centric, self-loving, competitive

• Long considered deadliest of all sins, but without pride one may not achieve at all…

• Companies:– Become insensitive to their

external environment– Impose their own ways on

foreign markets– „Ethnocentrism“ (Perlmutter

1969)Tizian, Vanitas

• World‘s largest company entered Germany in 1997

• Sins: Undifferentiated transfer of business model:– EDLP-strategy– Strong integration of suppliers– Employee policies– Greeters, Baggers, 10-Foot-

Policy– Non-German speaking

Managers • Exited Germany in 2006 (91

locations, 12.000 employees, about 200 mio US$ in losses)

Pride

Pride• Part of leading British retail giant

Tesco (6,000 stores globally), 2nd largest retailer worldwide

• Sins:• Entered USA in 2007• Recession• Concept based on small stores,

convenience and fresh food• “Fresh and Easy” or “Small and

Strange”• Undifferentiated product portfolio• Self-check out

• Decision to leave in 2012: $1.6 billion in losses

• Intense interest in getting one‘s fair share or more

• ‚Infectious greed‘ (Alan Greenspan) also a driver behind industriousness, wealth of nations and free trade

• Companies:– Assume a short-term view only– Under-invest– Exploit local resources– Take quick and irrational

action– Deploy ‚John Wayne‘-like

strategies– „Liability of Newness“ (Cuervo-

Cazurra., 2007)

Greed

• Entered China in 2004• Outsources ca. 20 % of

production• Motivation to reduce costs and

remain competitive with its range of high-quality toys

• Unskilled labor unable to adhere to quality standards (cross-eyed bears,

• Increasingly high costs of (minimum 12 months training)

• Accelerated employee turnover • Rising wages• Left China in 2009

Greed

• Lack of interest / reluctance to make any effort. Relax! Be happy! Let yourself go! Drift into complacency and melancholy

• Companies:– Don‘t have a clear strategy– Prepare insufficiently– Are sloppy at implementation– Give up too soon– „Liability of Foreignness“ (Zaheer, 2002)

Dürer, Melencolia

Sloth

• Entered Germany in 1995/1996• Sin: Lack of interest

– Ignored of German legal environment (opening discount)

– Made wrong location choices in suburban malls

– After sacking German MD in 1999, no replacement, running operations from San Francisco

– Ignored cost structure and consumer preferences

– CEO visited Germany only once

• Exited 2003/2004

Sloth

Sloth• Opened in 1992• Sins:

• Expectation of single market, economic growth, “chunnel”

• Labor disputes with unions• Visitors rejected over-priced fast

food• Customer is not king in France• Accusations of cultural imperialism• Bad weather

• Attendance 25,000 / 60,000• Close to bankruptcy in 1994• Saved by Saudi Arabian prince• Profitable from 2005

• Overindulgence, over-consumption, waste, habitual greed

• Companies:– Move too far too fast– Stretch existing resources– Over-invest– „Polycentrism“ (Perlmutter,

1969)

De L‘Ange, Gluttony

Gluttony

• Embarked on rapid internationalization in 1970s

• Sins:– Driven by personal motivation

of CEO of „building an international company while traveling“

– Served more than 70 markets in the 1990s

– Learning on the go– Growth from 2 products to 400

products and variations– Ventured into new business

segments– Built manufacturing in Hungary,

over-sized facility in Austria• Slipped into insolvency end

of 1990s

Gluttony

Gluttony• Part of German Metro

group• Enters China in 2010• Sins:

– Built business model around brand and consumer experience instead of products and price sensitivity

– Flagship locations only– Fully self-operated and no

store-in-store concepts• Leaves China in 2013

• Desire to possess another's superior quality, achievement, or possession; resentful longing

• Wishing misfortune on others

• Companies:– Pick the wrong markets– Are mindless followers of

competitors– Try to outdo others when it‘s

not necessary / over-adapt– „Loss of an advantage“ (Cuervo-Cazurra, 2007)

Munch, Envy

Envy

Envy• Enters China in 2006 with

12 stores• Sins:

– No Do-it-yourself culture– Abundance of cheap

labor– Loss of status– No room for tools– Lack of imagination– Lack of brand

• Leaves China in 2012• $ 160 million in losses

If IKEA can do it, we can do it”

• Anger, strong emotional response to feeling threatened or provoked

• Companies:– Make impulsive, irrational

moves– Ignore local conditions– Seek vengeance and apply

force– „Creation of a Disadvantage“ (Cuervo-Cazurra, 2007)

Star Trek, Wrath of Khan

Wrath

• Joint venture with Wahaha Group in 1996

• Sins:– Danone starts to shift decisions to

France– Danone starts squeezing Wahaha

for profits– Wahaha builds grey market– Danone sues Wahaha;

government intervention– In December 2007 court judgment

in favour of Wahaha; sales start to drop significantly

– 2013 allegations of contamination, judgement for price-fixing, allegations of bribery

• To be continued...

Wrath

America‘s Next Top Model ‚Seven Deadly Sins‘America‘s Next Top Model, Lust

• Intense wanting or desire for an object, emotion or circumstance

• Companies:– Have the wrong motives for

market entry– Excessively focus on the

present– Become blind to consequences

of their actions– Abandon home/core markets– „Liability of expansion“ (Penrose 1959, Cuervo- Cazurra, 2007)

Lust

Lust• Entered Romania in 2010

by acquiring CityDeal• Sins:

– Ignored intense competition by 2012

– Ignored digital divide– Aggressive commission

tactics– Failed to attract local talent– Staffed subsidiaries with

expatriates– Lack of local relationships

• Exits 2014

Lust• Enters China in 2006,

opens first store in 2007• Sins:

– Monumental flagship stores

– Commission based sales– Enters UK, Turkey, Mexico

at same time– Financial difficulties in US

market• Leaves China (UK,

Turkey) in 2013

Thank you…