Business Beyond the Reef

Can embassies help you sell?  You bet!  Most American exporters avoid contact with U.S. embassies until they are way over their heads with problems, and then they want the embassy to magically sort it out in an instant.  Big mistake.  I assume this is part of our American individualism and a deep distrust of government.

My former colleagues and competitors in other countries’ embassies, though, tell me they see the same thing.  So perhaps it is merely a lack of knowledge of what an embassy can or can’t do to help a company in international business.  We’ll get to that.

First, what’s the popular Hollywood concept of an embassy and how does it compare to reality?  In the average film, an embassy is a grandiose building with surprisingly few people, staffed by a gruff ambassador and a few attachés, who seem to spend their time either drinking at receptions or dashing about on secret missions in the dark.  They apparently do little work in the daytime.  Oh, and in American embassies, they all work for the State Department or an intelligence agency.  That’s the perception.  No wonder businesses don’t go there.

The buildings can be grandiose; it depends on when they were acquired and what the budget was like at the time.  A country always wants to project an image and that takes money.  Some embassies are purpose built, some use existing buildings.  The winning design for the new U.S. embassy in London was announced yesterday.  The American embassy in Vienna is housed in a former palace that was Austria’s diplomatic training academy.  But the former U.S. embassy in Bonn was previously a mental hospital.  Some view that as appropriate, but it was what was available at the time.  (Incidentally, the building we speak of as an embassy is actually the chancery.  The actual embassy is the house in which the ambassador lives.  But I quibble.)

Embassy staffs vary enormously, depending on where the embassy is located and what functions are needed there.  The new embassy is London is designed to accommodate a staff of 1,000.  The American embassy in the Marshall Islands is considerably smaller.  The staff in some places, such as the U.S. consulate in Frankfurt, may be larger than you might expect because people are positioned thereto cover entire regions, providing support, say, for the smaller embassies throughout eastern Europe and central Asia.

They won’t all be from the State Department.  State Department employees are only a plurality in most American embassies.  You will see people from Defense, Commerce, Agriculture, sometimes Treasury, Justice, FAA or most any other agency in Washington that has an international mission.  And, yes, the intelligence agencies will be there, too.  Most of their people are known to the host government and are there for liaison work with local intelligence agencies.  Not all these people are “diplomats”.  That epithet is reserved for members of the Foreign Service (what other countries call a diplomatic corps), which can include officers from State, Commerce or Agriculture.  And much of the staff is support personnel, the admin specialists, communications and IT experts, a few secretaries (increasingly few), cooks, drivers, cleaning crews and other folks who keep things humming.

An embassy staff is not all American (insert your own country here).  Many of the staff members, often the most valuable, are local employees – called Foreign Service Nationals (FSNs) in U.S. embassy jargon.  They range from menial labor to some of the highest paid employees.  There have been cases of senior FSNs getting paid more than the ambassador.  It’s the FSNs who have the deep local knowledge that can be critical to your business success.  They often are personal friends of the top government or corporate officers that your company needs to get to.  In one country I served in, I had no trouble getting to see the finance minister on short notice; one of my FSNs used to date him.  The local knowledge of the American officers, while often quite good, cannot be as deep as that of the senior FSNs.  Most of the Americans are in place for three or four year tours, then off to a new assignments.  It’s generally a good combination.  Fresh thinking coming in, while saving the deep local knowledge.

The Hollywood concept is that embassies have no organization.  Everybody reports to the ambassador, clearly an unreasonable assumption, but one that leads many companies to insist on speaking to the ambassador, even on trivial issues.  The ambassador, or his or her deputy, the Deputy Chief of Mission (DCM), is a manager as well as being a representative for the country, and most of the work of an embassy is delegated down – just as any company would do it.  An embassy, by the way, is an interesting management proposition.  Yes, the reps of all those agencies report to the ambassador, but they also have their own bosses in Washington, which can lead to conflicts when their home agency and the State Department disagree.  My toughest negotiations have been between agencies rather than with other countries.

The United States uses both career (from the Foreign Service) and political appointee ambassadors.  I had good ones and bad ones of both stripes.  Just as the relationship between a CEO and a COO is critical for any corporation, the same is true of how an ambassador and the DCM work together.  The DCM is the Chief Operating Officer and that role becomes even more crucial if the ambassador is political and doesn’t know how to work the system.

Tomorrow, I’ll plan to look at how an embassy is structured and get into which parts of an embassy a business needs to know.  And I’ll let you know what those diplomatic receptions are really like.

Yesterday, I saw an article by Tony Daltorio at Investment U Research about how Google forgot Rule #1 of international marketing: know your market.  Seems obvious, but it often catches companies out when they make a run at a new market.  They don’t stop to think about the market, or they haven’t done the research to get to know a market.

Daltorio’s article points out that Google strode into China with all the hubris of a Greek tragedy.  They knew little about the local competition, like Baidu, which might have enabled Google to pick up on what was driving Baidu’s market share in China – free music downloads, which are not a core expertise for Google.  Google also assumed that their U.S.-style model would automatically work for China, as it had worked in so many other places, but they built no good way to cope with Chinese character searches.  Chinese users want to minimize typing, but do want to be able to merely click on buttons to conduct a search.  (Would a Yahoo-style search by categories work better in China?)  Daltorio says that Chinese internet users are more likely than the rest of us to use the Internet for entertainment, not for the business searches that reign supreme in other markets.  And, says Daltorio, Chinese tend to use blogs more than company websites, preferring to trust word-of-mouth recommendations, which puts a premium on putting blogs high up in search results.  Now, that is not to say that Google didn’t run into all sorts of official and unofficial blockages in China.  Most companies do.

The article got me to thinking about companies I have worked with that did a good job of learning the market – and those that didn’t.  We did some market research in Germany for a firm (that should remain nameless) that wanted to introduce an American consumer product.  Our findings were very negative; in fact, we told the company they would lose their shirts in Germany and probably in much of Europe.  I was a U.S. commercial officer at the time and the company was so angry they complained all the way up to the U.S. Secretary of Commerce.  We stuck by our research.  The company then went to a neighboring European market with their original approach – and promptly lost their shirts.  Never ignore negative market research. It can be the most valuable research you will ever see.  (BTW, the company never apologized.)

I saw KMart fall on its face in Singapore.  They came into the market in a rush and opened up what appeared a magnificent store in downtown Singapore.  What they didn’t realize was that Singapore already had plenty of cheap goods, that they are sold through small stores in the many housing estates on the island, and that – once the flash of the new was over – few Singaporeans would make the trip downtown to buy such things. Why wait for a Blue Light Special when you can get the same thing cheaper from the guy down the street?  (The expat community, which didn’t live in public housing estates, worshiped KMart.  They had that part right.)

Some firms do get it right.  I have worked over the years with a Honolulu architecture firm, Wimberley Allison Tong & Goo, that makes a fetish of getting cultural things right.  When they begin work on a project, say a resort or hotel, they send architects to the site for months or even a year to study the local culture, mores and architecture before they begin to design the project.  The goal is to please the customer, make sure the resort fits with the local culture, and please the visitors to these hotels who want an experience that can’t be replicated in a chain hotel.  WATG has been so successful at this, and has won so many international awards for their work, that now they need to do very little marketing.  International customers come to them.

Doesn't Sell in Germany

Germany was the site of one of the most egregious cases of ignorance of the market I have experienced.  We were helping U.S. companies at a trade fair for costume jewelry in Stuttgart when we found a California company setting up to sell their biker jewelry.  Bikers seem to love old SS-style symbols, swastikas and especially the SS deaths heads.  But Germany, for good historical reasons, has outlawed display of such stuff.  The U.S. company had not thought to ask about selling Nazi paraphernalia in the country that invented it.  We got the deaths heads under cover just before the police arrived.  Phew!

The bottom has dropped out of French alcoholic beverage exports – except for vodka.  Wait a second.  Since when does France produce vodka?  Isn’t that some proletarian beverage from further east in Europe?  Nope.

Bacardi’s Grey Goose vodka is made in France, and makes up virtually all of France’s vodka exports.  Running counter to normal recession trends, French vodka exports rose 13.7% in 2009 to $324 million.  And 70% of that was sold to the United States.  To put this in perspective, total French exports of wine and spirits plunged 17% to $10.5 billion.  That makes vodka, quite literally, a drop in the bucket.  But how did Bacardi get the job done?  I don’t drink vodka, but I have never noticed a hint in Bacardi’s ads that Grey Goose is French.  Any of you readers have an idea of how they did it?

Pinot Noir - but what gets into your bottle?

U.S. imports of French wines tumbled 22.7% last year to a dispiriting $1.8 billion.  And their prospects aren’t helped by a court decision last week that convicted a dozen wine growers and merchants of defrauding American buyers.  A French court in Carcassonne (one of my favorite places) found that French firms had duped E. & J. Gallo Winery (and others, as yet unnamed) into buying cheap plonk, thinking it was good pinot noir from the Languedoc.  (I’ve had some great wines in the Languedoc, but this apparently was not the good stuff.)  The perpetrators succeeded in passing off cheaper merlot and syrah as pinot noir for two years, beginning early in 2006.  Gallo says it is no longer selling any of the fake pinot, but they can’t vouch for bottles still on retail shelves.  Look out for Gallo’s “Red Bicyclette” pinot noir.  It may not be what you think.

The incentive for the French companies was immense.  The judge said they made $9.8 million from the scam.  The big winners (now losers) were respected firms: Ducasse harvested $5 million and Gallo’s supplier, Sieur d’Arques, took them for a $1.8 million bicyclette ride.  A French fraud squad broke the case when they audited Ducasse’s books and found the firm had been buying “pinot noir” at about half the market price.