You’ve just received an email from a department store in China, requesting a meeting to talk about purchasing a shipment of the fantastically snazzy new shoes that your start-up company released last quarter. You’ve only ever traded in your home market before, buy as you contemplate jumping online and booking a plane ticket to Shangai, your imagination swirls with images of an expanding global footwear empire. You wonder whether you can open stores in Russia, the US and India by next year …
Stop! Here are ten things that startups and established companies alike need to consider as they start thinking about building an international expansion strategy.
1. Know why you are going
Research has produced the astounding finding that 67% companies decide to enter a foreign market because they receive an unsolicited order from that market. Other factors that influence the decision about market entry often include the language spoken by a key manager, or even where a manager had holidayed overseas. This kind of ad hoc decision-making rarely produces optimal solutions and one researcher estimates that in Australia alone, more than $AUD 225,000,000 is wasted every year as a result of poor foreign market selections. You’ll get a better result if you develop some formal criteria against which you can measure all the markets that you’re considering.
2. Sort out your strategy before you get in too deep
This one is key! To ensure that you’re not one of the companies that makes a dumb decision about where to expand to, work out why you are expanding and how the way in which you are expanding matches what you are trying to achieve.
3. Remember that international market entry will be a roller coaster
“Going global” looks glamorous from the outside, but it can be risky … and tough, probably tougher than the initial start-up phase of starting a business in your home market. The whole team and particularly senior management needs to be ready to ride the roller coaster.
4.You can’t be half pregnant
Expansion to new international markets is an “all or nothing” proposition. You can start on a small scale, but if you expect to succeed, you need to be committed to the project. One of the biggest mistakes that management teams make is to dabble in expansion, which is like dabbling in a start-up – it usually doesn’t work well. Successful international expansion strategies stand out because they are carefully planned, well funded, adequately resourced, and have a committed management team behind them. It is important to have a compelling reason driving the strategy to enter a new international market – this will help provide the impetus to get you through the difficult times.
5.Make sure that your domestic business is in order before you start
Expanding internationally is distracting and you need to make sure that you have consolidated a solid domestic base that you can expand from. Otherwise, when storms blow up in the international market and the management team stops focusing on what’s happening at home, the company may find itself operating a significant risk.
6.Go somewhere where you will get some wins in a reasonable timeframe
China or India may look attractive, but if your firm has no previous international experience, you’re likely to find it a challenge to get results quickly, because these kinds of markets are huge, complex and probably very different to where you are used to operating. I’m not saying that you have to be completely conservative in your choice of market, but the key to building momentum is getting quick wins in an international market and finding a place to build a scalable expansion model.
7. Don’t repeatedly recreate the wheel
The most successful business development teams have figured out how to turn the market identification and evaluation process into a scalable and repeatable experiment.
8. Fail fast and use a process
Successful teams have know how to get results (including negative ones) early, and have established a process for doing so. They start by measuring experiments immediately and develop a regular review process for evaluating their progress on each experiment. The purpose of this process is to minimize the resource costs of learning about new markets and give the team more chances to get it right.
9. Only enter one new international market on the ground at a time
Unless there is a major strategic reason that compels you to do otherwise, you should really only dive into a market if you’re confident you can be a “top ten” player. Remember, you will likely only get one chance to enter on the ground, so you need to enter with a splash and do it at the right time. If you’re not confident you can be a “top ten” player then the cost of entering may outweigh the return.
10. Don’t try to “copy + paste” what you do at home
Re-wrapping products rarely works in international markets, because customer demographics, spending power, psychography and expectations vary enormously from one country to the next. Typically, you will need to localize your product or service to be a top player in the space.
Taking your business into new international markets is a risky and capital intensive strategy. Following these market best practices will minimize your risks and set your team up for success.
Want to find out how ready your company is to expand into a new international market?