Big Mistakes Companies Make Working Across Borders – #3 Going global before your company is really, truly ready
International business is exciting. At least, the idea of international business is exciting. Think Sam Chao (Daniel Henney) in the movie Shanghai Calling... new cities, new cultures, intriguing business deals, beautiful women (and men) and lots of fascinating experiences.
But as anyone who has taken their business international will tell you, it's much more complicated than that. And a hundred times more challenging, stressful and plain old mundane than anything Sam Chao went through in China. During the initial excitement of planning to "go global", the rose-coloured glasses often go on and the challenges and difficulties of expanding abroad are overlooked or downplayed. Senior executives sometimes confuse desire with ability and assume that because they seriously want to expand overseas they will necessarily succeed.
One of the biggest mistakes that companies considering expanding internationally often make is that they launch into the exercise without really thinking it through. This lack of reflection and planning can apply to any area of the international expansion process, but the facet I want to highlight here, is the the internal one. What I mean by that is this:
Many companies decide to expand abroad without making sure that they are really ready to do so, from an internal perspective.
Let me give you a few examples of what that looks like.
Companies lack self-awareness. They don't know why they are successful.
This is a paradox that firms have to wrestle with as they embark on their international expansion: a company can be highly successful in its home market without fully having understood why. Many businesses have grown and expanded organically without ever really stopping to assess which combination of factors have led to their success. Entering a new international market requires astrategic than an organic approach, if it's to be done well. And the first step is to understand what has made the company successful at home and to what degree that success is able to be recreated abroad.
Companies haven't thought through their motives.
Why do you want to internationalise? Is it just to generate more sales or are there other strategic goals? As they expand into new territories, companies need to understand their goals and motivations so that they know what to measure and, importantly what success looks like. You'd be surprised how many businesses haven't thought through these questions before getting started. Essentially, if you don't understand what you're trying to get done, you won't know what needs to be done.
Companies aren't clear on their commercial logic.
Do you know why you expect your company to succeed in a new market? Does it offer better-quality services or more value than competing firms? Are you clear on what will give you a competitive edge and win clients away from existing competitors? If you don't have the answers to these questions, press pause ... you'll need to answer them comprehensively before you can hope to succeed in a new market.
If for example, your product has no particular advantage to what is already on offer in the market, you'll need to consider what you can change so that your company is able to offer something valuable and different in the target market - something that will make you stand out from the competition. Think about the specific core competencies of your business? What do you do better than anyone else?
Companies haven't done their calculations.
Even if they have considered the three questions above, companies often overlook the critical task of calculating the direct and indirect costs of taking their product, service or company into a new market. The decision to go abroad is as much about capacity and opportunity cost as it is about self-awareness and motives.
Do you know what kinds of fixed and variable costs the company will be exposed to during the first three years in the new market? How will you cope if you make losses in the new country for several years in a row? Can you afford to expand your production capabilities if demand in the new market outstrips your current capacity to supply product? Will you continue to be excited about expanding to South Korea if it means that your VP of sales will need to spend a week each month in Seoul for the foreseeable future? What domestic opportunities might you have to forego if you decide to internationalise? These are just several examples of the kinds of issues that you need to have bear in mind as you get ready to expand beyond your domestic market.
The desire to expand a company into new territories is common (and commendable), but the ability to realise that dream is much more limited. While success begins with desire, successful international expansion is a serious commercial undertaking that demands self awareness. Don't leave home without it!
Curious to see how ready your company is for international expansion? Take our Strategy Stress Test to see how ready your company really is!
For more information on how Dearin & Associates can support your international expansion, visit our International Market Entry page.