From the January 1999 issue of Entrepreneur

Economics is often called the "dismal science," and a Harvard professor of business administration who holds 19 honorary doctorates might not sound like someone you'd want to have explain it to you. But when it comes to the new global economy, no one is clearer, more down to (the whole planet) earth, and has more to say about your business than Rosabeth Moss Kanter, whose book World Class: Thriving Locally in the Global Economy (Simon & Schuster) has received critical acclaim since it came out in 1995.

Kanter grew up in Cleveland, which she cites as an example of a city that has had a renaissance, in part because it's learned to adapt to the new global market. In the book, she also analyzes the strengths and weaknesses of other cities worldwide that have grappled with how to help local business meet increased competition from abroad while exploiting export opportunities. And she says you need to be "world class" even if you have no interest in doing business outside U.S. borders.

Kanter has written or edited a dozen other books. Her first, Commitment and Community (Harvard University Press), came out in 1972, and her most recent work, Rosabeth Moss Kanter on the Frontiers of Management (Harvard Business School Press), was published in 1997. She is also co-founder of Goodmeasure Inc., a consulting firm that specializes in the management of change, and, in 1980, produced one of the world's bestselling videos on workplace diversity, "A Tale of `O': On Being Different." Kanter agreed to share some of her insights on how small businesses can not only survive but thrive in this brave new smaller world.

Entrepreneur:Big companies are used to doing business outside the United States, but small firms may not know where to start. Where can they turn for resources?

Rosabeth Moss Kanter: First of all, the U.S. Department of Commerce is very eager to help small companies because it knows small businesses are the backbone of the economy. Many states have one-stop shops where the services of the Commerce Department are combined with whatever assistance the state offers. They'll help you find a distributor or put you in contact with other companies that offer similar products or services that you can bundle with your products to offer to foreign markets. Also, trade associations and business development groups in major cities can help small firms make connections with larger companies that can mentor them in this area.

A company should also think about what contacts it already has with its own suppliers or customers and whether [those companies] have international contacts that may be helpful.

Trade shows can also be a way to network directly. Recently, I was talking to an entrepreneur who makes a product which is used in the renovation of old buildings, and there is a big market for that in Europe. He started going to U.S. building and construction trade shows and found there were people there representing foreign outfits. Then he started going to trade shows in other countries and hooked up with contractors.

Companies can also collaborate to promote the products of a region as a brand. For example, in Vermont, small producers of crafts, cheeses and other products have banded together to promote their products jointly with a Vermont label that has a natural, country image. The state trade mission is representing them now. A small business could not do this alone.

Entrepreneur:Are the same resources helpful in contracting for manufacturing outside the United States?

Kanter: Yes, but it's much trickier than people think. You can't look only at direct labor costs because there are lots of hidden costs and cultural issues [to consider]. Business owners have to make a personal commitment to be involved in managing this and may have to travel [to the country they're considering] to be sure this works right. You can't just rely on assistants or intermediaries because the information you get back is filtered.

I once worked with a small apparel company in England, whose actual manufacturing was done by contract with a company in Indonesia. The owners not only traveled a lot but also used the Internet and had an employee onsite to provide the quality their customers demanded.

Entrepreneur:How do you work with international partners closely enough to make alliances successful while still protecting your trade secrets?

Kanter: You have to build the relationship slowly. Don't plunge into full-fledged collaboration. Create a project to test it. Initially, do whatever it takes to feel real compatibility of values and philosophy. Spend time with your potential partner's key people, get to know them as people and meet their families; otherwise, you can have serious problems down the line. Americans tend to want to get to the bottom line right away and don't schmooze enough, especially when dealing with foreign companies. There may be very different ways of making decisions there. And be prepared with an exit strategy in case things don't work out.

Entrepreneur:Is there a reason to learn another language, if English is the international language of commerce?

Kanter: It's always helpful to be able to say something in the other person's language because it's a gesture of respect. And respect, honor and face are very important in some cultures that are important to our future, such as Asia and Latin America. China is a huge supply source and a giant market, and these are important cultural traits for the Chinese.

Learn another language if you expect to do a lot of business in a particular country, but a few words will do for the others. You can also hire someone from another country, perhaps someone attending a local university, to help. As a competitive advantage, let your customers know which languages your staff speaks. Take people from other countries out to dinner, and learn everything you can about the culture. The elite in other countries may speak English, but not perfectly, and you may need to talk to their employees. Counting on translators for delicate negotiations can be tricky, and it's helpful to know what people are saying when they think you don't know the language!

Entrepreneur:The flip side of the foreign opportunity is that companies in other countries can more easily come into our domestic market. How can small companies protect themselves from increased foreign competition in the United States?

Kanter: The same resources for any international issue apply here. Even if you don't care about selling your products beyond your typical customers in the United States, you have to ask your customers who else they're hearing from.

Being incredibly close to customers and giving them extra services are keys to learning about potential competitors and how to counter [their efforts] with innovations. A lot of foreign and, of course, national companies are looking at profitable niche markets they can get into. It's happened with ambulance companies, funeral homes, dry cleaners, cleaning services and temporary help agencies.

As for competitive products that are being imported, look for their weaknesses, such as inferior glue, zippers that don't work after a few months or, as I recently found, buttons that came apart after a major label's suit was cleaned a few times. The more you can provide quality and superior service, the greater appeal you'll have in the long run for sophisticated customers. No business that appeals simply on price is sustainable. You shouldn't worry about competitors copying your old ideas--you should be telling customers you have the next big thing, and it's better made with more support after the purchase.

Entrepreneur:You studied what Seattle; Boston; Miami; Cleveland; and Spartanburg and Greenville, South Carolina, were doing to help their business communities stay internationally competitive. What lessons can entrepreneurs learn to help create a world-class climate in their own areas?

Kanter: Whatever their main industry, localities face five challenges: nurturing their primary capabilities, increasing business collaboration, creating a climate that attracts outside investment, helping employees maintain needed skills, and improving the overall community so it's a place where top-caliber people want to live.

Let me give you my favorite example, since I grew up there. In 1978, Cleveland was the first city to default on a loan since the Great Depression. It had a decaying social infrastructure, deteriorating education, dying industries and a river that was declared a fire hazard!

The next year, a strategic study was done, which led to the formation of Cleveland Tomorrow in 1982. [Through this organization,] the heads of 56 large companies worked together to revive community spirit, build new tourist attractions, contact their fellow CEOs in other cities to recruit them to relocate, provide mentoring for small businesses, and encourage collaboration across industries. In the following years, a number of organizations were created to achieve these goals. The Council of Small Enterprises involves small and midsized firms; Leadership Cleveland has 800 multiracial graduates in a network that infuses nearly every major organization in the area; law firms have joined Lex-Net, an international referral network; and the Business Volunteerism Council links companies to community service. The Cleveland Advanced Manufacturing Program was created to bring in new technological concepts with the input of local university researchers, while community colleges help workers learn new skills at a "teaching factory."

Recognizing that one in three of its jobs depended on exports, compared with the national average of one in four, the Greater Cleveland Trade Alliance was formed by the city, county, port authority and the Greater Cleveland Growth Association, the area's largest business membership association. That resulted in the opening of a World Trade Center in 1993.

Entrepreneur:You say big companies are tending to buy low-value-added products and services locally, even though they have suppliers from all over the world available to them. Is there an advantage to being a local supplier?

Kanter: Soon, everyone will be able to buy most things anywhere through the Internet. You can get almost any book you want that way, and everyone thought that between that and the chains, independent bookstores would disappear. But they're still around. You go there for the experience of being able to look at the books, sit there, and have a cup of coffee and read. The owner knows you by name, tells you about newly published books you might be interested in. Even the chains are competing against the Internet this way.

The face-to-face part requires knowledge. The Internet will get more sophisticated, so local bookstores have to sell an experience that is convenient and fast. I still shop for groceries in a local neighborhood store owned by a family. There is a large supermarket a few blocks away, but this little store knows me, and they stock the hot new Southwestern products that people in my neighborhood like. They'll get whatever you want and will even deliver in a pinch. And you can call in advance and reserve an item. They're also part of a buying network with other stores, which allows them to keep prices down. There's a loyalty that builds up when there is a level of service.

Entrepreneur:How can companies working in this environment, which requires them to train employees with skills that make them attractive to other firms, keep good workers?

Kanter: You can't promise a future, but you can make employees feel they have growth opportunities with you. Make them feel like they're part of the family. Share with them the upside of the company. You don't want them to take an insider's knowledge of your company and go to a competitor. But if they leave, part on good terms and stay in touch because they might come back or send you business later.

Another way to keep employees committed is to let them select a cause to which the company will make a contribution. Business owners are often active in their church or synagogue or a service club, but they don't think of doing what larger companies do, which is to make a small investment in the community that provides dividends for their public image. Employees who feel good about what the firm is doing beyond its business can form incredibly intense loyalty.


Scott S. Smith writes about business issues for a variety of publications, including Investor's Business Daily and Nation's Business.