SUPRACOUNTRIES

INTRODUCTION

In recent years, during which I have carried out work in close collaboration with a multitude of companies whose objective was not only the search for new markets but also to break into them successfully, I have had the opportunity to understand a little better how our environment works.

I agree totally with the many experts, among them Professor Pankaj Ghemawat, who say that the world has changed, mainly because of the unstoppable march of technology, but also through the political will of nations to open up to others and vice versa (although this second situation, as we have seen on many occasions, is reversible). In this area, countries have made a great effort to create preferential trade areas, free trade zones, customs unions, common markets, economic unions and many organizations whose role is to facilitate cooperation. However, and to quote Professor Ghemawat again, I would echo the concept of semiglobalization, in which, although we have achieved a high level of convergence, we cannot forget that there are still countless differences between countries and markets, mainly arising from cultural, administrative, geographic and economic issues. I would like to emphasize this aspect, as we cannot ignore it in dealing with the process of internationalization.

Having said that, in my opinion the general process of globalization is unstoppable, and the great challenge for companies is to be conscious of the size of the market they move in. It is clear that a normal restaurant in a normal location in Spain is not competing against a normal restaurant in China, so its market is limited to the town where it is located and maybe the surrounding ones. But it is not the same case, for example, for the travel agency next door to the restaurant, as its competitor is not necessarily another agency in the same town or nearby, but an agency which offers its services by internet and may be based in, say, France. Therefore, as many textbooks and business schools teach us, it is imperative to identify our market clearly, though we must not forget to take into account the changes that are going on around us.

I am frequently asked if there is a real need to internationalize, and the answer is not easy: it depends on any number of factors. I always say that this process must not be the cause of the demise of a company, but rather another step forward in its activity and existence which requires care in what, when and how to take it. This brings to mind one of the maxims of business management: the diversification of risk. In the last hundred years, in only two has the world economy fallen worldwide, which gives us an idea of the real need to diversify in new markets. Not to do so could put the very existence of a company in danger if there is a long period of recession such as the one we have been living in Spain since the year 2008.

“SUPRACOUNTRIES” OR AREAS OF INFLUENCE

“Supracountries” or areas of influence and barriers to influence

In my attempts, as I said before, to get a better understanding of the reasons for things in the field of internationalization, mainly to be able to give solutions to the companies I collaborate with, I have been forced, as is so often the case, to turn to history to find answers to our current situation. My studies have given rise to what I call “Supracountries” or Areas of Influence, a concept I will explain in this section.

When I began to explore these concepts, I had no other objective in mind than to be able to understand the environment which companies currently live in, and in particular to be able to answer the questions I was facing in my daily work. I hardly need say that by analyzing a problem thoroughly and making a good diagnosis we will be able to solve it correctly. However, if we err in our diagnosis, we will without doubt also fail in our approach to the solution, and this, in most cases, may prove fatal for an organization, which may well not be able to recover from the mistake.

As we explained above, the world is tending towards globalization. However, though we must recognize that we are still a long way from being able to talk about a totally globalized world, we can safely affirm that the world is coming together and differences are becoming less significant. This has brought us to reflect on the topic, and to take on board that the process towards this globalisation did not begin with modern technology or even in the last few decades: rather, it began centuries ago, almost at the beginning of time, though now it has become more intense, as the pace has increased and it has become almost irreversible. True, the aim of the Roman Empire was not to achieve a global world, but to dominate all known lands, taking all power to itself and imposing its civilization with a view to survival, but without being aware of it they contributed greatly to globalization.

The same would occur later with Christopher Columbus, who was looking for new lands, riches and glory for the Kingdom of Castille. However, these days there is a factor at work that was missing at the time, say, of the Roman Empire, and that is that relationships between countries are now so intense that even languages evolve in parallel, rather than separating, providing a strong cohesive force. That isn’t all: communications, cooperation frameworks between countries and modern technology keep cultures together, providing two-way feedback thanks to music, the television, etc., meaning that part of what united them lives on.

All of this, without it ever being the intention of those that caused it, means that in a more globalized world, large areas have arisen which have strong common bonds, providing a real identity which differentiates them from the rest. These areas are on a higher plane than what we today denominate countries, occupying an intermediate position between a totally globalised world and the individuality of a particular country.

To define these areas, I have used the term Supracountry, or Area of Influence. To put it another way, we could say that the Supracountries, or areas of influence, are a group of territories with a strong common identity, rooted in a series of factors and historical events which have caused convergence at a greater speed, creating a deeper, more intense level of cohesion among them than with those that do not belong.

Influence Barriers

These Supracountries, or Areas of Influence, are made up of countries, or parts of countries (as one country can belong to various areas of influence) sharing common bonds, relationships and characteristics, mainly in the area of culture and tradition. In many cases the language provides a great unifying link, frequently in combination with close economic and political relationships which make movement of people and companies easier, and where this very cohesion creates an entrance barrier to others, which we shall call the Influence Barrier.

In Professor Pankaj Ghemawat’s book “Redefining Global Strategy: Crossing Borders in A World Where Differences Still Matter”, we find a magnificent description, in the CAGE analysis, of all the factors that unify or differentiate markets, based on cultural, administrative, geographic and economic aspects. We can see that there are countries or geographic zones to which some of these factors are common, creating close links that mean that as we move around or carry out any activity, be it economic, commercial or merely personal, within the Supracountry or Area of Influence to which we belong, things are easier and we feel more comfortable because there are relatively few differences from our own immediate environment. However, when we try to do the same in another Supracountry, we find more differences, or entrance barriers, which, taken together, form this Influence Barrier which is so hard to overcome.

The fact of being supranational, as the term itself suggests, is equally relevant, and for this reason I have not taken into account important markets such as China and Japan. The current map of the world is probably made up of the Supracountries and those countries, such as China or Japan, which for historical or geographical circumstances have remained isolated, but which, without doubt, need to be taken into account on the economic world stage. I will go deeper into the reality of China, and how it currently interacts with the rest of the world, in a future article.

Dynamic Nature

Another key aspect of Supracountries or Areas of Influence is their dynamic nature, which means they change over time. Until such time as we reach total globalization, at which point they will completely disappear as everything would be the same and differences non-existent (a scenario which I think is unlikely ever to happen because of such critical factors as language and religion), this concept will continue to be valid and applicable to our business reality. We can conclude by asserting that these Supracountries or Areas of Influence will vary according to the factors we have already listed and to others which may force their way into consideration. This means that what I consider is the map of Areas of Influence today may not be the same tomorrow, and we need to be able to detect the changes, which will most likely involve merging one area with another, reducing their overall number.

Before continuing, I would like to point out that this concept is purely economic and tied to the process of internationalization.

INFLUENCE BARRIERS

Taking into account the above, we need to be aware that between the different Supracountries there is an intangible wall, the Influence Barrier, that has to be overcome, as it forms a formidable impediment to entry to a group of countries or a particular geographic area. I would like to stress how difficult it is to break through: however, once this is achieved, it becomes an extremely important competitive advantage. I would like to expand on this point, which is very interesting as it explains why the multinationals are so powerful and why it is so difficult to compete with them. This is because they have managed to break into the Areas of Influence.

The more breakthroughs into Areas of Influence, the greater distance a company can put between itself and its competitors, and the greater the competitive advantages that have to be overcome. This explains the leadership of countries such as Germany, Japan, The United States, England, France and other countries which are world powers. For other, newer economies to provide real competition for them, growth in their domestic markets is not enough: they have to strive to conquer other markets and other Areas of Influence. Only in this case will they be able to compete with, and supplant, these economies and their big multinationals.

“Areas of Influence are dynamic: they have changed and will continue to change throughout history”

The Supracountries, or Areas of Influence, are a consequence of a set of initial factors, which we will analyze below, which have given rise, in a more intense way and at a greater speed than would otherwise have been the case, to a similarity of approach to a series of aspects. The current map of the Supracountries can be seen in the following figure, which indicates the existence of six big Supracountries. However, it mustn’t be forgotten that this is a dynamic concept, and that, as a consequence, it is alive and evolving. This means that what today is the map of Areas of Influence may not be so tomorrow, so we have to remain alert to any changes that may take place.

If, as we mentioned above, we add the two other main markets of today to this map, we have a world vies as shown in the next figure.

Each Supracountry, or Area of Influence, is, of itself, for the people and countries within it, a competitive advantage with respect to other areas. And the bigger the Area of Influence we belong to, the bigger this advantage is. For this reason, it is very important to have access to other Supracountries or Areas of Influence in order to eliminate the competitive advantage of our rivals in that Area. Likewise, we need to be aware that our advantage in our own Area can be nullified if a company from outside it overcomes the barrier.

Another crucial factor as we move around within a Supracountry is, and here I am going back to the term semi-globalization as it can be extrapolated to an Area of Influence, that we cannot treat it as if there were no differences within it, because there are, and in the process of internationalization we must bear them in mind. An Area of Influence is one where a company can move around more easily owing to the reduced number of entrance barriers and a greater number of similarities of various types between the different countries that make it up. This gives a comfort zone feeling, but we must not relax in the process of internationalization, as, when all is said and done, each market needs to be attended to individually, taking its peculiarities and differences into consideration.

Why is it important to have an awareness of the Supracountries or Areas of Influence:

1. They provide us with knowledge of the real situations that surrounds us

This is of enormous relevance, as it allows us to be aware of these factors when taking a decision, so that business criteria are paramount when facing an internationalization process. Although it is true that the entrance barrier is lower when we want to tap into a market that belongs to the same Area of Influence as we do, than when we want to enter one that is in another Area, this may not be sufficient to rise above other criteria such as security, monetary risk, or simply whether it is the right market for my product.

We all know that it is much easier to go where we know people. However, when I work with companies on this point, I insist on making them see that sometimes the easy route isn’t the most suitable, and that, although it is human nature to tend to the easy way, in business we need to be aware that we are looking for what is the best for the company. So the mere awareness of this danger, which could be described as “drifting in our own Area of Influence”, raises the alert, causing our decision making process to be more objective. Of course, if the conclusions about the two markets are practically the same, and one is within our Area of Influence and the other isn’t, unquestionably we should choose the one in our Supracountry, as, given greater similarity and consequently lower entrance barriers, the possibilities of success in this market are greater than in the one that is not in our Area.

So the Supracountry is not a bad thing in itself: on the contrary, in so far as it is possible we should take full advantage of it. All we need to do is be aware of its existence and keep it in mind when we approach a new market in the internationalization process.

2. Preparation of a general internationalization strategy.

The design of this strategy needs to take this into account to maximize resources and minimize effort in structuring our internationalization process. In other words, the mere awareness of these supracountries will force the preparation of said strategy to keep in mind the effort and difficulties inherent in overcoming the entrance barriers, and, in the case of belonging to the Area of Influence, the competitive advantages of our company.

This allows us to define priorities and approach the internationalization process logically. For example, if we are thinking of opening three markets, let’s try to do it in the minimum number of Supracountries possible, as the effort involved will be much less. And if our objective is to reach several markets in the same area of influence, this concept will allow us to structure our planning so as to minimize our workload, as, by keeping this in mind, we would carry out a strategy specifically designed for that Supracountry. For example, we could open a first market within the Supracountry, and then from this market attack the others. If we did not keep this in mind, the difficulty and the resources required would be greater, as we would be trying to open two markets from our own in a different area of influence, meaning two breaks with an area of influence rather than one. So this is clearly a useful concept when designing a global, internationalization strategy.

As we have seen, the mere fact of keeping this term in mind allows us to approach an internationalization strategy so as to increase our chances of success as we can build, for example, on the competitive advantages which our area of influence provides, and therefore minimize the risks of entry to new markets and optimize the necessary resources for the whole process.

It is therefore as important to detect the target markets of our company or product, bearing in mind factors related to the product itself, the demand in a particular market, how developed that market is, the geographic and cultural distance, among other factors, as it is to be aware at a higher level of these Supracountries, in order to be able to carry out a global internationalization strategy. In other words, I consider it essential for internationalization planning to start from a higher level than that of the individual markets. This level is made up of the Supracountries and those individual economies that do not form part

of one, such as China and Japan. This level shall be called Supracountry Level, or Areas of Influence.

In later articles, we will analyze each of these areas of influence more specifically, detailing each and every link they have, and so provide the key to overcoming the influence barriers which form an obstacle to the task of internationalizing our company. Not all influence barriers are the same, so we need to understand the differences to be able to get past them.

The origen of the Supracountries or Areas of Influence

When I began to analyze all the circumstances which could have an influence on our current reality as far as company mobility is concerned (although the same can be said for individuals), and in particular as regards the area of influence or supracountry, I came to the conclusion that there were a series of main causes which lead us to a better understanding. I am aware that there are many others, but I am going to refer specifically to: colonialism and other relevant political movements up to the end of the 20th century, migratory movements, mainly during the last century, commercial and economic relations and several others, among which language and religion are key. In my opinion, these factors are critical in any analysis of the current situation.

Until not so long ago, colonialism was a reality in the world. This, mainly at the hands of the big European nations, meant that for many years, centuries even, there was a transfusion of culture, language, habits and customs from the metropolitan centre towards the colonies, in many cases imposed by force. This movement has meant that, today, many of the former colonies maintain a special link with the previous home base, and with the other territories which fell within this power’s borders. This is possibly the single most important factor in the origin of what I have called Areas of Influence or Supracountries. Without going into detail, a brief glance at the map (above), indicating some of the former colonies that have given rise to these areas, helps us see the clearest ones: the Commonwealth, Latin America , France (mainly in North Africa) and Russia (with some of the old republics that made up the USSR)

Returning to Professor Ghemawat’s causes of differentiation between countries, we recall: cultural, administrative, geographic and economic.

Colonization has meant that some of these differences are smaller within these areas, particularly as regards the cultural element: the fact that many former countries continue to use the language of the colonizing country, have the same religion, or simply drive on the same side of the road gives the feeling of being at home. As for the

administrative part, colonization has left a large legacy, and therefore much of local law has been influenced by the legislation of the colonizer. In the economic field, this long period of coexistence meant that many commercial links were established which still exist today. For all these reasons, I consider that this element of history fact has put its stamp on today’s reality.

In the same vein, although not considered colonialism as such, I have taken into account the political relationships of influence which came into being after the Second World War. On the one hand, the division of Europe into two great blocks, as a result of the Warsaw Pact, not forgetting the USSR, which had emerged after the First World War as a federal state where Moscow held the reins of power and exerted an enormous influence on the surrounding territories. And on the other hand, the existence of authoritarian regimes, such as in Spain or Portugal, which kept them apart from western reality.

However, I would like to avoid putting colonialism forward as the only reason for the existence of these areas, as throughout history there have been other circumstances which have been relevant to their development. A second factor I use to explain their origin are migratory flows. These, while not in themselves a defining factor in the generation of an area as such, have contributed to the strengthening of those which already existed, or to the creation of small colonies of influence spreading these areas into neighbouring countries, for example. Their main role, though, has been to provide a bridge to break down what I call the barrier to an area of influence. Thanks to these migratory flows, bridges have been built which provide links between different areas of influence or supracountries. On the map we can see the principle migratory flows of the twentieth and early twenty-first centuries.

A third factor which we cannot ignore is commercial and economic relations,

both at company and state level. Often thanks to investment by big multinationals, but at other times, as we said at the beginning, as a consequence of political agreements between nations, such as the creation of preferential trade areas, free trade zones, customs unions, common markets or economic unions, they facilitate movement between different Areas of Influence. A clear example is the European Union, which will no doubt succeed in creating an Area of Influence which is not yet fully consolidated given the gulf that still exists between the member countries. From my point of view, the day the European Union becomes an Area of Influence or Supracountry, is the day that the European project can be said to have succeeded: until then, it is a shared space with many barriers yet to be overcome.

Before finishing this section, I would like to point out two more factors which particularly deserve a mention, as I believe that although they are to a great extend the cohesive nodes of the former colonies, they are not always linked to these and on occasions have followed their own path. They are language and religion. The clearest examples we can see are the Arab countries, where Areas of Influence have been created based, basically, on these two factors, and where most of the colonizing factors have disappeared completely. In the following figures we can see the world divided by religion and language. This gives us a clear idea of what we are talking about.

Español

Inglés

Francés

Árabe

Portugués

Ruso

Chino

Hindi

In conclusion, we should not consider colonization to be the only cause of the development of Supracountries, because, as we have seen, other factors have also played an important part.

How to break down the influence barriers

In this final section, I would like to bring my experience to bear to explain how to break down an influence barrier, or, to put it another way, how to gain access to a Supracountry or Area of Influence different from my own. In most cases, the breakthrough happens as a result of the use of a combination of these tools, not by the application of one of them alone. I would like to point out that I will make a general presentation as to how to break down an influence barrier, but it is important to take into account the particular details of each case, at the same time adding those of the individual country we are approaching in the area.

There is no single formula for breaking into an Area of Influence, as this in turn will depend on the strategy adopted when approaching a new market.

This statement can be more easily understood if we consider that it is not the same to enter a market by buying a company, in which case we find ourselves in a mature market, having accessed via purchase of market share, as it is by growing organically. Neither is it the same if we use a distributor or importer already within the market rather than establishing a network of sales outlets of our own.

For all these reasons, we will have to use the different methods I propose, combining them together according to the entry strategy we have decided on. As these methods are tools to break through the influence barrier, it is important to keep in mind the local factor, which will multiply the chances of success for our company. It is the same if we look at different breakthrough strategies used by large and small companies. Below I will give a few hints as to how to do this depending on the type of company and the resources available.

1 Be present in the Area of Influence. Once inside an area of influence it is easy to move around within it as long as we use the market via which we gained access as a base, because if we want to break in again from our own country we will be faced once again with the influence barriers. For this reason, if we wish to move into another country in the same area of influence, I recommend basing that move on the markets in which we are already present: it is from here that we can best approach new countries in the same Area.

2 Take advantage of migratory flows. As we mentioned above, migratory flows, both of people and companies, are an important breakthrough factor as they provide significant bridges between two Supracountries. There are two types. Firstly, people or companies from our destination country who are present in our own country. A clear example is provided by immigrants who have moved to other countries and have managed to help companies where they now live either directly or by providing them with contacts making entry into their original home markets easier. Secondly, and this is how the Chinese are doing it, where influence barrier breakthrough rests on people or companies from our own country who are already operating successfully in our destination country. I will develop this theme in the chapter on China.

3 Institutions and official bodies. Throughout history, as you would expect, mechanisms have been put in place to make the internationalization process easier. For this reason, a number of institutions have been created, such as Chambers of Commerce, some of which are bilateral, whose function in many cases is to facilitate relations between different markets, making the whole process easier. In addition, states and public bodies, conscious of the difficulties faced by companies expanding into new markets, have created official organs of foreign trade, many of them located inside the foreign markets, or have permitted their embassies to be used as a base for the same purpose.

4 The language. On many occasions, the area of influence can be breached by the simple method of adopting the language of the destination country. This is most frequent in internet-based companies, where the home base is unknown and provided by a domain. In these cases, more or less the only thing you have to do is adapt to the local language.

5 Specialized local companies. Nearly all markets have specialized local companies whose role is to facilitate entry into the country. This type of company is very useful as they can make breaking through the influence barrier easier. It is important to select carefully so as not to waste resources.

6 Local partners and collaborators. In some markets, almost the only way in is to find a local partner. Indeed, there are those where this is required by law. This makes breaking through the barrier easier, though we must be very careful with our choice of partner. Very often, instead of actually creating a company, we can use various mechanisms of collaboration. In any case, the result and the entry strategy would be very similar.

7 Local employees. Throughout this document, we have considered people as bridges to break into areas of influence. So we consider it very important that the majority of the workforce, if not all of it, should be local. This will provide us with direct transfer of market knowledge from our employees to the business. We are not saying that no-one from the home country should be sent, as often this is essential in terms of know-how, but as far as possible we should rely on local people to increase our chances of success and to overcome many of the existing entry barriers with greater ease.

8 Local knowledge (culture, language, customs, tastes, etc.). Having people who know the destination country gives us the chance to get closer to it. The great thing about this is that the person concerned has know-how about the business, and knowledge of the home country as well as of the destination country, meaning that he/she is extremely useful in the process. It is not always easy to achieve this, but when it happens it is extremely valuable.

9 Buying a local company. Possibly the quickest and easiest way of breaking the influence barrier is the purchase of a local company. We can observe that this is the strategy followed by big organizations, as it places them in the market immediately and they can do business from the word “go”. But this is not always so easy for smaller companies with fewer resources, who are more likely to need other methods to break into the area of influence such as those listed above.

Conclusions

o The concept of Supracountry, or Area of Influence permits us to have a deeper understanding of our environment which we can apply when taking decisions affecting an internationalization process. This will give us the opportunity to carry out a closer, more detailed analysis of our objectives and strategy and how to overcome the influence barriers when necessary.

o We must be careful not to confuse Supracountries or Areas of Influence with countries, as the term refers to a series of similarities and links between its constituent parts, helping reduce barriers for internationalization movements from one country to another within the area, but at the same time creating an entry barrier to itself as far as other areas of Influence are concerned.

o Internationalization is a complicated task, which requires us to keep many factors in mind, including those presented in this paper. In any case, I consider it absolutely essential, in a world tending more and more towards globalization, for companies to examine just how important it is for them to go through this process, and supposing they take the decision to follow it through, to do it in a way that takes into account absolutely all the relevant variables. Only by minimizing risks will we be able to increase our chances of success.

Bibliography

o Redefining Global Strategy: Crossing Borders in A World Where Differences Still Matter - Professor Pankaj Ghemawat, ed. Harvard Business Press, 2007

o Global Standardization vs. Localization: A Case Study and a Model. In The Global Market: Developing a Strategy to Manage across Borders, ed. J. A. Quelch and R. Deshpande. San Francisco: Jossey – Bass, 2004

About Daniel Millán

Bachelor of Business Sciences and Master of Business Management from the IESE Business School.

_ CEO y Founder Member of TERNUM Group. Since 2006.

_ President of Family Mimar, a seed capital investment company created to support new ideas and projects. Since 2005.

_ Before 2005, several start-ups, including the design and management of a Project Finance initiative valued at 100 million euros in Kronos Kapital, investing in Polish assets.

_ Assessor to the Polish Hispanic Chamber for internationalization matters.

_ Frequent conference speaker on Internationalization and Poland as an attractive investment market. Chambers of Commerce, The Business Institute (Instituto de Empresa), IESE, ICEX, IPEX.

_ Frequent article writer on Internationalization in his blog http://www.ternumcomercioexterior.com

_ Contact:

o daniel.millan@ternumgroup.com

o @dmillanm

es.linkedin.com/in/dmillan