International Business
BEST PRACTICES SERIES
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LESSONS LEARNED
Starting Operations Around the World (Global Operations)
A conversation with Dan Peck, Vice President, International Operations and Machine Development, Coinstar Entertainment.
Facilitated by: Julie Williamson
Developed by: International Business Circle
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| Dan Peck |
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What does Coinstar do?
Most people will have seen Coinstar products. Coinstar has a coin division which provides the green coin counting machines that you see in supermarkets, primarily in the U.S. and also in the U.K. Coinstar’s amusement division provides game machines which you see in Wal-Mart (crane machines or video machines). Red Box, is a DVD rental you see in McDonald’s and Wal-Mart stores. Recently, Coinstar bought Travelex Money Transfer services, to provide money transfer.
Coinstar’s products can be seen on the front wall of stores, post-register.
Internationally, Coinstar has operations in Mexico, the U.K., does sourcing in China and Indonesia and are currently expanding into other countries.
How did you know when the time was right to go international?
It was a combination of two things. We’ve done a lot of acquisitions to consolidate the business in the U.S. So we’re pretty saturated in the U.S. There’s still a lot of opportunity here, but it did make us think that we better start looking at other places too.
When Wal-Mart says to you “hey, we’re in 16 countries right now, why aren’t you here?” that’s a good incentive. It’s helpful when you have a potential customer waiting for you.
How did you expand into Mexico?
We chose Mexico as our first country because it’s easy to get there, and with NAFTA we thought it might be the easiest country to get into. We launched in Mexico in October in 2004, and have been growing ever since.
We first opened an office in Mexico City, and later added offices in Monterrey and Guadalajara. It’s been a good challenge. We learned a lot and that will help us expand into other countries.
Key things you learned?
Probably my single biggest thing in Mexico, is not understanding how flexible rules and regulations are compared to the U.S.
In the U.S. everybody kind of knows the rules and regulations and it’s easy to find things - and things are not open to too much interpretation. In Mexico a lot of the municipalities and local areas interpret rules differently. In some cases it’s just a different way of looking at things.
It seems that in the U.S., a thing is legal, unless it’s said that it’s illegal. In Mexico it’s not necessarily that way. You have to tread carefully and do your homework. One of the first things we did was find a good law firm in Mexico City.
Is having local legal presence important?
Absolutely. You’ve got to have a local person you trust and who is competent in the area you’re trying to get into. That’s hard; it took us awhile to find somebody.
Does NAFTA simplify things?
We have NAFTA but it’s not so simple. You think of NAFTA and think of free border back and forth, but it’s not quite that simple. We had difficulty with a lot of the toys we bring in from China because Mexico instituted an anti-dumping tariff for toys from China.
That adds a big markup on my toys. So in addition of the effort of going into Mexico we had to find new sourcing in Indonesia for our toys, so that we could avoid all that duty. For the U.S. operation we bring in 22 million stuffed animals a year from China. But in Mexico, where we’re still small since we’re just starting off I can’t take advantage of the kind of volume I have out of China. I had to start new sourcing from Indonesia, which added an extra challenge.
Any assumptions that turned out to be wrong?
Yes. We assumed it would be easier and that there would be some affordances we might get. We were surprised to find it wasn’t the case. One of those is related to sourcing and finding out that were were unable to use the same sources we use for importing into the United States, to import into Mexico.
Other assumptions you’ve seen Americans make when going into Mexico?
One is how we look at the demographics of the country. The country is much poorer than the U.S., however they DO spend money.
Our machines do better in Mexico than in the U.S. We underestimated how well they would do because we were concerned about spendable income. But we found it’s just like anywhere else. If the consumer finds value, they’ll find the money to spend on it.
We started in Mexico City where the highest income is, but we’ve been expanding through the country and are still finding success.
We went into Monterrey about a year and a half ago, and into Guadalajara in January. We’re servicing Vera Cruz and Pueblo, two other big areas as well. So we’re covering a big chunk of Mexico now.
You also went into Japan. What can you share about that experiment?
Japan was interesting. We’ve looked at Japan when we started thinking about our international expansion. We analyzed and ranked all the countries. Then we segmented them where Wal-Mart was, because Wal-Mart’s our biggest customer and we thought that the first few countries we’d want to go to was where they were.
Wal-Mart purchased a big chain in Japan, but we were still concerned because Japan is famous for having highly developed amusement businesses. And it’s renowned for being very difficult for Western companies. So we frankly put it at the bottom tier - it was number ten out of ten of the countries we wanted to enter.
But then our friends, Wal-Mart, came in and said we really want you to go in to Japan, and so we said okay.
Because that’s what you say when Bettonville calls, right?
When Bettonville calls, you say okay. So we did, but we recognized the risk and went in by partnering with another company so we could minimize our investment. We set it up with Wal-Mart as a nine-month test. Unfortunately it wasn’t successful. Their consumers were just not looking for what we had to offer.
Part of that links with Wal-Mart. They were having troubles there as well and we rely a lot on their foot traffic. Overall it was mutually beneficial for both Wal-Mart and us. We learned and were happy with each other’s effort in the task. So it ended up being a positive for us.
So it strengthened your partner ties, even if it wasn’t a win in that particular market?
Absolutely. We found things the Japanese consumers were looking for that we may be able to apply over here and be ahead of our time, so it may help us in the U.S. market.
Can you give us some examples of those, or…
Different configurations of the game, and how they play, and how they approach it. They spend a lot more money than we do here, so we spent a lot of time trying to understand the Japanese consumer and what made them different, and why they would spend five, ten, 15, 20 dollars for a five dollar toy.
We’re working our way down the list, and got a couple of countries we’re looking at next. Bigger ones China and Brazil are probably the next two from an operations perspective. Those, fortunately, are also pretty good countries for Wal-Mart.
Along with finding people that you trust, really understanding that consumer is key.
One of the big arguments that we had internally, was about our product in Mexico, the stuff we saw out of our machines. The general assumption was that we would have to have a completely different product, because Mexicans would want different product than what we have.
What we found is that—actually in Japan as well—that they liked our product, because it was unique and different than what they already had, and it was something different, which really went against kind of the conception, particularly in Japan where, you know, everybody feels that everything has to be perfectly, you know, set up just for the Japanese consumer.
With every country we’ll go into we’ve got to understand ahead of time what kind of nuances we need to make in our product mix so it works in that country. Because, there certainly are differences!
How do you make that assessment before you go into the market?
First and foremost, if there’s competition in the market, we look at what they’re doing. If there’s already an established business that’s similar to ours we look at what they’re doing, and gauge how successful they are, and consider how we can improve on that business.
The next one is just talking with local people and finding that person you can trust in the country that can help you find those people, and talk with them and evaluate, what they’re missing.
In Mexico, we were pretty confident and maybe a little over-confident to start with. So we went through the whole process of getting incorporated and getting started and going big in Mexico. In the other countries, it’s a matter of gauging the risk based on the information you have and judging if it’s a 60/40 chance of success or an 80/20. If it’s only a 60/40 chance you would want to consider a partnership with another company.
In the case of Japan, we didn’t even set up a formal joint venture, we just made it—did an operating agreement with the company there to actually operate our program, and our machines, and so it was actually under their name, and we didn’t invest from that perspective.
For Japan we did a nine-month test, and we were in and out of there for not a lot of money, which is very good.
For other countries like Brazil, we will probably pick a few small markets to go into—or large markets that will set up small markets, and test, you know, on a small scale before we go big.
And we’d probably do the same type of approach, find somebody local that can help us with that before we invest a lot of money.
Are you offices in Mexico staffed by local hires?
In Mexico, all are local. We have no ex-pats in Mexico. My Director of Operations and I go down there every six to nine weeks and we’re on the phone with them all the time.
Part of it depends on the ongoing technical expertise you need in-country. My Director of Operations spent the first three months down there training and helping set up the operation.
I was down there every other week for quite awhile. So, it’s a big investment up front, and at some point you have to decide if the local talent you find is sufficient, from a technical or operational point of view to manage the business. We were lucky. We found a good person that is running her business down there, and pretty happy so far.
Your favorite language misunderstanding?
On one of my first trips to China, we were in a fairly rural area, and we had a guy with us who was just a driver, wasn’t anybody that we had hired or anything, but he knew some English, just enough. So we went into this restaurant, I’m trying to order, and this guy is trying to sell something. I had no idea what it was. The driver told me it was pork. And I think, okay, I can go with that. But what came was a big plate of pig hearts.
When you’re traveling internationally you have to be able to try stuff. You gain a lot of respect with the people you work with that way. So, I’ve eaten pig hearts in China and crickets in Mexico. I always try the local food and entertainment and yes, I do the karaoke in Japan and China and that kind of stuff.
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