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LEADERSHIP LAB

Globalization lessons from Canada’s C-suite Add to ...

This column is part of Globe Careers’ Leadership Lab series, where executives and experts share their views and advice about leadership and management. Follow us at @Globe_Careers. Find all Leadership Lab stories at tgam.ca/leadershiplab.

DON WALKER

CEO, Magna International Inc.

Analysts predict that by the end of this decade, global demand for vehicles will grow from roughly 80 million per year to more than 100 million – and most of this growth will come from emerging markets.

Magna considers China to be an ‘emerged’ market. Even though its economic growth has slowed down recently, it will continue to be sizeable going forward. Our experience in China has been very good: it has a large and growing population, skilled workers and excellent infrastructure. There is a great deal of opportunity for an international company like ours to thrive there.

India, an emerging market, is also projected to grow, but there are some challenges there. India also has plenty of intelligent, skilled people – however, lack of infrastructure, complex business requirements and a slow legal system make it difficult to manage. Despite those challenges, we do believe that India is on track to become one of the world’s largest economies, and therefore, can offer a great deal of opportunity over the long term.

Looking at Europe, specifically Eastern Europe, we have five plants in Russia, where it is well recognized that the automotive industry is a huge driver of the economy. The Russian government realizes that a significant investment in vehicle assembly and automotive parts supports this. My hope is that things will stabilize there, economically. The region will probably go through a couple of years where production and sales will go down, but I don’t think there will be any less of a focus by the Russian government on securing investment in the auto industry.

In regards to the Rest of the World (ROW), the biggest problems we’ve faced in expanding globally have been in South America. Specifically, Argentina and Brazil have been challenging, because these economies have been troubled – and because the environment is not particularly friendly to business. It’s hard to tell what will happen with the market there, however, we continue to be in communications with our customers and watch the market closely. Many people believe that the Middle East and African markets will also grow for the automotive industry. In Africa, we have looked at opening a plant in Morocco, because it’s easy to ship the parts back into Europe from, and some auto makers are establishing operations there.

In our more traditional market, North America, Magna started its operations led by founder Frank Stronach, an immigrant from Austria. As a result, we had a lot of European tool-and-die makers in the company, and when we expanded into Europe, it was relatively easy because we had people who understood the culture, the languages, and the way things worked in the region. Apart from a few challenges in Spain and Belgium, expanding throughout Europe has been relatively seamless. Our biggest customers in Europe include BMW, Mercedes, Volkswagen, Audi and Land Rover. These companies export a lot of vehicles, so we haven’t seen as much of a slowdown over the last number of years. Our view on Europe is that it’s going to be relatively stable and we continue to monitor the political climate.

To reduce costs, auto makers have moved to ‘global platforms’. Rather than making different types of vehicles in every market, they start with a common platform – basically, the parts of the vehicle you don’t see, like the drive lines, the underbody – and then they will custom-tailor the interior and some of the styling to give local customers what they want. These global platforms can have between one and four million vehicles built off of them; it’s a very complicated, high-tech system. When we sign a new contract for one of these platforms, as an example the customer might say, “We need you to produce 300,000 units in Europe, 400,000 in North America, 50,000 in India, 200,000 in China and a smaller amount in South Africa and South America. That’s the global reality of our day-to-day business now.

Companies who decide to take their business global need to understand the various cultures. Trying to do everything at once will likely result in failure. It is really important to consider, ‘Where are we going – and why are we going there?’ Have an understanding of the country – from skilled labour, management and taxation to currency fluctuations, local rules, inflation rates –the list goes on. I encourage leaders to go into one or two new places at a time. Hire local management, make sure they understand the culture of your company, and go from there. When Magna is deciding which countries to manufacture in, ethics and legal compliance is a key priority. We choose to operate in areas where there is low risk of corruption or ensure appropriate controls are in place to manage geographic risk.

Don Walker was named Canada’s Outstanding CEO of the Year in 2014 and selected to Fortune Magazine’s 2015 Business Person of the Year ranking. He is management’s sole representative on the Magna Board.

DON MORRISON (Rotman MBA ‘85)

Former Chief Operating Officer, Research in Motion/BlackBerry (2001-2011); Now Chair, Ontario Global 100

Today, almost everyone owns a smart phone, but when we started out in 1999, people didn’t believe this industry had any chance of surviving. All they said they needed were mobile phones and pagers. To [former co-CEO] Mike Lazaridis ‘ great credit, he saw and believed in a vast unmet need for a wearable mobile device that enables people to receive email securely. That’s how it all started.

The global part of RIM’s strategy (not counting the U.S.) started in the fall of 2000. We were tiny back then – just a dozen or so salespeople. The big carriers didn’t want anything to do with us, so we asked them if we could lease air time on their networks. Many people think we hit the ground running in Canada and the U.S., but the truth is, our customer list was small: it was Bay Street, Wall Street, the Pentagon, the White House and Capitol Hill. That was it, for the first couple of years.

In the fall of 2000, we dispatched two people to the UK to seek out carriers in Western Europe. Over the course of the next year, we did a deal with O2 that was later replicated hundreds of times. One of the biggest lessons we learned from this initial period was the importance of perseverance, and a dogged willingness to stick with your vision – even if people aren’t buying your value proposition. The next phase of our global journey was in the fall of 2004, when [former Co-CEO] Jim Balsillie and I – along with a few colleagues – got together with top industry players at the GSM Forum in Nice, France. We were literally chasing carriers down the hallways, trying to get them to see the value of BlackBerry.

Contrasted to prior unsuccessful efforts in Nice, in 2004 we had released the Pearl model – the thin device with the SureType keypad on it; and suddenly, everyone was interested. Jim refers to this time as ‘a complete avalanche of capitulation’. The migration away from us quickly turned into a flood towards us. Over the course of the next year, we signed up 21 new carriers.

I went in to see Jim, to tell him the great news. Of course, Jim was always thinking towards the next threshold, so he asked, ‘Well, how many carriers are left?’ I told him there were 120 or so, and he said, ‘Well then, I don’t think 21 is much of a success – do you?’ I told him that if we wanted to sign up the other 120, we would need to expand our Business Development group; but Jim was having none of it: “No,” he said, “what you need to do is simplify the process.” To me, this was an indication of truly great leadership. We went out and hired Frenny Bawa, who at that time was a VP at TELUS, and we brought her in to simplify the process, without adding people. Frenny made some changes, and by the following year, she had signed up 125 carriers.

One key lesson I learned is that, when you are forming global partnerships, you really have to be in harmony with your potential partner’s objectives. You have to truly understand what they are trying to achieve, and how they measure their own success. Then, within that space, you have to find a way to show them how they can enhance their performance by partnering with you. In our case, this took some time, but it eventually happened.

Many people believe that if you want to go global, the thing to do is ‘think global and act local’ – which translates into hiring local. That might be appropriate in some markets, but in BlackBerry’s case, we used a more phased approach. In the first phase, we dispatched young Canadians who we trusted, who likely knew little of the markets they were sent to, to set things up. I remember one young guy that we sent to South Africa, who had never been outside of Southern Ontario; but he was highly trusted and competent. Once we had placed people in Germany, France, Italy, etc., their task was to find a cadre of local individuals that could lead the company into the next phase.

One of the other aspects of a ‘global mindset’ is the evolution of a company’s measurement/management system. You need to be thoughtful about what you measure and the timing of decentralizing decision rights as a company matures. If you are too quick you may lose control. If you are too slow, you may miss key opportunities due to inflexible decision making from head office that negatively impacts growth in foreign markets. Competent leadership and trust cannot be overstated when you are building a global business.

DONALD A. GULOIEN (BComm ’80)

CEO, Manulife Financial

Manulife is not new to the global environment: we’ve been doing business in Asia since 1897. Our leaders recognized early on that Asia could be a natural market for us; we actually entered Asia before we went to the United States. But the most substantial growth has come during the past decade: today, Asia represents roughly a third of our business. Another third is the United States, where we operate as John Hancock Financial; and the remaining third is Canada. This makes us one of the most global companies headquartered in Canada – and one of the most global companies in our sector.

Over time, we’ve been through world wars and political upheavals. But in the past decade, without exception, every Asian country that we operate in has made significant progress in terms of its political systems, the openness of its economies, the quality of regulation, the sophistication of central banks, and the entire political atmosphere. With the possible exception of Japan, we believe we will continue to see very rapid economic growth across Asia.

Within the next 10 years or so, it is said that Asia’s household wealth will be double that of North America’s, and its middle class alone will be eight times the size of North America’s economy. The growth of the middle class worldwide is very conducive to the growth of our business, because when people get to the middle class, they start preparing for the future in terms of starting educational funds for their kids and accumulating retirement funds.

We have more employees located outside of Canada than we have inside Canada, and more distributors and customers outside of Canada than inside. We consider Manulife to be a global company that happens to have Canadian roots–and we expect all of our people to have a global mindset. We’re very proud to be a Canadian-based company: Canada has wonderful cultural diversity–particularly in Toronto. Most of us can very quickly trace ourselves back to someone who came over on a boat from another land. Because it looks outwards, it’s a great place from which to operate a global company. We’re a small country in terms of population, so we have always had to do business elsewhere in order to survive.

Many people compare us to the Canadian banks, but with all due respect to banks, they are not our competition. Our competitors are Blackrock, Fidelity, Capital Group, MetLife, Prudential and AIA, and many high-quality domestic players, like the Chinese and Japanese companies, that are multiples larger than any North American competitors. We are competing against the best in the world in every market that we serve – which is quite different from being the best in Canada, quite frankly.

We haven’t expanded into India yet, as it has had ownership restrictions that restrict the amount that a foreign company can own. The fact is, we like to run our own businesses. We have partners in different places around the world, but it’s understood that we are running the company: it’s our name on the door, and where we have partners, they are financial partners. We only want to operate in countries where we are truly welcomed and allowed to compete on an equal footing with the local companies.

The second thing is, it’s not clear that the Indian life insurance industry has figured out the right operating model yet. Their middle class is not very large yet – although it is growing. And in my humble opinion, some of the products that have been offered historically in India don’t truly meet the needs of the market. Companies haven’t really figured out a great way to get good results for customers and/or find profitability for their shareholders. As a result, India is a challenging market for almost anyone operating in the life insurance or asset management space.

That’s not to say, ‘forever’: I do love some of the things that Mr. Modi is doing. He’s certainly moving the economy and the politics in the exact right direction – but it’s going to take some time to develop as the kind of place where we’d like to do business. So for now, we’re sticking with our roster – which includes the world’s largest economy (the U.S.), the second largest economy (China) and the third largest economy (Japan), as well as 10 countries in Asia that are among the fastest growing in the world. And Canada, of course! We’ve got plenty of opportunities for expansion in these massive economies.

In the U.S., we merged with John Hancock Financial Services in 2004, and, of course, that strengthened us in that market. The merger was wonderfully synergistic on the asset side of the balance sheet. Manulife’s investment focus was on publicly traded markets, while Hancock had a focus on private markets. There are certain asset classes that we had strength in, such as oil and gas, and asset classes where they had strength, such as timber. Putting the two together gave us an absolutely unbeatable investment operation. This was a wonderful deal for our company.

The greatest risk with respect to global expansion is not doing it. It is natural for Canadians to look south to the United States as a great market – after all, it’s 10 times the size of the Canadian market and the largest economy in the world. But our experience proves that the world does not stop at the borders of the United States: Canadian companies can be very successful in Asia, Europe and elsewhere.

Canadians are trusted everywhere – we are seen as honest in our dealings with people, focusing on the long term, having a respect for quality and for local cultures. The Canadian brand is incredibly powerful in the international market. I just wish more companies were taking advantage of it.

Because we like to invest for the long term, we like to invest in infrastructure, and we participate in many public-private partnerships. These ‘Triple Ps’ tend to be very successful for everyone: they make sense for the taxpayer, they make sense for the local government, and they make sense for the people who deal quality products and services to them at reasonable cost. I think we’ll see an opening up of lots of Triple P opportunities in Canada, given our new federal government.

The big pension funds, like CPPIB and Ontario Teachers, have superb expertise in infrastructure investing and development, and they are doing that in a variety of places around the world. It will be delightful to see more opportunities for them to develop infrastructure in Canada, in partnership with the federal, provincial and municipal governments.

Reprinted with permission from the Spring 2016 edition of Rotman Management, published by the University of Toronto’s Rotman School of Management. rotmanmagazine.ca

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