Avoid the Pitfalls of Business Networking in the Middle East (Northern Europeans Take Notice!)

How can I build business relationships in the Middle East? Is business networking in Dubai different from the networking in Abu Dhabi?

These questions were raised during a panel discussion which I recently moderated in Dubai as a part of the Middle Eastern launch of my book “Network Advantage: How to Unlock Value from Your Alliances and Partnerships”.  The discussion involved INSEAD MBA students and senior business leaders from the UAE, such as Mishal Kanoo (Deputy Chairman of the Kanoo Group), Gary Chapman (President of Group Services & dnata, The Emirates Group), Nicholas Clayton (CEO, Jumeirah Group), Mansour Hajjar (Managing Director, Chalhoub Group), Robin Mills (Head of Consulting, Manaar Energy) and Constantin Salameh (CEO, Al Ghurair Investment).

It will not come as a surprise that business networking among customers, suppliers and even competitors is important all around the world, but especially in the Middle East. All over the region, local business partners want to learn about you as a person way before they will do any deals with you. One panellist reflected on a situation when a Western colleague posed a question “How many cups of coffee does it take to close a deal in the Middle East?” The answer was “As many as it takes!” Companies in the Middle East, and especially in the UAE, are eager to do business with the West, but Western businessmen need to be sensitive to the Emiratis’ need to deeply understand the partner’s motivations. Some Western companies try to enter the region for short term gains and are ready to exit quickly. These are precisely the partners whom the local business people want to avoid.

To the Emirati community, the investment in the long term relationship is a key success factor for doing business. One panellist reflected on several instances when his company, the leading purveyor of luxury brands in the region, turned down offers for collaboration from partners who did not show deep commitment to staying in the relationship over the long term. That is, his firm was prepared to forego very attractive contracts that promised short term profits without the promise of the lengthy collaboration. Interestingly, the panellists suggested that businesspeople from the Northern Europe (Scandinavia and perhaps Germany) often fell into the trap of cutting the networking part short and going straight to business and were less willing to invest in a long term relationship. At the same time, Southern Europeans (presumably Italians and Greeks) often found it easier to understand the long term focus on networking in the region. Yet, one should not assume that the Emirati businesses are slow in decision-making! Once trust is built, the local partners make decisions very quickly and will open doors to many opportunities in the region.

It is also not correct to assume that people network the same way in all parts of the Middle East. One of the panellists indicated that there are significant differences even between networking in Dubai and networking in Abu Dhabi that are only 90 min on a highway. The Abu Dhabi’s business community places a much stronger emphasis on the establishment of long term relationships with prospective partners than their Dubai based counterparts. That is, one should be expected to make more investments (in terms of time, effort and, yes, drinking coffee) in getting to know the business partners in Abu Dhabi than in Dubai before the deals are actually struck.

My own reflection is that a very short term orientation for doing business in the region is perilous in another respect. The local business community has a lot of wisdom of how to navigate complex relationships among buyers, suppliers and competitors, and they can offer advice on the relative merits of different local business partners. This can give the newcomer a good perspective of the region’s social landscape. It’s a shame to fall into a temptation to short charge such potentially valuable insights that could only be obtained through long-term relationship building and go straight to business.  And, yes, the Arabic coffee coupled with marvellous local sweets are a great complement to a thoughtful discussion among (prospective) partners.

For more insights into business networking, please out my book at networkadvantage.org.

Can Your Alliance Network Lift a Stealth Bomber Off the Ground?

Does this airplane look familiar?

Source: Wikipedia

As I recently wrote on Harvard Business Review blog network, it should, because it’s a predecessor of the famous Stealth Bomber, a prototype completed by Jack Northrop’s company in 1948. In his time, Northrop — the inventor of the flying wing concept — was considered to be the aerospace genius, but he was not able to deliver on his promise to the U.S. military. The revolutionary airplane you never got beyond the prototype.

In 1980, Jack Northrop, then age 85 and confined to a wheelchair, visited a secure facility to see the first B-2 Stealth Bomber — the most advanced military aircraft capable of flying at extremely high altitudes and avoiding radar detection.

Source: Wikipedia

Even after 40 years of technological development and use of sophisticated computer design tools, the new bomber looked like a replica of Northrop’s original design for the flying wing. Reportedly, after seeing the aircraft, Northrop said he now realized why God had kept him alive for so long.

So why did one model fail and the other succeed?  Part of the explanation can be found by comparing the different networks of alliances that Northrop’s company formed in the forties and in the seventies.

In 1941, his alliance network looked small and simple hub-and-spoke system. Otis Elevators worked on design, General Manufacturing and Convair provided production facilities. Notice that the partners don’t work with one another and the U.S. Army Corps was actually brought in to arbitrate a dispute between Northrop and Convair.

In 1980, the alliance network was more complex and highly integrated.  Network partners worked with one another, jointly negotiating technical standards. Vought Aircraft designed and manufactured the intermediate sections of the wings, General Electric manufactured the engine, whereas Boeing handled fuel systems, weapons delivery and landing gear.   In addition, each main partner formed individual ties with other subcontractors specific to their areas of responsibility.

As we discuss in our new book “Network Advantage”, networks like this have two main benefits.  First, alliance partners are more likely to deliver on their promises.  If information flows freely among interconnected partners, how one firm treats a partner can be easily seen by other partners to whom both firms are connected. So if one firm bilks a partner, other partners will see that and will not collaborate with the bilking firm again.

Second, integrated networks facilitate fine-grained information exchanges because multiple partners have relationships where they share a common knowledge base. This shared expertise allows them to dive deep into solving complex problems related to executing or implementing a project.

This is not to say that the hub-and-spoke network of the 1940s doesn’t have its uses. In fact, they are usually more effective at coming up with radical innovation than are complex, integrated networks. In a hub-and-spoke configuration it’s more likely that your partners will know stuff you don’t already know and combining new, distinct ideas from multiple spokes leads to breakthrough innovations for the hub firm.

But Northrop’s hub and spoke portfolio was not useful in 1940s, because he already had an innovative blueprint for the bomber. All Northrop needed to do was to build reliable manufacturing systems that would execute his ideas based on incremental improvements made by multiple partners at the same time.  That scenario called for the integrated network of the 1970s.

The key to choosing between the two types of network is to ask: do you already have a final idea that needs to be implemented with incremental improvements? Is it important that all of your partners trust each other and share knowledge in implementing your idea? If so, then the integrated alliance portfolio is right for you. If you are exploring different options and it is not critical that your partners trust one another, work together to develop and/or implement them, then the hub and spoke portfolio is the best.

You can read more about this and other network-related stories in my new book "Network Advantage: How to Unlock Value from Your Alliances and Partnerships"

Diamonds Are Not Forever: How to Avoid Problems with Your Alliance Partners

A recent New York Times article [1]  describes a serious conflict between Lazare Kaplan International—the century old diamond cutting and polishing merchants of New York-- and their former business partner Antwerp Diamond Bank. Lazare alleges that the Diamond Bank helped a high flying Israeli dealer launder 135 million dollars from illicit sale of Lazare’s rough diamonds. An Antwerp prosecutor sides with the Diamond Bank and calls the Lazare’s suit “defamatory”.

There is nothing strange about one business partner suing another. What’s unusual in this story is that diamond trade has been used as an example of an industry in which participants have almost blind trust in each other. A famous American sociologist James Coleman in the late 1980s marveled at the fact that the traders frequently give each other bags of diamonds to inspect in private without any formal safeguards [2].

The reason, according to Coleman, was that these people are connected in dense social networks and these networks comprise their “social capital”. The diamond traders have high trust because they have known each other for a long time, they live in the same neighborhoods, they worship together, their business associates all know one another, in short, they have a very dense social network. If one network member were to cheat another network member, this person risked ostracism from the community — the punishment that was worse than anything the courts could deliver.  

A lot of academic research since then has shown that dense social networks indeed promote trust which lowers the costs of doing business for the network members.

What happened to the social capital in the diamond trade? Regardless of who is right and who is wrong in the Lazare-Antwerp dispute, the story does point to the fact that a particularly daring company (or an individual) can decide to cheat its partners, especially if there is a considerable degree of trust in the relationship. This can happen when "the cheat" doesn't feel that there is any value in continuing collaborating with its partners.

The broader lesson to firms forming partnerships and strategic alliances is this: even though you trust your current partner, you still need to periodically check whether you still have strong strategic and resource complementarities with it. If the answer is yes, you are likely to continue cooperating well in the future, if the answer is no, then you are at a risk of being cheated.

In the new book “Network Advantage: How to Unlock Value from Your Alliances and Partnerships” (networkadvantage.org) together with Henrich Greve and Tim Rowley, we develop a set of tools that can help you understand the risks and benefits of continuing to cooperate with your partners.

Based on over 40 years of collective research on the success of alliances and partnerships, we have developed a set of key questions to ask to determine whether you still have complementary strategy and resources with your partner.

Complementary strategies mean that collaboration continues to help both companies achieve their own long-term goals, but it should not make either firm a powerful competitor in the other firm’s markets in the long run.  

Some specific questions to evaluate the extent of your strategic complementarities are:

• What are the current objectives of this alliance from the standpoint of each partner?

• What are the key performance indicators for this alliance from the standpoint of both partners?

• What are each partner’s long-term objectives?

• Are the partners current competitors or are they likely to compete in the same product or geographic markets in the future?

• How might each partner cheat the other? What would each partner gain from each form of cheating?

Partners should also bring different resources to the table: human, financial, technological, market access, knowledge, intellectual property or brand. If your firm and its partners bring exactly the same resources, this begs the question, why did you decide to collaborate in the first place? Unless both firms want to pool their similar resources to achieve economies of scale in some markets, it’s best when partners contribute complementary resources to the relationship. This way both partners can gain from the alliance by creating synergies.

You can evaluate resource complementarities between your firm and its partner by asking these questions:

•  What resources does each partner contribute to the relationship?  Are they similar or different?

•  How do the resources contributed by each partner increase the value of the resources provided by the other partner?

•  What return on the contributed resources does each partner plan to obtain? How will each partner evaluate this return?

•   How will each partner’s resource contributions change over time?

Thus, a good old dictum “trust but verify” is a very important lesson that diamond merchants, and members of other industries, ought not to forget. Even after you have worked together with a partner for a long time, it is still important to periodically evaluate the extent to which there are complementarities in the relationship.

Andrew Shipilov is a co-author of “Network Advantage: How toUnlock Value from Your Alliances and Partnerships” with Henrich Greve and Tim Rowley. The book’s website is networkadvantage.org. #unlockvalue

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[1] “Scrutiny Pries Open Insular Gem Trade” International New York Times November 26, 2013

[2] Coleman, J. (1988). "Social capital in the creation of human capital." American Journal of Sociology Supplement 94: S95-S120.

Is Losing Talent Always Bad? Management Lessons from Prada

In a recent post to the Harvard Business Review blog, I wrote that the recent departure of Marc Jacobs from Louis Vuitton might seem like terrible news for the company.  But if you look a little more closely at the fashion industry you’ll find that turning over your talent isn’t always a bad thing.

Prada is a case in point.  Between 2000 and 2010 Prada lost a lot of designers to competing fashion houses, yet its fashion collections were consistently rated as much more creative than the average.

How does that happen? In a recent study (co-authored with Frederic Godart and Kim Claes) I found that when a designer leaves a fashion house to work for competition, he or she tends to stay in touch with friends and former colleagues from the old job. These ties act as communication bridges through which former colleagues can learn what the departed designer is up to in the new job.  And when several designers leave to work for different fashion houses, the colleagues staying behind build bridges to lots of companies. This provides them with a lot of creative input for their future collections.

The phenomenon is not confined to fashion. McKinsey consultants famously stay in touch with former colleagues, who have left to to work for other firms, most of which are potential customers.   The same thing happens in Silicon Valley where people change jobs across customers and competitors. To be sure, we are not talking about industrial espionage here. The positive effects of communication bridges on creativity come from friends catching up with friends in very general terms about what is going on in their professional lives.

Fashion houses that benefit the most from talent turnover also have long serving creative directors who mentor and befriend the new hires. At Prada, this is Miuccia Prada, who has a long tenure as the company’s creative director.

Prada (the company) gets infusions of fresh ideas every time it hires a new colleague. Prada (the designer) welcomes and helps train the newcomers. When a designer eventually leaves to work elsewhere, after a fruitful stint at Prada, she remains on good terms with former colleagues, spreading the message throughout the industry that Prada is a great place to work and learn. These positive tendencies are reinforced by a culture of transparency and collaboration in the company, as described by CEO Patricio Bertelli in an HBR article.

The messages to the non-fashion world are clear. Don’t part with former employees on bad terms and don’t forget about them. Stay in touch with them as they are your communication channels and ambassadors in the industry. Replace them with talent from different companies to preserve diversity of ideas inside your firm. And make sure senior executives take time to train and socialize the new hires.

Now every time we see someone wearing Prada, let’s think not only about the fashion, but also of the management lessons that we can learn from this company.

Follow me on twitter @shipilov

Samsung Beats Blackberry in the Global Alliance Game

To the investors of Research in Motion (RIM), the maker of Blackberry, the recent years have been really disappointing. It lost the fight to Apple and Samsung. There may be several explanations to this failure, but one which particularly stands out is the failure of RIM to build a strong alliance network. Alliances and partnerships are the sources of "network advantage"--the ability to improve operating efficiency and increase product innovation by combining resources and knowledge with partners. We discuss how companies can benefit from their relationships with customers, competitors and suppliers in a new e-book "Network Advantage: How to Unlock Value From Your Alliances and Partnerships". The print version of the book is available from January, 2014.

Let's look at the alliance network of RIM. This picture is built by looking at the RIM's alliance announcements between 2008 and 2011. Since these alliances happened a while ago, their positive or negative effects should be felt by now.

RIM is the firm at the centre of the picture and it has 4 (four!) alliance partners only. The alliance with the Royal Bank of Canada and Thompson Reuters (Woodbridge is its parent company) provided venture capital fund services to invest in mobile applications and services in Canada. The alliance with TiVo aimed at providing mobile television entertainment services for BlackBerry users globally. The alliance with NII Holdings Inc was to provide Blackberry Smartphone services in Latin America.

Did these alliances make sense? They sure did. But network advantage doesn't come to firms who simply build alliances, it comes to firms who build better (and more) alliances than competition. 

Let's compare RIM's alliance network to what Samsung is doing with its alliances. Below is the picture of Samsung's alliance network based on the announcements between 2008 and 2011:

Samsung works with Kia motors to build the car around its Galaxy tab, manufactures 4 G communication infrastructure in Russia, collaborates with Telstra to develop Internet TV for mobile devices, works with Nanosys to build better screens and batteries for smartphones using the nanotechnology. It works with Intel and Juniper on mobile security solutions and works with Korean Telecom (plus Intel) to transmit 3D signal through the mobile grid. It works with Dreamworks and Technicolor (Thompson) to develop 3D movies and viewing equipment. We might soon have 3D video enabled mobile phones!!!... Not to mention the fact that Samsung uses apps from Android platform for its phones. 

In short, the alliance network of Samsung allows it more (and cheaper) opportunities to innovate not only in hardware but also in content.

The sad story of RIM did not begin this year. It began several years ago when it failed to build a big enough network of alliances and partnerships to counter the network of Samsung (and of course the network of Apple). Samsung has excelled at the global alliance game and extracted its Network Advantage. Kudos to Samsung and condolences to RIM. May your company not repeat the RIM's mistakes!

How to make your company more creative? Hire a senior executive who worked abroad.

Creativity is an important driver of competitive advantage for companies. One way your company can be more creative is to hire executives who worked abroad. These people are likely to offer non traditional solutions to your problems.

I recently did a study with Frederic Godart, Will Maddux and Adam Galinsky. We looked at how foreign working experience of fashion designers affected creativity of their collections. We found that fashion critics and buyers were more likely to view a designer's fashion collection as creative, if this designer worked (or is currently working) abroad.

Apparently, working outside of your home country changes the way you think: by looking at how different people in different cultures solve problems differently, your brain learns to think about how to approach any business problem differently. If a problem is solved in France in one way, perhaps the Italians solve it in a different way. And you can perhaps think of the third way to solve the same problem--by combining the French and the Italian approach. Karl Lagerfeld is even reputed to work in Italy and France during the same day!

Working abroad also shapes your personal network. If you work in one country and then go work to another country, you become a bridge between professional communities in both countries. For example, a fashion designer who works in France gets to know other French designers and when she moves to work to Japan, she can get to know Japanese designers. If she still stays in touch with her French friends, she will know what is going on in French fashion world while she is working in Japan. And this knowledge will help her combine French and Japanese fashion influences in the future collections. Our study shows that such collections are seen as being very creative.

So, next time you are looking for a senior executive to fill a job that requires creativity and ability to innovate, look up their Linked-In profile. Does it indicate that the person worked in several different countries? If so, she or he is worth looking at, as this person is likely to be indeed creative.

Russian Businessmen Play the Global Status Game

How can a new company signal its quality to customers, suppliers and other business partners? One strategy is to "borrow status" from the well known people in the industry. If the prospective partners cannot judge the quality of your new company, they will think that your company must be of high status if it associates with high status people. After all, the prospective partners will think that your new high status associates must have done their due diligence before joining, thus it is safe for the prospective partners to work with your firm even if it is relatively new.

Russian businessperson Mikhail Friedman understands that very well. He is the man whose company received around 14,000,000,000 (14 Bln) dollars for the sale of its stake in TNK-BP-- the joint venture between a Russian oil and gas company TNK and British Petroleum. With these proceeds, Mr. Friedman set up a company -- called L1 Energy. This firm will make investments in oil, gas, telecoms, banking and retail. To add credibility to his venture, he hired a former BP chief Lord Browne to its international advisory board. Ironically, in the late 1990s and early 2000s Mr. Friedman and Lord Browne have been fighting over the control of Siberian oil fields, but eventually decided to cooperate on the creation of TNK-BP joint venture.

Apparently, having billions of dollars in the L1 Energy's war chest is not enough for success. So, Mr. Friedman turned to making status signals. What does Lord Browne bring to the table? He clearly has a lot of experience and knows people in the oil and gas industry, but his hiring is also designed to signal L1's status to prospective partners. James T. Hackett, former chief of the American company Anadarko Petroleum, and Andrew Gould, the former head of Schlumberger are also well known industry insiders. Naturally, their hiring is also aimed to enhance the status of Mr. Friedman's operations. The question is whether these status signals will persuade potential partners that it is safe to deal with Russian businessmen, knowing their tough reputation in the industry.

The lesson for other firms is clear. Get the well known people to work for you, this will help you enhance your status. Even if you have a lot of money, sending status signals is really important for continued success.