Big Mistakes Companies Make Working Across Borders – #2
Mistake #2 - Entering Markets Haphazardly
Picture this: You're the owner of a small Australian company that makes high-end organic chocolate. You jet off to a trade show in Nuremburg to exhibit some new product lines, and at the show you meet Ed Brown, who represents an American supermarket. Ed loves your products and encourages you to bring them to the United States. He tells you that he can get your products into the supermarket and in your mind's eye you can see customers across the States racing to empty the shelves, while the dollars pile up in your bank account.
The United States is a market you've never dealt with before and you don't know much about it. You haven't done any market research and you aren't aware of the targets and kick rates that supermarkets apply (companies have to sell a certain number of units in three to six months or their product does not remain on the shelves). You also don't know about anything about the commercial culture of American supermarkets.
Nonetheless, you agree to work with Ed Brown. A great working relationship develops, and for two years he personally strives to secure your products a place in his supermarket. At last Ed succeeds and you place a big order, put the product on the shelf ... and wait. Lo and behold, six months later, Ed Brown writes to let you know that your product isn't selling and that it has been de-listed. Your adventure into a new market has just turned into a nightmare...
There are lots ways of entering a market haphazardly and the story above is only one example. But this is a true story, which happened to Melinda, a colleague in the food industry.
Melinda says that her biggest mistake was jumping in, boots and all without taking the time to create a comprehensive market entry strategy. For instance, she assumed that distribution in the United States worked the same way that it does in Australia and didn't know that she would need a sales agent in the States. As a result, she couldn't meet her sales targets and in several months, the whole project failed after several years of very hard work.
The irony is that this kind of haphazard approach to internationalisation is the norm, rather than the exception. The vast majority of companies that try to take their goods and services overseas do so without a strategy. Which is why so many don't make it far.
The consequences can be pretty serious. Hundreds of thousands or even millions of dollars lost, years wasted, domestic operations negatively affected, other opportunities forgone, enormous personal and team stress and crushing disappointment.
Perhaps more surprising is that many businesses don't stop to consider the benefit of carefully planning an international expansion. Sure, it costs time and money, but that cost is massively outweighed by the damage that careful planning can prevent. My top tips for avoiding the kind of drama that Melinda went through are:
Never assume anything
Although we often know our domestic markets and customers very well, you can never afford to assume that things will be the same elsewhere, even in a market that is superficially similar. It's often not the case.
Make sure you have a sound market entry strategy
The starting point for a sound strategy is a feasibility study including a big-picture analysis of the new market and a detailed analysis of market size, demographics, market segmentation, customer psychographics, the competitor landscape and the regulatory environment. The study should also include financial modelling which forecasts how your company is likely to perform in a new market over 12, 24 and 36 months. Knowing these numbers allows you to do financial planning and take risk management measures in case of contingencies.
Do your market research from all angles!
It may sound simple, but I can't overstate the importance of understanding any new market that you want to enter from as many angles as possible. That means going beyond the numeric data and the financial modelling, though these are also vital. It means (for example) understanding how distribution systems in new markets work, which cities and town will be the most suitable place to launch your product, and what kind of packaging will appeal to your new customers.
Plan your steps on a timeline
Once you have all the data in front of you, you'll be in a position to make some informed decisions about your mode of market entry. I suggest that you write a complete market entry plan that includes your business model, pricing, sales mix, customers, distribution channels, marketing strategy, staffing, financial modelling and risk management steps, and that you frame this information with a timeline. Only when that is done and you have visited the market (at least once) can you make a considered decision to proceed.
Use the experts
If the steps set out above seem overly challenging or you don't have the bandwidth or mental energy to go through this involved process, ask for help from a specialist!
Dearin & Associates is an international business consulting firm that helps established companies to access opportunities and capital in fast-growing international markets.
To find how your market entry strategy stacks up, take our Strategy Stress Test!