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News from International Mgm't Consulting Associates
Directors & Boards header
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Special Edition
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-- How can a company know whether or not its international due diligence is effective?
-- What is the "Wine and Dine" seduction strategy?
-- What can companies do to prepare executives for the challenges of international business?
-- So what's the bottom line?

This month's newsletter covers a profitability area that rarely gets much attention, but can cost billions of dollars of losses. It has to do with the quality - or lack thereof - of the due diligence that must be performed before a company can make an acquisition. As happens with so many things in the business world, non-business, but business-related, distractions can get in the way of objectivity. You will see how wining and dining can impact the outcome.


How can a company know whether or not its international due diligence is effective?
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At a breakout session on Cross Border Board Issues at the National Directors Institute Conference in Chicago the subject of international Mergers & Acquisitions came up. A C-Level executive asked, "How can I tell if my due diligence team has done a good job of evaluating an overseas acquisition?"

A long silence followed. The room was filled with CEOs, board directors and high level executives; they looked at one another for an answer. It was evident that the participants in the session had dealt with substantial domestic and international issues, but none had firsthand experience with the overseas due diligence process.

I raised my hand and said, "If when your team returns home, all they do is rave about the restaurants, you know you've got a problem." I went on to explain the perils of "Wine & Dine Due Diligence," something that frequently occurs with overseas acquisitions.


What is the "Wine and Dine" seduction strategy?
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Foreign executives and business owners tend to be gracious hosts. Rosy treatment of American visitors, especially due diligence teams, overwhelms their normal business street smarts. It creates a rose-colored predisposition in favor of the hosts. The gratitude of the American team tends to generate a "benefit of the doubt" judgm ent. Objectivity vanishes. The result: acquired companies that do not match the due diligence team's description of them.

Later, the CEO of an American multinational company thanked me for my comment. He described his experience with a due diligence team he had sent to examine a family-owned Australian company. When he arrived in Australia he, too, was wined and dined by the owners. During the dinner, the wife of the owner put an arm around the shoulder of the team leader, and said, "We love your people; they are like children to us." The American team leader beamed with pride.

"Right then, I knew we were in trouble," the CEO said. "I later held a private meeting in which I brought the team back to reality. I reminded them that their job was to develop a realistic picture of the potential acquisition, and make an objective recommendation."

On another occasion, during a briefing of an American multinational company executive in Ohio on conducting business in other countries, the executive mentioned something similar. He had been appointed vice president, international, with responsibility for operations in Latin America and Africa. Having just returned from a tour of operations on both continents, he was appalled at the disastrous acquisition decisions some of his predecessors had made. "It was," he said, "as if the minute they set foot on foreign soil they forgot all they had le arned."

There is something disorienting about trying to conduct business in a totally unfamiliar environment We are used to functioning in familiar surroundings with well-known points of reference that help guide our every day activities. When those surroundings and points of reference are missing, we tend to approach and do things differently. We act in a more tentative way because we don't know if what we normally do would produce the same results. We are unsure of ourselves, which affects our judgment. We are out of our comfort zone, and more likely to make mistakes.

Even the most experienced executives, whatever their field, be it management, production, operations, marketing, sales, finance, etc., have problems operating in unfamiliar environments. These people, experts in their specific fields, may be unprepared for the international business world. On the other hand, people who have been in international business for some time learn to deal with the unexpected, and to keep functioning at a normal level. They learn to identify patterns that equate to reference points, thus deal more comfortably with the unfamiliar environment.


What can companies do to prepare executives for the challenges of international business?
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  • Hold frequent executive briefings on a wide variety of international business and related subjects. Appropriate topics can be specific region economics, political situations, security issu es, scams to watch out for, and similar pertinent topics. These briefings should be presented by experts with extensive experience conducting business and running operations abroad.
  • Use the talent of the company's own international executives to educate everyone from the CEO and the board of directors to the people of many levels in the departments that deal with international business. For example, it is important that executives and employees in finance departments be aware of the quality - or possible lack thereof - of financial information received from overseas.
  • Give high potential executives and employees exposure to foreign markets and cultural challenges. There is no substitute for first hand experience. Corporate perspectives of foreign markets and operations may be too superficial. This can lead to very expensive mistakes such as General Motors' famous Chevy Nova gaffe in Latin America. Nova means "It doesn't go" in Spanish
  • Involve international staff and executives in strategy discussions at headquarters. Decision makers at the strategy level often lack enough international experience to identify and prevent costly M&A and other errors.
  • Train US personnel to conduct business in different countries and cultures. They also need to learn how to get around and survive in unfamiliar cities with different cultures. With the right training, people quickly learn what to expect and how to deal with it. Considering the huge cost of bad business mistakes, training that can save millions of dollars offers an outstanding ROI.
Not too long ago, a large New York corporation asked our firm to train their top international executive team in the area of global team building. The company was having difficulty getting overseas operations to work in sync with headquarters.

Within minutes of starting the training, it became quite evident that simple cultural differences were creating communication problems that affected international operations.

Once we made the participants aware of these factors with a series of interactive exercises, the barriers started to come down. Later feedback from the corporation indicates that communication problems have decreased markedly, and performance continues to improve.


So what's the bottom line?
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Strategic decision making is difficult even when it deals with areas where people have substantial experience. It becomes harder and riskier when it involves understanding foreign cultures, economics, and political situations. Global level decision making and strategizing involve risk management. This calls for in-depth experience and up to date information to avoid making costly mistakes.

It takes international street smarts to not fall for the "Wine and Dine" acquisition seduction strategy.


Michael Wynne is president of International Management Consulting Associates. With over 30 years personal experience managing companies abroad and in the U.S., he helps American and foreign companies succeed in domestic and global markets through innovative strategies. His insights have helped companies avoid costly international M&A missteps.

Michael Wynne is also a Boardology Coach with Boardroom Bound, an organization that trains and helps women and minorities to become board directors.

Formerly with Mobil Oil, he was president of a chemical specialties operation with full P&L responsibility for Latin America. Promoted to strategic planning manager with Mobil Chemical Company, he developed global strategies for a $2 billion operation. He later ran a worldwide chemical specialties group.

An author and a guest speaker on subjects such as Sustainable Growth and Profitability, Innovation, and Global Market Success, he has addressed audiences of thousands of senior executives and business owners, in English and Spanish, in 21 different countries. To learn more, visit his websites at www.imcaonline.com and www.FreeProfitTips.com Contact information: mykwyn@aol.com or call (630) 420-2605.



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phone: (630) 420 2605
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