Strategies & Analysis
Are patterns
of profitability
structured
similarly around
the world?
by Phil Phillips, PhD
Contributing Editor
phillips@chemarkconsulting.net
Within advanced economies, is there any guarantee that companies in certain industries that have solid
performance will be transferred within the
same industry in another country? Or, put another way, are patterns of profitability structured similarly around the world?
This question was postured in a Harvard
Business School (Khanna & Rivkin) paper and
the conclusions may or may not, surprise you.
Khanna & Rivkin focused on publically
traded firms in 43 nations and compared profitability patterns in two different ways.
• Showed that correlation in industry average profitability across the typical pair of
countries is close to zero.
• Found that there were marked departures
from the order of “effects” observed in
several breakdowns the variance of profitability of U.S. companies?
As one might expect, however, correlations
are more strongly positive for pairs of countries
with common tastes, technology and national
institutions and for pairs (countries) that are
relatively developed.
Moreover, they determined that there is no
discernable relationship between similarity in
variance breakdowns and similarity in tastes,
technology, and national institutions.
The conclusion is the facts about profitability do not travel well from one country
to another.
From this study, and for its conclusions, one
could postulate that a coating/paint/adhesive/
sealant formulator with solid profitability success in USA would have similar profitability
success in Canada, England & Germany while
NOT this similarity in China, Brazil, Russia
and Iraq.
Further, to be profit-successful, within these
dissimilar countries (China, Brazil, Russia and
Iraq), the business models must be different
from the model that “works” in similar industrialized country’s cultures and even to the extreme of customizing strategies on a country by
country basis.
This treatment has not done justice to this
very important and complex topic. Further
research is important to develop tactical precision when firms feel the need to geographically expand. CW
Corrolations Industries Across Countries
