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Service globalization key to managing value co-creation process across cultures
By Yoshinori FujikawaIf asked to list Japanese companies that have succeeded in global markets, one can easily come up with a long list of names including Canon, Sony, Toyota and the like, but one may soon notice almost all the firms on the list are manufacturing companies. It seems more difficult to name Japanese companies in the service businesses that have made major globalization strides. How did this come to be?
The situation is similar in companies originating from neighboring countries. For instance, we can name companies such as Haier and Lenovo of China, LG and Samsung of Korea, Acer and HCT of Taiwan as global companies, but once again, they are all manufacturing firms. Can you list any Chinese/Korean/Taiwanese service companies that have successfully expanded worldwide?
As the global shift to service economy accelerates, it has become apparent that service businesses from certain cultures such as the U.S. and some of European countries are expanding beyond their home market, while those from other cultures such as Japan and other Asian countries have not yet fully capitalized on globalization opportunities. What makes it difficult for service originated in certain cultures to replicate its business in other cultures?
The case of Kumon, one of the world’s largest after-school education services providers (most known for its K-12 basic mathematics program), might help us resolve this mystery.
Teaching math to Indians
Kumon is one of the very few Japanese service firms that have been successfully globalizing its operations around the world, operating in 45 countries and instructing more than 4.3 million children in 2010 including 1.4 million in Japan and 2.9 million overseas. Set in spring 2007, Hitotsubashi ICS’s case on Kumon India traces one of the company’s most recent new county entries from preparation phase, to initial launch, and to growth opportunities.
Kumon India is one of Kumon Institute of Education’s (KIE) most important subsidiaries. India has substantial market potential and represents the first major country entry since the inception of the International Planning Division at KIE, headed by Yo Narita. Kumon India started its operations in January 2005. By 2007, Kumon India had successfully established three centers in New Delhi and its vicinity, with more than 400 students enrolled and many students on the waiting list.
Hiroyuki Kobayashi, president of Kumon India, attributes the early success to the mission-driven organization that Yo Narita and he had built along with passionate local associates.
Narita and Kobayashi considered the balance between reaching growth targets and assuring the quality of their education. Given the situation, they were contemplating three main options: (a) Establishing the franchise system in residential/commercial areas; (b) Operating a franchise system by renting Indian public school facilities after school hours; and (c) Introducing the Kumon Method in the Indian school system. Each option had its advantages and disadvantages.
There were several criteria that they had to consider in choosing among these alternatives. First, Kumon India needed to work towards fulfilling “The 2014 Vision,” which commemorates the 100th anniversary of the late founder Toru Kumon’s birth and aims at enabling people in all countries to have the opportunity to acquire basic skills using the Kumon Method by the year 2014.
Second, Kumon India had to consider potential advantages of being the first mover, and potential risks of competitors with aggressive expansion strategies. Third, as the first major country-entry project, led by the newly established International Planning Division, Kumon India needed to be the role model of international expansion for other subsidiaries.
Their approach thus had to be transferable to other countries and cultures.
“Kumon India is not just for Kumon India” was often mentioned during meetings at Kumon India’s office in Delhi as well as at the Project India 2014 meetings in Japan.
How Narita and Kobayashi would pursue growth put multiple parties in India and elsewhere at stake — Indian parents and children and their learning experiences, Kumon India’s associates and their satisfaction and loyalty, Kumon’s existing overseas subsidiaries and newly created operations, and their future strategies — not to mention Narita and Kobayashi and their careers at Kumon.
Cultural context
From a service management perspective, the case provides an example of successful service globalization originating from Japan. By integrating the view of service as process of “value co-creation with customers” and the issue of cultural difference, in particular, the degree to which “context” is culturally dependent, we could develop an interesting set of hypotheses to shed light on the service globalization mystery. First, service as “value co-creation” is the idea that not only the service providers but the recipients of service get involved in production activities, and that value is created together through the interactions between company and customers. Secondly, “context” is shared understanding awareness, including an understanding of the overall picture, background, rule and situation.
The cultural anthropologist Edward T. Hall advanced the concepts of “high-context (H-C) culture” and “low-context (L-C) culture.” Employing these two concepts together, at the risk of over generalization, one can hypothesize that it is more challenging to bring service originated in high-context (H-C) culture into low-context (L-C) culture than to transplant service developed in L-C culture into H-C culture.
Service companies in H-C cultures such as Japan and other Asian nations can realize smooth operations without written manuals and codified rules, since employees are likely to share the same culture and tacit knowledge. When such service businesses from H-C cultures enter countries without adapting their operation strategy and service delivery system, they struggle with their globalization process. Companies that have evolved in L-C cultures establish a system to standardize operation through training and manuals to manage different kinds of people.
Therefore, it is relatively easy to expand service businesses from L-C cultures to H-C cultures. The Kumon India case helps us see how a company from an H-C culture overcame difficulties and successfully entered an L-C culture market.
Solution
How, then, are services originating in an H-C culture transferred into another culture? How is the globalization process being managed by companies? For this point, the case of Kumon India provides us with an opportunity to see the role knowledge management plays in expanding a service business globally.
While Kumon tries to codify their value co-creation process as explicit as possible in the form of their education materials, curriculum, and franchise contract, they have also established global knowledge-sharing mechanisms consisting of various face-to-face forms and meetings — the World Presidents’ Meeting, World Brand Task Force, World Human Capital Development Forum, and World Study Conference on Instruction Principles — where difficult-to-codify knowledge and best practices could be identified and shared among executives, staff members, and instructors from around the world.
At these gatherings, dynamic interaction occurred not just among Kumon executives and employees but also among franchisee instructors from around the world, disseminating what they learn in one market to others and facilitating cross-border organizational learning and human resource development.
Key insights we can gain from the case of Kumon — challenge in globalizing a service business, from this standpoint of “value co-creation” — begin with how to replicate value co-creation process, which were originally developed in the home market, in the local market one is entering. Then, the next step for service globalization would be how to integrate overseas businesses with home market operations so as to build global-scale mechanisms that disseminate learning in one market to another and help facilitate the cross-border organizational learning. This would allow a service organization to continuously upgrade its “value co-creation” process on a global scale.
Yoshinori Fujikawa is associate professor of Hitotsubashi ICS.
