Wells: A little more than 65, around 75.

Jocelyn: Okay. And including in the China market, such as Beijing and Shanghai. I’d like to talk to him today about international communications. Gary and I were just discussing Starbucks and an interesting point about…that you have to be careful about the kind of message to a country when you’re trying to move your brand into that market. Right?

Wells: Good morning, Jocelyn. I think it’s critical for any company moving into a global market, an emerging market, is to keep in mind cultural sensitivities. Okay? Of all US companies, Starbucks is generally the most alert and sensitive to such cultural issues…but lost sight of that with their decision to accept an opportunity to put the franchise inside of the Forbidden City. It’s one thing to install a Starbucks or any other American fast food restaurant in a shopping plaza, in a business center where there’s high traffic. It’s another to install what could be considered a foreign invasion in one of the most hallowed sites in all of China, the Forbidden City.

Jocelyn: Right.

Wells: The larger point here is for the global company building into an emerging market. It’s not enough to have a proprietary service that is in demand, you have to understand the cultural sensitivities. For China, for India, for other countries as well, these are countries that have for decades, for centuries were ruled and subjugated by foreign powers. They have long institutional memories. While they may not go looking for slights, perceived or real, they are very aware of slights as they see them. So the decision to install a Starbucks inside of Forbidden City couldn’t be taken any other way than something as an insult and somewhat as a slap in the face. I think Starbucks has handled the situation quite well, to their business savvy, some companies perhaps would not. I doubt they would make that mistake again either in China or in someplace else.

Jocelyn: Yeah, it’s interesting. I think it’s a great example of what can go wrong when you don’t think about how the media or how the public can perceive the message, maybe covert or overt, that your move in an international market may imply. And maybe, I was wondering if you could tell me some other examples of the challenges that a company might face when they’re trying to establish themselves in another country, some examples that you’ve seen from your own work.

Wells: I think if you’re a global company and you’re looking to establish operations, if you see a market for your product or service in central market countries Brazil, Russia, India, China…you have to understand the market forces, but also the culture sensitivities. Also political issues as well. Most companies will look at China and India as probably the two most important markets or two of the most important markets. Very different, very differently organized in terms of their politics. One of course is the People’s Republic of China is a Communist government. More of a market economy than ever before…but still run by the Communist party.

Jocelyn: Right. They call it – what is it — Capitalism with…no it’s…Socialism with Chinese characteristics, I believe.

Wells: And I think that China, to its credit, learned a lot by watching the mistakes that Russia made. Look at India, India is normally the world’s largest democracy. It’s a very messy democracy. Even though that’s a dichotomy when you talk about democracy as messy, it shouldn’t be. However, in India, there was such difficulty pulling the country together some sixty years ago when the British left, that I think a lot of the princedoms, fiefdoms, empires if you will throughout India were given considerable autonomy but the states inside India have considerable autonomy instilled. If you’re Microsoft, and this is a real example, if you’re Microsoft and you look to expand operations throughout India, at the same time you do understand the importance of helping the country and its people in a land where poverty is ripe….For example, the Gates Foundation, the Bill and Melinda Gates Foundation sends money for helping a variety of schools there. But in one state, the governor…thought that Microsoft was too much of a monopoly, and instructed the schools not to use Microsoft Office. Despite the fact that the company had products that were much in demand, had through its foundation, contributed a considerable amount of money to easing poverty and improving the schools, [that still was the governor’s decision]. Microsoft, to its credit, also reacted specially by making sure there was even more in the way of free software and free education to this particular state as well, and the governor relented. But that’s the sort of issue that a local company faces there and I’m afraid that not many – outside of a Starbucks or Microsoft – are as alert to these issues as they should.

Jocelyn: Sure. You know, that makes me think about how, you know, you talk about autonomous regions in India, you know, of course China has quite a few of its own. Like Xinjiang is an example of an autonomous region. Of course, countries such as India and China, they have thousands of years of history of these regions operating as just separate states. And each has its own culture, its distinctive identity. A lot of times, we come into a market, we assume that that market is just, you know, it’s all one homogenous being, you know, it’s all what we see in Shanghai or Beijing or in the case of India, New Delhi.

Wells: Particularly in a market as gargantuous as China — so many regions, so many cultures, languages or dialects – it is absolutely incumbent on any company…consumer products, business products – to understand the cultures where they establish operations.

Jocelyn: Right.

Wells: If you’re in the north, you’re in the south, it’s a much different operation. You’ve got to be aware of which dynasty ruled going back centuries, you’ve got to be very alert to not just the current issues but the past issues as well. It has an impact on how you’re perceived in the community, it has an impact on your ability to recruit employees for a region in China as well. It’s a huge issue for companies moving into China or India. The war for talent is acute. If you want to attract the best and the brightest, to borrow a phrase, then those people have to look at you as a tremendous opportunity. And not just to join your organization, but to stay with your organization. They have to see that there’s opportunity for them to grow. You also have to be well-regarded, well-respected in the community because they have to save face in the community as well.

Jocelyn: Sure.

Wells: If you don’t have a good reputation in the community, if you’re not seen as contributing to the community, you may have a difficult time even further attracting, much less retaining, employees.

Jocelyn: That reminds me of last year when you spoke at the [Going Global] panel and that was something that you had emphasized, was the internal communications in a company, correct? And that’s something that a lot of companies who go global, they often overlook this small piece of the puzzle that can be so important in perhaps, as you said, retaining employees and reminding people of the value they get from the company.

Wells: It’s actually reminiscent of the story over centuries about workmen in France. One of whom is asked what he’s doing, says he’s cutting stone. Another is asked what he’s doing, says he’s mixing concrete. Another is asked what he’s doing and he says “I’m building a cathedral.” He’s got a much larger vision and he’s part of a larger team. And if you’re establishing operations in China, or in India or elsewhere around the world, it’s not an isolated facility. Those aren’t people who work in isolation. Those are people who are part of a larger team. They will feel much more engaged if they understand they are part of a team which means introducing them – perhaps electronically, perhaps personally – to others on the same team, either in the same country or elsewhere around the world as well. It’s hugely important and I think too many companies miss out on that too.

(To hear more about Gary Wells’ views on international communications and China, listen to our full podcast. Total time: 18:32….WARNING – this is not NPR quality on the recording side, but it’s a great conversation.)

Good morning Chip!

Coakley: Hello Jocelyn!

Jocelyn: So Chip, the first question I have is why do you think a company ought to consider marketing their products or services in China? Why should they look to China?

Coakley: Well, that’s a great question Jocelyn. There’s a couple things, let’s break that down into pieces, and look at production first of all. Production, whether you’re a small or medium-sized company, you’re finding that all of their products are becoming extremely globalized, from a competitive standpoint. And unless, looking back on the history of this country a little bit, when we were competing with each other – for instance a Midwest firm was competing against a West Coast firm or a Midwest firm was competing against a Southwest firm. Now you get to the point where a Midwest firm is competing against a firm in Argentina, competing against a firm in Beijing, competing against a firm in the Czech Republic, so it’s a global problem. So from a production standpoint, all companies, whether it’s a US company or another company someplace in the world, have to look at global opportunities to be able to become globally competitive.

Now, on the second half of your question, the marketing side is equally important. When you’re looking at outsourcing and going global, you may have to take under consideration changing how you’re doing business, going along with the paradigm shift – whatever your paradigm shift may be. And your paradigm shift as an industrial manager may be that you may have to turn from being a manufacturing company into a marketing company. Which means that you may be outsourcing your production to other places. Now that could take on several scenarios as well. Number one is outsourcing your production and becoming a marketing company – it’s a major paradigm in itself, it’s a major change especially if you’ve been doing manufacturing for 75 years. Becoming a marketing company isn’t going to happen overnight. However if you accept that paradigm shift and the challenges of that paradigm shift, then you will find yourself going into that mold or business…and you won’t be able to afford to do otherwise because you can’t add additional plant capacity, you can’t add additional costs to what you’re already doing; you’re reducing costs and becoming more competitive. You can reduce costs or reduce your overhead, or increase your business combination of both. Which brings us to the point of increasing your business.

So as you’re able to focus on increasing your productivity through outsourcing, now you can look at increasing your business through marketing. You have, for instance, done a good job in this country marketing, now we’re talking about how you market in China, how you market in India, how you market in South America to become globally competitive.

Now, the idea in most small companies and mid-sized companies minds at this stage is that they can’t afford to do it, or can’t afford to keep up with the big guys, the big companies. That is absolutely wrong. They can afford to do that with the services we provide, allowing a small or medium-sized company to compete with anybody on a global basis.

Jocelyn: You know, that’s interesting, what you point out about becoming a marketing company. I’d just like you to, maybe, elaborate on that point. When you talk about becoming a marketing company, what does that structure involve?

Coakley: Well, if we go back to the beginning, let’s go back to a US manufacturer of widgets, for example. What he does…he’s been a manufacturer of widgets for 100 years or 75 or 100 years, and once he has recognized that he cannot afford to invest any more money in production and he needs to reduce costs, he needs to figure out how he can reduce costs and increase sales – in other words, to be able to increase his margins. So, the first step is where do you find the operational problem, can you reduce costs by operation – we’ve already talked about that a little bit, which is subcontracting out some of your production.

And to answer your question, probably the more important problem to be faced is how do you market those products? Your question – if I’m correct in understanding your question – as you accept your paradigm shift and as you’re looking at different ways to market things – for instance what we do in China for our clients is we do a number of things. We represent our clients in China to, number one is, market their products for them through distribution networks to be able to sell products within China. Before they do that, we offer them our support in setting up a strategic plan, or a marketing plan. How are they going to do it? What’s it going to cost them to do it? And if they determine that they need to set up a marketing office, we will do the interviewing of the marketing people in China or India or South America as the case may be…we’ll do the interviewing, we’ll select the people. We’ll set up a marketing office for people. If they want to do their own, we’ll set up their marketing office if they want us to do it. We have our offices in China and India, we will do it for them.

So it really depends, and I go back and talking about strategic plans, and there’s probably, the strategic plan or planning is probably the key success behind anyone making a decision. Everyone has to recognize and identify that they need to take the time to think about where they want to take their business. That is strategic planning and strategic process. We don’t do anything for anyone unless they have a strategic plan. We won’t even consider suppliers unless they have a strategic plan. We can of course assist them with a strategic plan but they need to think globally and how they’re going to implement, whether it’s their suppliers or their marketing, looking for financial expansions…whatever the case may be. They need to include that in a strategic plan.

Does that answer your question?

Jocelyn: Yes, that does answer my question.

And when you talk about thinking globally, it’s obvious that your company has been thinking globally for quite a while. As far as companies go, yours…like globally you have offices not only in Cleveland, but also in Hong Kong, Beijing, Shanghai…

Coakley: And Mumbai.

Jocelyn: And Mumbai. And, you know, what I’m interested in is when did you know that you needed to look to China and other countries for business. Was there a particular experience, event or person that influenced that decision?

Coakley: When I was in the army in 1970, I took R&R from Vietnam to Hong Kong, and my five-day visit to Hong Kong at that time told me that this was where the action was going to be for the future. I never lost that thought, or lost that experience. When I got out of the army in 1971, I traveled back regularly to Hong Kong, as Hong Kong was the only place you could do business in China because the new frontier was not, the frontier territories was not opened up yet nor China opened up at that time. But my businesses and businesses I was involved in in the 70’s and 80’s, and later in the 90’s, all required me address the idea of production and marketing. And I started in Hong Kong. In 1982/1983, when China opened up Shenzhen, industrial zones – say Shenzhen for example, North of Hong Kong. I was up there with a friend of mine, Chinese friend of mine who said someday this is going to be a city of 8 or 10 million people. And I looked at nothing but a dirt mound and an old fishing village of 22,000 people and said “this would be a remarkable story if they could pull it off.” Well today Shenzhen now has a population of about 8 million people, and there’s a booming metropolis the size of Chicago, so, in fact, they’ve done that not only in Shenzhen but in Guangzhou and 125 other cities around China. So this is something that I saw coming, this is something that I did, when pressed in the 80’s by it, virtually closing down my plants – I had five plants in the US – closing them down and moving the production to Hong Kong and other parts of Southern China as China was opening up.

I still see this picture today. China, as an investment of power, has shown its might and will be recognized fully within 25 years as being on par with the top global economies. And I believed that in 1970. I believe that even more passionately now. And I think that China will be a very capable and very admirable leader in the global economy.

(To hear more about Chip Coakley’s thoughts on China’s leadership, his greatest challenges working in China, why China still is seen as a dishonest business partner, how his company has impacted the business community in Cleveland and much more, please listen to the full interview on our podcast. Total time: 31:41)