Viewpoints : Removing the Curse of Headquarters Mentality : Management: To succeed in the global market, U.S. companies must be broad-minded enough to adapt to systems and techniques in other countries.

By all reasonable measures, Coke’s experience in Japan has been a happy one. Coca-Cola Co. has 70% of the Japanese market for soft drinks.

More often than not, however, the path it took to “insiderization”--replicating a home-country business system in a new national market--creates many more problems than it solves.

Managers back at headquarters, experienced in only one way to succeed, are inclined to force that model on each new opportunity that arises. Sometimes it will be the right answer; but chances are that the home-country reflex, the impulse to generalize globally from a sample of one, will lead efforts astray.

In Japan’s pharmaceutical industry, for example, Coke’s approach would not work. Foreign entrants simply have to find ways to adapt to the Japanese distribution system. Local doctors will not accept or respond favorably to an American-style sales force. In Japan, when a doctor asks a local detail man to take a moment to photocopy some articles for him, he must be willing to do so.

One common problem with insiderization, then, is a misplaced home-country reflex. Another problem is what happens back at headquarters after initial operations in another market really start paying off. When this happens, in most companies everyone at home starts to pay close attention. Without really understanding why things turned out so well, managers at headquarters take an increasing interest in what is going on in Japan or wherever.

Functionaries of all stripes itch to intervene. Management decides that it should monitor key decisions, ask for timely reports, take extensive tours of local activities. Every power-that-be wants a say in what has become a critical portion of the company’s overall operations. When minor difficulties arise, no one is willing to let local managers continue to handle things themselves.

A cosmetics company with a once-enviable position in Japan went through a series of management shake-ups at home. As a result, the Japanese operation, which had grown progressively more important, was no longer able to enjoy the rough autonomy that made its success possible. Several times, eager American hands reached in to change the head of activities in Japan, and memos and phone calls kept up a steady barrage of challenges to the unlucky man who happened to be in the hot seat at the moment.

Relations became antagonistic, profits fell, the intervention grew worse and the whole thing just fell apart. Overeager and overanxious managers back at headquarters did not have the patience to learn what really worked in the Japanese market. By trying to supervise things in the regular “corporate” fashion, they destroyed a very profitable business.

This is a familiar pattern. The local top manager regularly changes from a Japanese national to a foreigner, to a Japanese, to a foreigner. Impatient, headquarters keeps fitfully searching for a never-never ideal “person on the spot.”

Persistence and perseverance are the keys to long-term survival and success. But headquarters is just not able to wait a few years until local managers--of whatever nationality--build up the needed rapport with vendors, employees, distributors and customers. And if, by a miracle, they do, then headquarters is likely to see them as having become too “nationalized” to represent their interests abroad. They are no longer “one of us.” And if they do not build up this rapport, then obviously they have failed to win local acceptance.

This headquarters mentality is not just a problem of bad attitude or misguided enthusiasm. These would be relatively easy to fix. Instead, it rests on--and is reinforced by--a company’s entrenched systems, structures and behaviors.

Dividend payout ratios, for example, vary from country to country. But most global companies find it hard to accept low or no payout from investment in Japan, medium returns from West Germany and larger returns from the United States. The usual wish is to get comparable levels of return from all activities, and internal benchmarks of performance reflect that wish.

Looking for a 15% return on investment a year from new commitments in Japan will sour a company on the country very quickly. The companies that have done the best there--the Coca-Colas and the IBMs--were willing to adjust their conventional expectations and settle for the long term.

Or, for example, when top managers rely heavily on financial statements, they can easily lose sight of the value of operating globally--because these statements usually mask the performance of activities outside the home country.

Accounting and reporting systems that are parent-company dominated--and genuinely consolidated statements are still the exception, not the rule--merely confirm the lukewarm commitment of many managers to global competition. They may talk about doing business globally, but it is just lip service. It sounds nice, but when things get tough, most of the talk turns out to be only that.

It is not surprising that many of the most globally successful Japanese companies--Honda, Sony, Matsushita, Canon--have been led by a strong owner-founder for at least a decade. These leaders can override bureaucratic inertia; they can tear down institutional barriers.

In practice, the managerial decision to tackle organizational and systems changes is made even more difficult by the way in which problems become visible. Usually a global systems problem first comes into view in the form of local symptoms. Rarely do such problems show up where the real underlying causes are.

Troubled chief executives may say that their Japanese operations are not doing well, that the money being spent on advertising is not paying off as expected. They will not say that their problems are really back at headquarters, with its superficial understanding of what it takes to market effectively in Japan.

They will not say that it lies in the design of financial reporting systems. They will not say that it is part and parcel of their own reluctance to make long-term, front-end capital investments in new markets. They will not say that it lies in their failure to perform well in the central job of any headquarters operation: the development of good people at the local level. Or, at least, they are not likely to. They will diagnose the problems as local problems and try to fix them.

Top managers are always slow to point the finger of responsibility at headquarters or at themselves. When global faults have local symptoms, they will be slower still. When taking corrective action means a full, zero-based review of all systems, skills and structures, their speed will decrease even further. And when their commitment to acting globally is itself far from complete, any motion is unlikely.

The headquarters mentality is the prime expression of managerial nearsightedness, the sworn enemy of a genuinely equidistant perspective on global markets.