Two top international business experts share what they are telling their CEO clients about the state of the world.
Two Emerging Real Estate Digest readers and advisors to CEOs in America and beyond share what they are hearing from, and advising to, their clients vis-à-vis international expansion and investment. They answered the same four questions and the responses are included below.
Brittain Ladd is a globally recognized expert in in business strategy, robotics, retail logistics, and supply chain management. He’s had senior roles and advised firms such as Amazon, Instacart and Kroger to name a few. He served as a United States Marine for six years and is a leading business LinkedIn influencer. Check out his interesting and informative posts!
Peter Schatzberg is a three time founder of successful startup ventures which he launched and built having raised tens of millions of dollars and scaling internationally. He’s a pioneer of the virtual kitchen business model and presently lives in the middle east.
1. The world is a mess right now! Please help the readers make sense of it all. What should they be watching? Where is it all going?
There are multiple geopolitical events taking place that are causing ripple effects across the economy. In Europe, there is the invasion of Ukraine by Russia. Because the U.S. threw their support and dollars on the side of Ukraine, it’s greatly minimized economic activity in Russia and other countries.
China continues to aggressively expand using One Belt One Road, and also expanding their military. This is causing the U.S., Japan and Australia to increase military spending and partner on programs to combat Chinese expansion. China continues their saber rattling with Taiwan.
China is facing multiple threats. Their population dropped below 1B people in 2023 at a time when the country’s birth rate is too low to sustain their population growth. In addition, China’s population is aging. This is reducing China’s economic growth for the long term.
If things weren’t bad enough for China, their real estate market is in a massive bubble and appears it will collapse. Many countries are shifting their manufacturing to Mexico and other countries. China’s biggest long-term threat is India. Instead of considering military action against Taiwan, China should instead attack India.
And now we have Israel once again fighting for its existence. Israel needs their version of a Final Solution for all of their enemies. The U.S. needs to support Israel by forcing a showdown with Iran once and for all. Once Israel’s enemies have been beaten, there must be a focus and a legitimate desire to solve the issue of the Palestinians. Jordan and Syria are critical to establish a state for the Palestinians. The Gaza Strip must be closed and revert to ownership by Israel.
Inflation is wreaking havoc in the U.S. and Europe and prices for food are at their highest levels in years. In my opinion, food companies and retailers are using inflation to drive up prices much higher than they need to be. Why? Because consumers have surprised retailers by continue to buy the same products. Until consumers trade down to private label products or increase the number of times they shop at discount retailers, prices on groceries will remain artificially elevated.
U.S. car makers, especially Ford, foolishly invested in building EVs even though demand for EVs is quite low. Even Tesla is struggling. My advice to Ford, GM and other car makers is dump the focus on EVs. Force Congress to make changes to their regulations that eliminates the unfair requirement that car makers need to build EVs.
We’ve been in this position before. At the end of WW1 and WW2, there were similar issues that we are seeing today.
Certainly, the world appears to be more turbulent today than ever before, particularly since social media and internet penetration gives almost every citizen real time visibility (and privilege to share / opine on) global events as they unfold. However, a quick glance at history demonstrates that pandemics, regional conflicts, geopolitical uncertainty, high inflation, rising interest rates and reduced investment are nothing new. In the near term, broader macroeconomic movements will determine the fate of individual companies and even entire sectors, so I watch oil prices (inflation), interest rates (cost of capital), and the struggle for influence and control taking place rather prominently in Europe, Asia and the Middle East. Ultimately, order will be restored, and equilibrium re-established, with emerging markets becoming increasingly influential, sophisticated, and investable over the next decade.
2. American retailers expanding internationally tend to do so through a franchise model or through a local partner. Are you a fan of such international expansion strategies where the parent may not have full operational control?
I’m not a fan of such models. I’m also not a fan of retailers expanding internationally except under certain conditions. Primarily, the retailer has exhausted their growth in the U.S.
American retailers have historically taken a (Master) Franchise approach to international expansion as it allows them to partner with an influential and experienced partner in a distant region of expansion without much investment (CAPEX, supply chain development, commercialization), while still receiving the franchise fees and royalty benefits that come from broad foreign expansion. Of course, the risk is that the U.S. franchisor selects the wrong international partner and receives none of the abovementioned benefits. This happens frequently and it is the price of expansion at a reduced cost.
Ideally, the franchisor should first build a local corporate team that will support expansion into new territories. This team would possess the regional expertise to assist in partner selection, location identification and invariably in the localization of the brand, all while ensuring a degree of operational control in a foreign territory. In many international franchise expansions that fail, a lack of corporate support, due diligence on local partners, and supervision of the franchisee by corporate is to blame.
3. What is one (or two) reason American corporates don’t expand internationally which would surprise some of the readers.
A lack of experience at the executive level is one of the primary reasons why companies don’t expand internationally. CEOs prefer not to put themselves in a situation where they can fail.
Emerging markets are typically dominated by powerful families with diversified holdings and the culture of doing business can be very different from what American corporations are accustomed to. Furthermore, requirements for transparency, governance and regulatory compliance are often different for foreign markets than in the United States. This can lead to American companies taking a more cautious approach to international expansion as they are held to a different standard by American institutions and investors.
4. What’s the biggest issue facing retailers today?
A lack of skilled CEOs. I’ve seen a noticeable decrease in innovation at most retailers.
We recently experienced global supply chain instability, mostly due to the COVID pandemic and the Russian-Ukraine war. The short-term response was for many countries to examine their food security, supply chain redundancies, and global alliances. However, the reality is that many countries specialize in the production of certain natural resources at scale and world demand relies upon them exclusively for supply. Other countries have entire populations trained with expensive infrastructure to service and support a particular sector. Countries have grown far too reliant on one another and have individually achieved enormous economies of scale (reduced cost) through specialization. These benefits (and investments) are not suddenly going to die on the vine. Any drastic steps backwards in globalization we might witness over the next decade will be sector or regional specific. An end to globalization as we know it is not in the best interests of emerging markets, western countries, or most international organizations and even the most isolated countries of the world have trade partners they rely upon heavily.
Comments