Why multinationals should consider geographic complexity first


For the past few decades, companies looking to grow have frequently turned to overseas expansion. Executed well, such a move can provide a company with access to new markets, customers, and revenue streams. Occasionally the gambit fails quickly, and these high-profile exits make headlines, like when Dunkin' Donuts left South Africa after two short years and Walmart pulled the plug on Brazil after a 20-year struggle. Other times, the results are merely lackluster, and companies can accumulate a portfolio of so-so geographies that slowly and subtly erode profitability.

But these notable exits obscure a broader point. Many companies underestimate a key element of success in their due diligence: the complexity of operating in target countries. We have carefully researched companies operating across the globe through the lens of complexity and how this affects the success or failure of multinationals. We found that expanding to countries with high complexity profiles has a direct negative impact on a company's operating profit.

With a possible recession looming, it's a good time for companies to assess their country portfolios and rethink strategy. In fact, many companies have passed the point of diminishing returns and are already operating in too many countries. The path forward will often require a tighter configuration of core countries in order to reduce operational complexity and become more profitable.

Sign-In / Register to download