Why I Don't Believe in Country Branch Consolidation in Big Corporations (Closing a Country Corporate Branch)

I know it from my own experience with big corporations here in Ecuador. Sometimes an idea shows up that says that a bigger corporate country branch (Like Perú or Colombia) can manage the small country operation or even overtake complete all the branch office.

They will sell the benefits to the corporate headquarters like:

• The bigger country branch will give resources to the smaller one to have better business opportunities.
• The skilled people of the bigger branch will help the smaller one that does not have all the people with required skills.
• We will save costs on staff like consolidating finance, management, etc.
• The corporate headquarter will not have to worry about the small country operation request, because that branch represents only the 0.001% of the stock,  the bigger country will consolidate it.

Everything sound nice, logical and beautiful. But I have seen the results of this kind of “taking over”. It does not work and it is just a lie.

• The bigger branch has bigger projects and they do not want to send the skilled people to the small country.
• The bigger branch has bigger deals and sales the manager simple does not care what will happen on that small country.
• The sales manager of the bigger country just sees the small country as the extra thing that will help him to get to the sales quota, but will not make any strategic efforts for the small one.
• The smaller country branch just gets ignored with all their needs, and the bigger country manager only replies that your small country does not have enough sales to invest more on them.
• The promises and plans that the bigger branch CEO made for the small one just vanishes with time.
• Instead of saving costs the corporation lost profits, but since it is too small the corporate headquarters do not notice it.

In general terms the sales, image and service of that big corporation get affected on the small country allowing local competition to take advantage.

 

Real Life Example

Let me put this example over the table:

Let's spin-off this division of the company

XYZ corporation spinned-off the SmartPhones and Tablets division of his company to a new company called “Phone-vo”.  Phone-vo starts the worldwide hard work to operate in an independent way from XYZ corporation.

At that moment the Phone-vo local CEO in the Colombia branch says:
-    Why maintain the 6 people operation in Ecuador? We can take it over from here.
-    Are you sure? – Says the worldwide CEO of the new Phone-vo corporation.
-    Yes, we can take over the work from here and work directly with the Partners in Ecuador – replies the CEO with confidence – We will reduce costs and help the Ecuadorian market grow with my blah blah blah marketing strategy.

At that moment they decide that Phone-vo Ecuador company branch does not need a local CEO and the remaining five people starts working with the Colombian staff.

The Colombian staff are just too overwhelmed with the spin-off, their day-to-day work and now they also have to put orders for an additional territory that has his own laws, merchandise importation rules and little details that you have to notice all the time. And the Colombian staff has their CEO always breathing on their back telling that the number one priority is “Colombia” because it is the bigger market with bigger deals and more money.

Even if there are people in Colombia that are hired to work exclusively for Ecuador, when Colombia have a peak of workload the CEO just says to drop Ecuador and focus on the Colombian branch business.

Result: The Ecuadorian orders for Phones and Tablets starts taking 6 months to get to Ecuador because of the lack of interest and focus of Colombia team on that business.
The Phone-vo Ecuador company, without a manager, starts reducing his staff from five to four and three, until the last one is only the finance guy in charge of closing the company in legal papers with a local outsourced attorney.
 
The customers complained on how it is possible to take that long to bring an order to Ecuador and started to look for other brand alternatives.  The local Phone-vo partners in Ecuador also complained about that 6 months it is too much time to get the products and that they are losing sales opportunities. Since the partners cannot live just by selling one single brand that takes too much to get into the market, they start selling products of the competition to the loyal “Phone-vo” customers in Ecuador.

The “Phone-vo” brand is today a faraway memory on the Ecuadorian market, that shows from time to time with a disconnected marketing strategy to promote a product or two.  From a business that was good (not incredible excellent) in Ecuador, the operation got reduced and the sales started dropping because of this great idea (sarcasm).

What are the factors for doing this?

How do you manage the balance between reducing costs without losing operational ground? From a good business you can reduce it to a bad business just because trying to reduce costs.


But there is another factor on it called “greed”. The Sales Manager thinks on the sales bonus check at the end of the month and sometimes it became their only motivation. When they see that their country just reached their sales potential, they may have the great idea to annex more territory to their sales scope to get a bigger commission check and not necessary to close more sales for the corporation. It does not matter if the other territory already has a good sales and management team, a decent sales record or if the local market can grow or not, it just matters the sales bonus that the Sales Manager and country CEO are going to get, because the sales number will be bigger for them individually but not increasing the net sales for the corporation.

 

Conclusion

It may sound like a good idea to close a country branch to be taken over by a bigger one, it even may look great on a PowerPoint slide. The CEO of the bigger country branch may have a cost saving strategy and list of good wills for the smaller country, but that is not enough.

The corporation or regional CEO will only have to make himself this little questions.
-    It is really going to give more profit to the corporation? Or is only going to help the sales bonus check of the bigger branch CEO?