Have headquarters, will travel

April 29, 2013: 11:09 AM ET

Companies that send employees overseas to get a grip on global operations may be wasting their money.

Starwood President and CEO  Frits Van Paasschen

Starwood President and CEO Frits Van Paasschen

FORTUNE -- If you truly want to understand an emerging market, go there. Ideally, not just you, but an entire team would go, and not to tell people in that market what to do, but to see what the company looks like from their perspective for a while.

Companies go to emerging markets because they need to, says Brian Kropp, a managing director of consulting firm CEB. Traditionally, that has meant sending a staffer overseas. But some companies are shifting their thinking from managing a foreign market to understanding it. One piece of this strategy is to move headquarters or major meetings abroad, either permanently or temporarily.

That physical move is more effective than deploying one person, says Vijay Govindarajan, a strategy expert and business professor at Dartmouth's Tuck school, because it can change a company's mindset.

Cisco (CSCO) maintains its headquarters in San Jose, Calif., but in 2007, the company opened a 1 million square-foot headquarters in Bangalore, India. Earlier this month, Starwood CEO Frits van Paasschen returned from having moved his entire headquarters to Dubai for a month. Starwood (HOT) has moved headquarters before, to Shanghai in 2011, and the payoff was so great, van Paasschen says, that he decided to do it again.

MORE: Apple's 2nd-fastest growing revenue stream

Leaders gain singular insight by moving a group abroad, says van Paasschen. Dubai is an important location for Starwood as the city provides a view into two key Starwood markets, the Middle East and Africa. Most owners of Starwood properties in the Middle East are individuals and families, which is a different client-customer dynamic than Starwood has in, say, the U.S. Being in the Middle East to speak with customers made a huge difference, van Paasschen says:

"I can tell you in more than one instance, we had a first meeting, by the way, with owners that I'd met before in their offices, and the meetings were more formal, less open. But over the course of the meeting, when they understood that we would be around for a few weeks, we were invited to come around and see them in their homes." That informal dynamic helped van Paasschen and his colleagues spot new business opportunities.

But shifting operations isn't just good for the people who travel, it's also good for the employees who host the visiting staffers, says Tuck's Govindarajan, who used to work for General Electric (GE). He remembers that one year, GE CEO Jeff Immelt decided to switch its operating reviews from its traditional location in Fairfield, Conn. to a city in India.

"Suddenly, it not only changes the perspective of the team that goes to India, but think about the executives in India," Govindarajan says. "They feel like, 'Wow, this is a great symbolism.'" It shows that senior executives respect the country they're visiting.

This kind of extended leadership travel can be costly and difficult to justify. But there is a deeper financial argument too, says Govindarajan. "I think when companies start to think about it, they actually waste a lot of money in expat programs. For most companies, it's actually money down the toilet."

In general, expat programs focus on deploying someone to a market to get a lay of the land and impose the traditional corporate structure on employees overseas, Kropp says, which doesn't usually work.

MORE: In Abu Dhabi's energy oasis, setbacks and progress

Nor is it enough to just hold meetings or open a pop-up headquarters abroad, Kropp says. "If you're putting a senior leadership team there and they're spending all of their time with each other in corporate offices rather than understanding the market, they could be anywhere." Instead, employees need to get outside for a little bit and talk to customers and peers at foreign centers.

Effective emerging market strategies require much more planning than shipping someone out to report back. They require immersion in those markets, moving groups of people at once, and openness and mental flexibility. "You can't say, 'Because I spent one month in Dubai, here's the extra sales revenue.' I don't think you can make that kind of connection," says Govindarajan. But the payoff is real, he argues. "It will happen, believe me it will happen. You've got to believe in it, and you've got to do it."

Join the Conversation
About This Author
Shelley DuBois
Shelley DuBois
Writer - Reporter, Fortune

Shelley DuBois writes on management issues for Fortune.com. Before joining Fortune, she was a producer for National Public Radio's Science Friday and worked for Wired. Shelley has a graduate degree in science, health and environmental reporting from New York University. She lives in Brooklyn.

Email Shelley
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.