After weeks of negotiation, Canada-based Research In Motion (RIM) narrowly avoided a service ban of its popular BlackBerry smartphone in key Middle Eastern countries and India, whose governments cited concerns over the misuse of the device’s encrypted messaging system by terrorists. These events followed the renewal of Google’s license to operate in China after reaching an agreement with its government to not direct mainland users to an uncensored Hong Kong site. Should companies in international markets be concerned that these recent events are the beginning of a new wave of government measures aimed at restricting their growth? Not according to Mauro F. Guillén, Wharton international management professor and director of its Lauder Institute. Rather, they provide lessons about executive leadership during a crisis and highlight the need for corporate strategies that can help firms succeed in an increasingly unpredictable global economy, Guillén notes in an interview with Arabic Knowledge at Wharton.
An edited transcript of the conversation follows.
Arabic Knowledge at Wharton: Regarding Research In Motion’s BlackBerry operations in the Middle East and the conflicts that have arisen with authorities there and elsewhere, what is this telling us about the international market? Is it becoming more restrictive?
Mauro F. Guillén: ….There have been all sorts of problems not just in telecommunications, but also in other industries. What’s obviously different in this case is that the countries are not doing this for protectionism. They are taking action for other reasons, such as national security. A government sometimes places restrictions on companies for official reasons, but it actually wants to protect a local player. But nobody is competing in the UAE against the BlackBerry. Obviously, it’s not affecting Coca Cola; it’s not affecting 99% of the other companies. It’s not affecting the iPhone, I don’t think. The BlackBerry [is facing restrictions] because of the way it encrypts data. It is not the beginning of a new trend.
Arabic Knowledge at Wharton: Why not? Skeptics have observed Google, for instance, which is not in the same industry, but had to make compromises of its own in China….
Guillén: Obviously, not only is this all related to information, and information can have political ramifications, but it’s also the Internet and telecommunications, which are high-growth industries, and there’s a lot of money at stake. But again, I don’t think the Chinese are doing this because they want to protect a local firm and want to hurt Google.
To give you an example [of why governments are being vigilant], Google just announced that it is going to start calculating a consumer price index based on prices listed on the Internet. So Google could put the U.S. Treasury Department out of business, because it is spending all this money to calculate a consumer price index [and] Google can do it just like that — it wrote a program, and it can calculate it, not every month but every minute. It’s crazy, but this is how much the world is changing. The stakes are very high. The technological opportunities are immense and demand a lot of attention. But these concerns are more driven by the flow of information, and the authorities just want to have some sort of control.
The United States is a country that discriminates against foreign companies. For example — and this is an isolated example, but it is a very important one — we prevented a Chinese oil company [CNOOC] from buying Unocal, a U.S. oil company [in 2005]. The Federal government discriminates against foreign contractors. So do state governments. If you [work on a project for] the U.S. government [and need to travel], you have to fly with a U.S. airline. That’s discrimination; that’s not the free market. All countries do this kind of stuff; some do it to a much greater extent than others, of course. The U.S. government on average is probably among the countries that do it the least, but that doesn’t mean their hands are clean here. So far, nothing has emerged here in the U.S. along the lines of the examples that we are talking about. However, I don’t know where this whole thing about net neutrality is going to go in terms of regulation. But if the response by [the U.S.’s Federal Communications Commission] is that there should be net neutrality, we’ll be preventing companies like Google from doing business. You could claim that Google is too dominant, does what it wants and will privilege certain types of web sites over others. It has enough market power to shape the delivery of information. I can understand the arguments in favor of [restricting Google]. But that’s acting against free market rules.
It just so happens that now you see these decisions in different countries, at the same time. This is more the result of chance. What has happened to Google in China, and what is going on in India, the UAE and Saudi Arabia [with RIM], are isolated events, as opposed to indicating a new trend.
Arabic Knowledge at Wharton: But before, a company could sell its services and was largely unrestricted, and suddenly, all these countries are telling that company to hand over information. That fact that the market has shifted against the company is a new trend.
Guillén: Yes and no. It is very difficult to extrapolate a trend from China, especially when it comes to government decisions. India is also peculiar, in part because they are driven by a terrorism problem. The UAE is a rather small economy and it’s also very unique, because it is very service-oriented… [and] is skewed toward a couple of activities. I find it difficult to extrapolate a trend from so few data points, especially when they come from countries that are very unique. If you told me that Italy, France, Germany, the U.K. and Holland adopted restrictions on the BlackBerry, I’d tell you there is a European trend. But in this case, these are just three or four places in the global economy and no obvious connection between them on this issue, and there are reasonable explanations why they are making their decisions.
Arabic Knowledge at Wharton: It is still a difficult situation for these companies.
Guillén: By far, the most delicate situation has been Google’s in China. It is very tempting for Google to do whatever the Chinese government says. China is a large, high-growth market, and it is strategic from all points of view. BlackBerry, I guess, doesn’t want to fall behind competitors. A place like India, in particular, is very important and I’m sure it cares about the market in the UAE because it is a trendsetter for the region. If nobody can use a BlackBerry in Abu Dhabi, it will have an effect because people travel through there all the time. But the worst nightmare, is Google’s issues in China. That problem is complex.
Google gives you access to information, but it doesn’t shape the kind of information you have. It provides you with results based on keywords you use. You have control as a user over what you ask Google to do for you. In China, it is problematic because the government is censoring [information] and restricting how much information you can have through Google. That was a serious problem, particularly in terms of public relations in the U.S. People started to perceive Google as being just interested in the money and would do whatever it takes to make money, including giving in to the demands of the Chinese government [and agreeing to not redirect users to the uncensored Hong Kong site]. People in the U.S. don’t respond well to companies that go for the buck and throw their principles out the window, and Google happens to stand for the freedom of information movement. But it seemed to have handled [the renewal of its license to operate in the country] very well, as there’s been no boycott of its product.
Arabic Knowledge at Wharton: What do companies do in situations that put them in conflict with governments?
Guillén: They need to put in place crisis management. It’s a crisis because your company is making headlines for the wrong reasons. You’re under pressure from the Chinese government, or you’re experiencing problems in India or the UAE, and you are in the spotlight. It is a problem that involves public relations, but also the mission statement of the company and its principles. In the case of China and India, it’s also the size of the markets. And there are possible ramifications in [a home market] if people feel you haven’t made a reasonable decision in a foreign market. So it’s something for the CEO to handle.
It’s what happened to BP. The response from BP [to the Gulf oil spill] was missing, because the CEO was not up to the job. You have go into crisis mode, and the CEO has to gain control of the situation and decide what needs to be done. It’s not something you can delegate to the PR department — and most companies have outsourced PR, so you cannot tell your PR agency, ‘Please deal with this.’ It has to be a priority for the CEO. That’s the way these companies can overcome these short bouts of crisis.
Arabic Knowledge at Wharton: These companies, though, have had to change the way they operate, and open up their companies in a way they previously did not have to.
Guillén: Because they’ve decided, to a certain extent, to go along with the requests of these countries. But again, the reason these companies are doing that is because they feel they cannot just pack up and leave. Google was able to navigate the issue it faced without really getting hurt. There was a lot of discussion about what happened, but there were no boycotts and customers in the U.S. didn’t defect from Google in large numbers. Google probably will end up being a case study of good management.
Arabic Knowledge at Wharton: That’s to be expected then when accessing these international markets?
Guillén: You have to do an about face and you have to explain why you’ve made the decisions you have. Companies run into these PR crises all the times. Some of them are purely PR, some are much more complex, such as Google’s problems in China. Some resolve them very well. For other companies, like BP, it is a disaster. BP has lost quite a bit of money, not just from the spill, but from the mistakes that were made in trying to cope with the consequences.
The companies that narrowly define these issues as a PR issue are going to mishandle them. You have to define them more broadly, but not necessarily including every function of the firm. If you define the crisis just as a PR issue, there is a temptation to think that the CEO shouldn’t get involved….. That’s pretty dangerous. Outsourcing your crisis management is a big mistake.
Arabic Knowledge at Wharton: Is there a way that these companies can avoid ending up in the headlines?
Guillén: What happened in China to Google and to BlackBerry in the UAE was unavoidable. These countries reacted strongly to the business model of each of these firms. It’s very difficult to anticipate. Firms just have to hope that it doesn’t become a headline, so they stay quiet. The first thing you must always do when you enter a new country is to establish a channel of communications with the government. That doesn’t mean you bribe people. It means that if you’re Google in China, you nurture contacts with the government, invite them to your events, meet with them and explain to them what you’re doing in their country. So that when a crisis happens, you have somebody to talk to, and you have somebody who already knows something about you and can play a role in helping your company resolve the situation….
There’s also the human factor. Maybe over the years, BP invested money in resources and systems around the globe, building government contacts and trying to anticipate problems. But it happened to have at the time of the spill a CEO who wasn’t the best person. He didn’t come across as a very nice guy, and he didn’t seem to understand the full implications of the spill, the political implications. So a firm can be prepared, but if it has the wrong CEO when that rare crisis occurs, it’s stuck.
Arabic Knowledge at Wharton: Are Western firms adequately preparing themselves for entering these markets?
Guillén: You are never 100% prepared. The history of international business and management is filled with stories of companies going to different countries and totally misunderstanding the local culture, traditions or government. Experience cures that. Companies that have more international experience tend to make fewer mistakes. I also think companies that effectively integrate local managers into their companies have a better chance of avoiding these mistakes.
There’s no magic bullet, no one thing that fixes all these problems. It’s a battery of mechanisms, resources and decisions. We all know how to manage well things that happen on a continuous basis, because you are making a similar decision many times. The problem becomes difficult when you are confronted with a new problem every few years, and not only that, you don’t know when that problem is going to happen. RIM wasn’t likely to expected these problems. It was busy worrying about what Nokia or Ericsson was doing. A company should be thinking about how to handle these issues all the time, and not only when it bumps into them.
Arabic Knowledge at Wharton: How should companies act in international markets? Should they consider themselves as sovereign entities?
Guillén: To a large extent, they are sovereign entities. If they go to a small country, they are going to be very powerful. But the UAE is a small country, a collection of states, yet as they have shown, they could cause RIM a lot of trouble if they wanted to. It goes both ways. Multinationals have become very sophisticated and understand that they need to anticipate what governments may or may not do.
The world is becoming much more characterized by uncertainty, companies should get ready for more unexpected events. They are not going to happen every week, but there’s going to be a lot of them, and they need to be prepared for that.