Pt. 17 of 18. Foreign expansion, leadership lessons from organised crime

For the good of society - 18 leadership lessons from organised crime

Preface

In Part 1, "Ambition" we set the scene.

According to Interpol, the UN and WTO the organised crime industry is one of the worlds largest with quantifiable revenues of at least $3 Trillion per year and despite trillions of dollars worth of investment to counter act their growth the industry is growing faster than ever leaving a trail of devastation in its wake.

In a world first we reveal how Syndicates, some of whose annual revenues top $200 Billion use influence, resources, technology and vision to build global empires and translate it into a business language that philanthropists can use to build prosperous companies that can help repair some of the societal damage by creating new jobs, simplifying international expansion, building engaged workforces and creating new, selfless collaborative cultures.

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During our investigation we uncovered 18 categories, to read them just click on the link below:

1. Ambition
2. Customer Service
3. Bribery and Corruption
4. Devolved decision making
5. External Problem Resolution
6. Internal Problem Resolution
7. Local Touch
8. The Lean Team
9. Consistency
10. Loyalty
11. Perks
12. Disruptive Innovation
13. The Flight to Favourable Jurisdictions
14. React to Real Time Events
15. Process as the Enemy
16. Spying on the Competition
17. Emigres Clusters
18. Trust, Faith and Openness

(17) Émigrés Clusters

What this means to the Shadow Industry

As local markets begin to become saturated, or perhaps as individual syndicates feel the competitive squeeze inevitably the time comes when the lure of building new overseas empires becomes too much to ignore but the syndicates who try to build these empires predictably face a multitude of cultural, lingual and market barriers and overcoming any one of these can involve significant investments in time, effort and resource.

Traditionally there have been two common approaches to breaking into new markets. The first is the “Air Drop” where syndicates parachute in their A-Teams to broker new partnerships, analyse the market from the inside and execute concrete go to market strategies. The second is the Takeover – in its rawest form, many of which are legendary for their brutality, intensity and propensity to create long lasting, irreconcilable blood feuds. The past decade has been witness to innumerable wars - from the Mafia conflicts that ravaged Southern Italy through to the relentless battles in Mexico between the Sinaloa, Carillo Fuentes, Juarez and Tijuana Drug Trafficking Organisations over the control of key North American drug corridors that still rage today and have destroyed 140,000 businesses and left over 23,000 people missing, a further 60,000 dead and are responsible for the homicides of over 3,000 Police officers.

If you thought that the shadow industry restricted takeovers of this ilk to its own industry you’d be wrong as FirstPlus Financial Group (FPFG), a publically traded Texas based financial services organisation found to its peril. In September 2013 thirteen members of La Cosa Nostra organized crime family used economic extortion and threats of violence to remove its entire Board of Directors and management and seize and maintain control of the company. Once in control they looted FPFG through a series of fraudulent consulting agreements and acquisitions involving companies they controlled and used their criminal enterprise to extract millions of dollars.

Today though the shadow industry has found another way, a third way to lower the barriers to entry and break into new territories. As border controls continue to be relaxed people are increasingly emigrating en masse and creating new community clusters in their adopted home countries. As these influxes continue these centers, built by likeminded individuals who share the same linguistic heritage, cultural roots and beliefs continue to expand while their local leaders and Entrepreneurs help new arrivals leverage the clusters support networks to expedite their understanding of, and integration into the local economy and culture and the shadow industry has found a way to leverage these clusters to their advantage.

Entrepreneurs, in most cases, are particularly adept at exploiting new market opportunities and identifying weaknesses in the local industries existing portfolios. Every culture and every country have individuals who prefer to carve their niches out in the shadows and these individuals are now the syndicates key bridgeheads into their new territories and markets.

What this means to legitimate industries

Every organisation wants to break into new markets but and there are a number of common ways they achieve it, all of which, of course, are near mirror images of the methodologies employed by the shadow industry - with the exception that the execution is legal and subject to greater public scrutiny.

Organisations are always looking for the lowest cost, lowest risk, highest return model to break into new territories but finding the right balance is often difficult. Opening, resourcing and manning your own regional office, particularly when managed from the parent country is expensive and burdened with risk and then of course there’s the matter of hiring the right caliber employees to staff it. This particular model carries its own paradigm - on the one hand you have complete control but on the other hand your lack of insights into the dynamics of this new territory, and lack of direct contact will likely mean you have a slow start and that at worst it will fail.

Alternatively, and depending which industry you’re in, you can acquire a local, complimentary organisation in your territory of choice – you could of course merge with an organisation but the return on investment will be longer and you have to concede full control. Acquiring a reputable local organisation means you have complete control but you now have the added advantage that this organisation has a reputation, profound customer relationships and a deep rooted understanding of the dynamics of the local marketplace. The downside of this model though is that it’s expensive to buy another organisation so unless they’re in trouble it’s common for organisations to pay between two and five times the P/E ratio and it’s still a complex, resource intensive and risky undertaking. One of the other downsides of course is that when you buy an organisation you can inherit a litany of problems that include out of date systems, politics, discordant procedures and an errant culture all of which introduce risk and delay your return on investment.

Often the lowest cost, lowest risk way to enter a new market is to selectively outsource your sales, support and distribution operations for a defined period of time to a local consultancy who can use their insights and relationships to identify the best route to market, bring on the right mix of partners and grow your sales. Traditionally many of these consulting organisations are willing to work on a performance basis, uplifting the cost of the goods and services slightly and then taking a percentage of the sales revenue to cover their overheads.

Takeaway

Organisations need to reduce the risk and costs associated with opening up a new territory and your return on investment will ultimately decide which path you take but in the short to medium term the use of local consultancies often proves advantageous provided both organisations are realistic and enter into the agreement in the true spirit of partnership.

 The key takeaways are:

• Work in partnership with your downstream partners and do not burn your bridges
• Work to understand the intricacies of the markets you’re breaking into
• Use regional consulting organisations to break into new markets
• Be prepared to regionalise your products and services