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To expand or not to expand? Houston researcher weighs in on global growth

Expanding into foreign markets is tempting, but strategic fit can determine success or disaster. Photo via Getty Images

You built your business from the ground up, patiently finding techniques and products that work, carefully crafting solid bonds with your clients. Then one day a new project, opportunity or simple request poses a question: Is it time to branch out overseas?

Of the welter of questions to consider, the first and most important involves location: not just the physical location of the prospective expansion site, but the cultural differences between a firm's home country and its new destination. Secondly, key company traits need to be considered in choosing the investment locations. Is your firm large or small? Young or old? Finally, of pivotal importance to companies outside the United States: Is your company privately held or state-owned?

In a recent paper, Rice Business professor Yan Anthea Zhang looked closely at these three variables with Yu Li of the University of International Business and Economics Business School in Beijing, China and Wei Shi of the Miami Business School at the University of Miami. What, the researchers wanted to know, was the relation of these three features and firms' location choices for their overseas investments?

To find out, Zhang and her colleagues analyzed 7,491 Chinese firms that had recently ventured into foreign markets with 9,558 overseas subsidiaries. Because China now has become the world's leading source of foreign direct investments, the sample promised to be instructive. Thanks to the large sample size, researchers could test hypotheses relating to firm size, age, ownership and the impact of geographical and cultural distance on their location choices.

After studying the elements of geographic distance and cultural distance, Zhang and her colleagues uncovered a paradox. Companies that had an advantage in tackling one dimension of distance were actually disadvantaged — because of the same characteristic — in another dimension.

How, exactly, did this paradox work? Larger firms, with access to more resources, can "experiment with new strategies, new products, and new markets," the researchers wrote. This large size makes geographic distance less of a concern, but it comes with a ponderous burden of its own. Company culture is directly influenced by the country of origin, Zhang wrote. Transferring that culture into a completely different environment can cause the kind of shock that could lead to failure, even with financial and physical resources to ease the geographical distance. Conversely, smaller firms may be more nimble and able to adapt to needed cultural changes — but lack the resources to make true inroads in a foreign market.

A similar paradox exists for older and younger firms, Zhang wrote. A younger firm is more likely to adapt to a culturally distant country than an older firm might, even if that youth means that geographical distance is a greater logistical challenge.

State-owned firms face a similar paradox, one that comes down to the balance of resources against cultural flexibility. A company with state-generated resources may be better equipped to move a caravan people, machinery and materials to a distant new location. However, state-owned companies often typically lack the internal cultural flexibility to handle expansion to a different environment.

What does this mean for the average manager? Simply that going global demands meticulous weighing of factors. Does your firm have the practical resources to expand overseas? Does your staff have the personal flexibility and willingness to meld company culture with that of a different milieu? It's a truism that major overseas expansions require money and heavy lifting. Less obviously, managers of successful companies must thread a very fine needle: ensuring they have the material resources to get their business overseas physically, while confirming that company culture is light enough on its feet to thrive in day-to-day life in a new place.

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This article originally ran on Rice Business Wisdom and is based on research from Yan Anthea Zhang, a professor and the Fayez Sarofim Vanguard Chair of Strategy in the Jones Graduate School of Business at Rice University.

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Building Houston

 
 

Business and government leaders in the Houston area hope the region can become a hub for CCS activity. Photo via Getty Images

Three big businesses — Air Liquide, BASF, and Shell — have added their firepower to the effort to promote large-scale carbon capture and storage for the Houston area’s industrial ecosystem.

These companies join 11 others that in 2021 threw their support behind the initiative. Participants are evaluating how to use safe carbon capture and storage (CCS) technology at Houston-area facilities that provide energy, power generation, and advanced manufacturing for plastics, motor fuels, and packaging.

Other companies backing the CCS project are Calpine, Chevron, Dow, ExxonMobil, INEOS, Linde, LyondellBasell, Marathon Petroleum, NRG Energy, Phillips 66, and Valero.

Business and government leaders in the Houston area hope the region can become a hub for CCS activity.

“Large-scale carbon capture and storage in the Houston region will be a cornerstone for the world’s energy transition, and these companies’ efforts are crucial toward advancing CCS development to achieve broad scale commercial impact,” Charles McConnell, director of University of Houston’s Center for Carbon Management in Energy, says in a news release.

McConnell and others say CCS could help Houston and the rest of the U.S. net-zero goals while generating new jobs and protecting current jobs.

CCS involves capturing carbon dioxide from industrial activities that would otherwise be released into the atmosphere and then injecting it into deep underground geologic formations for secure and permanent storage. Carbon dioxide from industrial users in the Houston area could be stored in nearby onshore and offshore storage sites.

An analysis of U.S Department of Energy estimates shows the storage capacity along the Gulf Coast is large enough to store about 500 billion metric tons of carbon dioxide, which is equivalent to more than 130 years’ worth of industrial and power generation emissions in the United States, based on 2018 data.

“Carbon capture and storage is not a single technology, but rather a series of technologies and scientific breakthroughs that work in concert to achieve a profound outcome, one that will play a significant role in the future of energy and our planet,” says Gretchen Watkins, U.S. president of Shell. “In that spirit, it’s fitting this consortium combines CCS blueprints and ambitions to crystalize Houston’s reputation as the energy capital of the world while contributing to local and U.S. plans to help achieve net-zero emissions.”

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