This article is republished with permission from BusinessThink at UNSW Australia Business School. You can access the original article here.
A few pointers for a growth play across borders
Having lived and worked in Singapore for 30 years, Australian veterinarian Shane Ryan is now expanding his business interests into Cambodia’s capital, Phnom Penh. In Singapore he runs Companion Animal Surgery, one of the country’s largest vet practices, but last year the opportunity in Cambodia presented itself and the conditions were simply too perfect to refuse.
Importantly, Ryan knew exactly what those conditions were, thanks to a mix of past experience, industry and regulatory familiarity, and local knowledge. Two decades earlier he had attempted a similar expansion into Vietnam which, though unsuccessful, was a rich learning experience.
“The Vietnam experience was in about 1994 or 1995,” Ryan explains. “Another vet and I tried to open a private clinic there because no one had ever done so. It was not only a business opportunity but also would have meant we were pioneers.
“There were no private clinics at all in Vietnam in those days. It was still a very communist country. We met with various people, even with the chairman of the committee of Ho Chi Minh City. They were quite happy for us to open a business, but their regulations and requirements kept becoming more and more onerous. It eventually became financially unviable to continue.”
In those days, Ryan says, countries such as Cambodia and Vietnam were relatively closed, politically and economically. And as a veterinarian and business person, Ryan at the time had far less experience and fewer relationships with other people in and around his industry.
Today he has two decades more experience in a far improved business environment in which the Association of Southeast Asian Nations (ASEAN) Economic Community has been realised. He also now holds the position of president of the Federation of Asian Veterinary Associations, which has put him in front of industry players from all around the ASEAN region.
“To be honest, if you don’t have those personal relationships with people in the territory you’re looking to enter, you’re probably going to hit a wall,” Ryan says. “You must know people who are in a position to make sure that anything you're trying to do is not unduly hindered.”
Cognitive processses
Elizabeth Maitland, an associate professor in the school of management at UNSW Business School, has spent much of her career studying the various cognitive processes and skills that come into play when an organisation is making a growth play across borders.
According to Maitland, we know that businesses are capable of making such a move, but we understand very little about how they go about it as a sense-making task. What then are the management considerations and cognitive processes that can separate a successful expansion into a new territory from an unsuccessful one?
In the paper, Managerial Cognition and internationalisation, Maitland and André Sammartino, a senior lecturer at the University of Melbourne, report on the results of a detailed study into how decision-makers think through and determine an internationalisation decision.
One of their many findings is the identification of seven knowledge domains that can make up the mental models of decision-makers. They also discovered the connections, or interdependencies, between each of these domains.
“Some of these domains come out of existing theory,” says Maitland. “But we made the realisation that there are definitely seven. In existing theoretical models there are three dominant domains – location, firm-specific advantages and governance architecture.
“What is under-acknowledged in the literature is the interaction between these. We’ve identified that, and formalised the other ones. Until you do that, you don’t really understand how clearly they interact.”
The seven knowledge domains, based on international business models, are location (“where we might be going”); value proposition (“where value lies for us”); operational aspects (“how we manage this”); overall opportunity (“why we should do it”); firm-specific advantages (“what we are good at”); capacity (“whether we are able to do this”); and governance architecture (“how we structure it”).
“Consistent with the managerial cognition literature, we argue individuals vary in how they make sense of an internationalisation decision, specifically in terms of how they identify and connect elements within and across these knowledge domains. This individual-level heterogeneity stems from differences in their mental models of stored knowledge, based on different career and lifetime learning experiences,” Maitland says.
Strong personal links
Lifetime learning experiences are the key difference between Ryan’s previous push into Vietnam and his present expansion into Cambodia.
When he travelled to Saigon in the mid ’90s he was relatively inexperienced in international veterinary business management. One of his only firm-specific advantages was that this would be the first private clinic in the country, but he was to discover after several meetings that he did not have the capacity or the local knowledge to operate in the market of the time.
Today in his Cambodia expansion, the opposite is true. The network of ASEAN professionals with which he has strong personal links is broad and powerful. The value proposition and overall opportunity – the likely success of an advanced, Western style of clinic in a highly populated city in which there is a high rate of pet ownership among the wealthy and expats – is a positive one.
Firm-specific advantages are clear and numerous, beginning with the fact that Ryan is the respected owner of one of Singapore’s most successful veterinary clinics.
Critically, location factors are considerably different from the Vietnam venture, including a far more open and receptive economic and political environment, as well as a vital partner that is helping to smooth the way. The private clinic will be developed in partnership with the Royal University of Agriculture in Phnom Penh.
“It will act as not only a profitable business but also as a teaching hospital for the university,” Ryan says. “So the opportunity is to give something back but build a successful business at the same time.”
Finally the structure, or “governance architecture”, of the Cambodia venture has also been planned carefully in order to protect the Singapore business.
“I'm going to set up a different company because this one involves inherent risk,” he says. “If it falls over, I don’t want it to take anything else with it.
“I’m meeting with the veterinarians in Cambodia to discuss risk issues and to figure out how to mitigate risk. I’m also speaking with people from the outside who have done this, people in Singapore and Cambodia who are foreigners who have set up businesses. I’m wanting to know the problems they had and the ways they got around them.”
Stress testing assumptions
What a difference two decades makes. Ryan’s is the exact type of experience that Maitland is attempting to define and frame in order to teach businesses the steps they should follow and the expertise they must develop internally or bring on board.
“We know very little about what distinguishes someone who is able to look at a foreign location and say, ‘There’s a lot of noise here, but this is what’s going to create an opportunity for us, what’s going to present a risk and how we’re going to manage it’,” she says.
“In my research I’m attempting to discover what it is about someone’s prior career and experience that seems to endow them with the learning, knowledge and expert judgment to do that.
“So far it seems that it’s not about having been to foreign countries, but that you’ve experienced lots of different business contexts. You’ve regularly been in diverse situations in which you have had to take all of your assumptions and really stress test them. That seems to be one of the ingredients for international business success,” Maitland says.