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Where the Trains Don’t Necessarily Run on Time

Where the Trains Don’t Necessarily Run on Time

Doing business in the ambiguous, volatile environment of a developing country.

By Bob Johnson & Rob Oberwise

Bob Johnson is chairman of Spirit AeroSystems and former CEO of Dubai Aerospace and CEO and chairman of Honeywell Aerospace. Rob Oberwise is CEO and managing partner of North Barrington, Ill.-based Executive Partners. Adapted from Developing Global Leaders: A Guide to Managing Effectively in Unfamiliar Places (Palgrave Macmillan). ©2012

It’s almost a truism that today’s corporate environment is one of constant change and disruption. You’ve likely worked in an industry that has gone through roller-coaster cycles or for a company that has been restructured. But if you find yourself managing people—even temporarily—in a developing country, you may soon feel overwhelmed by the volatile, unpredictable business environment that comes with the territory.

To a certain extent, change in the West is controlled and expected. Even if it feels chaotic as a company restructures or is acquired, in the United States or Europe these events take place within a familiar framework. While you may be upset by the changes that are going on around you, you generally understand the logic of the moves being made and the consequences for you and others.

In many developing countries, by contrast, change often comes out of the blue. One day everything is running smoothly; the next day the factory is shut down by governmental decree. One day you have the funding for a project; the next day you don’t. One day you have a direct report whom you’ve groomed to take on major responsibilities; the next day you hear that his family needs him to help out during a crisis in a remote province and he won’t be back for at least a month.

While the degree and frequency of change varies from one country to the next, as a rule, you should expect that degree and frequency to be much higher than in the West. A my-way-or-the-highway type of manager will struggle in this environment. If you adhere to one approach or have trouble shifting your plans on the fly, then you’re going to be frustrated. We’ve found that adaptability is a critical trait for managers and leaders in developing nations. We’re using this term in the broadest possible sense—it means being flexible when your best-laid plans go awry; it means being tolerant of ambiguity, confusion, and uncertainty; and it means being able to react quickly and creatively when events mandate new strategies and tactics.

Before focusing on how to put a flexible mindset into practice, though, let’s look at the various common occurrences that make this mindset essential.

Every Day Holds a Surprise

When Bob was working for Dubai Aerospace Enterprise, one of the company’s primary goals was to expand its airport management division worldwide—helping other countries create more efficient, effective airports. This effort was encouraged by Dubai’s government, which believed that this would foster better relationships with Western powers. At first things went well, and it seemed as if this would be a profitable endeavor. Then, inexplicably, the government’s policy shifted. All of a sudden, the government no longer provided encouragement and support for the airport strategy.

No one communicated that support was being withdrawn. No one told Bob that he should scale back his efforts in this area. At first, he and other executives were bewildered. They had been told this was a priority, and now it wasn’t. The company had invested a great deal of money and time in its airport group, and its efforts to date had been profitable. What was Bob supposed to do?

What he did was try to learn the reasons for the change in governmental policy. Though it wasn’t easy to discover the truth, he eventually found out that some bureaucrats in these Western countries viewed Dubai Aerospace’s strategy as threatening on a number of fronts. They feared that DAE would take away jobs from citizens of their countries, and they felt that the company, and Dubai by extension, was an interloper, attempting to take over functions that these countries felt should remain in their hands. When Dubai government officials felt this resistance to DAE’s efforts, they withdrew support. To save face, however, they didn’t communicate what they were doing because it would have been an admission of shortsightedness.

Bob could have responded in a number of ways. He could have confronted government officials and demanded the full support they had promised initially. He could have persisted in the strategy with the hope that because it was profitable, it would eventually regain support. Instead, he adapted the strategy to the situation.

When Bob understood what had happened, he had his airport group target other developing countries, such as India, that were eager for help in creating better airports. Though a less profitable approach, it allowed DAE to continue to derive value from its resources in this sector.

We have found that surprises like this one are the rule rather than the exception in every developing country we’ve worked in; there are times when things happen that make no sense, at least to the Western mind. To adapt effectively, it helps to be aware of the most common categories of surprises:

Governmental interventions. This can take many forms, including ones such as DAE’s in which the government shifts its policy covertly and forces a company to operate differently. But we’ve experienced and heard stories about other governmental moves that have created confusion among corporate leaders and managers. For instance, a government may pass a new law or enact a new policy to extort money or other favors from a company, rescinding the policy when the company does what is requested.

Sometimes, of course, it is impossible to figure out what a government wants in return for rescinding the law or policy, since no government official wants to be direct about being an extortionist. We’ve also talked to leaders who tell us of being caught in complex political intrigues—one political faction wants to gain power by aligning itself with the company’s leaders while another faction hopes to cater to the populist element by taking a stand against the company. And there are instances when government bureaucrats will suddenly make demands of a corporation—partner with us on building a water reservoir, provide us with a three-hundred-page report of all the transactions you’ve conducted in the past year—that seem arbitrary yet can be enormously time-consuming and costly.

Economic changes. In the West, budgets tend to be sacred objects. People adhere to them with religious fervor, knowing that they will be held accountable for staying within budget. In developing countries, budgets are often seen as nothing more than guidelines and are not taken as seriously. It may seem as if there’s no money in the budget for a project, yet if the company leaders or powerful groups in the country want the project undertaken, the money magically appears. Conversely, it may seem as if financial resources exist to launch a new project or product, but suddenly you’re informed that the money isn’t there.

Bob recalls that in Dubai he operated on the assumption that the company’s investors would provide him with the money needed to implement the strategies they had discussed and approved. This was a Western assumption: Money for projects flowed much more slowly than he had expected, and then the money stopped at the same time as Dubai experienced an economic downturn—there was no separation of state and private industry as there is in the West.

Bob responded by trying a number of approaches: He suggested finding other investors; he asked the sheikh to intervene with current investors and get them to loosen the purse strings, and he created what he referred to as “early tragedy dates”—setting deadlines for funding projects one month earlier than the real due dates, providing a one-month cushion in which to find the money that had not yet arrived.

Infrastructure in developing countries is much more fragile than in the West, and damage or shifts in infrastructure affect just about every organization that operates within these countries’ borders. Natural disasters such as hurricanes, earthquakes, fires, and floods can impact a private company’s financial resources—subsidies or partnering funds the company is receiving from the government can dry up instantly. Civil unrest and regime change can have similar effects. And in countries where dictators rule, the person at the top can have a change of heart or shift his priorities and arbitrarily abrogate done deals.

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The Conference Board Review is the quarterly magazine of The Conference Board, the world's preeminent business membership and research organization. Founded in 1976, TCB Review is a magazine of ideas and opinion that raises tough questions about leading-edge issues at the intersection of business and society.