International Market Selection: Four Mistakes to Avoid in 2021

The international trade landscape has shifted dramatically in the last twelve months. A year ago we were at the top of the economic cycle, COVID was just making the news and down here in Australia, trade with China was rocketing along. Things looked rosy.

2020 changed all that.

COVID ravaged the globe, China’s relationship with multiple countries hit an all-time low and the United States – traditionally a beacon of stability and hope – demonstrated that with the right conditions, chaos can ravage even the strongest democracy. Each of these events created ripple effects throughout the global economy and negatively affected business, both locally and internationally. Although economic confidence is beginning to creep back, we’re certainly not riding the wave the way we were 12 months ago.

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However, despite the challenges related to everything from political risk to supply chains disruption, shipping costs, foreign exchange and catching COVID19, the opportunities for companies to do business internationally and succeed still exist, because the fundamentals haven’t changed that much. People still have problems they need to solve and they’re looking for the best solution … where it comes from is less important.

And, for business owners, the truth is that scaling your venture across multiple markets is still the most effective way of increasing its value … if you get it right.

So, if you’ve decided to “go global”, where should you sell to? Which markets will you try to conquer in 2021?

There’s a lot of choice out there when it comes to potential markets, and before you can do much in the way of developing a strategy, you need to decide where you’re expanding to and why.

This is one of the most important decisions you’ll make on your international journey and getting it wrong can have dramatic consequences, so it’s worth putting in some effort here.

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Alan Oppenheim, CEO of Australian skincare company, Ego Pharmaceuticals says:

" We know launching into a new country is a really big effort for a whole suite of people, so we look at a whole host of things. We look at what’s population size, what’s the GDP, is the GDP growing, what’s the size of the middle class? Is the middle class growing? Because if people are improving their lives through the economy, then we can help them improve their lives as well, through the science of healthy skin. ...So we look at all of that - what’s the market for our products? What’s the competition like in that country?

Are there some strange things in the market, where we think the science is wrong, but to enter the market you have to comply with that strange cultural law? What is the culture like? We look at regulations because we’re a pharmaceutical company, so we usually have to register the company with the health department first, then every product individually. And that can be a smallish job, or an enormous job. For example, in Saudi Arabia, that took ten years, from my first visit to when we launched - ten years of regulatory work.

So, there’s a whole suite of stuff we look at and one of the things we look at is synergy. If we launch in a particular country, is that going to strengthen the countries around it in synergy? For example, Singapore and Malaysia are different, but they’re physically connected, so there is some synergy between the two. And we’re finding the more countries we are in, the more synergies there are across the world. "

In case you’re wondering what ‘getting it wrong’ looks like, let me share a few of the big mistakes that I see people make all the time as they launch into international markets.

Ad hoc decisions

You’d be blown away by the number of people who make ad hoc decisions about which country to expand to – either because they went on holiday somewhere and fell in love with it, they received a random order from a new market or they have heard that there are “big opportunities” there.

Let me illustrate. If you’ve been in business a while, the chances are that you’ve been randomly contacted by potential customers from overseas who wanted to work with you or place an order with your firm. It’s very easy to get excited and carried away at this point, especially if the order is from a country where you believe there is a massive potential market for your product.

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Before you rush to fill it and before you start dreaming about becoming a market leader in that country, take the time to work out whether your offering really belongs in that market and whether going there really fits with your company’s broader strategic priorities. If not, don’t waste your time, especially if there is no indication that the initial, random order is going to turn into anything more permanent.

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No real research

Research isn’t loads of fun, and it takes a real investment of time and energy – that’s why so many people don’t do real research before they choose an international market to target.

I worked with a company a couple of years ago that was planning its internationalisation and export play primarily around selling into China. The product was hydroponic fruit and vegetables and the rationale for going into China went something like this:

"We know China is a huge market and we know that its middle class is growing rapidly. We know that the middle class wants premium products and doesn't trust domestically produced food. We will sell our premium fresh food into China and exploit that market."

Superficially, this seemed like a pretty sound argument and on the strength of it the company had decided that it would target China to the exclusion of other overseas markets. What its leadership team didn’t know was that there was no market access to China, because China only allows a handful of fruit and vegetable products to be imported from abroad. Legally, my client had no ability to sell its products in the Chinese market. So that was the end of that expansion strategy.

I’ve met plenty of people who snatched at the first proposition that came along, rather than choosing a market rationally, on the basis of research. It often ends badly, because what appears to be a great opportunity at first glance just doesn’t stack up on closer examination. Maybe the size of the market isn’t what you imagined, maybe the competition in your sector is fierce, perhaps the customers just won’t pay what you need to charge to make a profit. Or perhaps you’ve discovered that the culture of your target market doesn’t gel with you – you don’t like the food, the people seem rude and you hate having to travel 12 hours to do business there every six weeks.

Underestimate the complexity of entering a new market

When you haven’t taken the time to do your research thoroughly, many countries seem similar, at first glance. They have similar languages, currencies, transport systems and hotel lobbies. However, every market has its own practices; some of them are cultural, others are mandated by law.

It’s not always easy to discern these differences from the outside and so business people often make the mistake of assuming that selling in a particular market will be straightforward, because it appears to be similar to their home market, or to another country that they’re already selling to. As you scratch the surface, you may discover that your target market is far less simple to work in than you’d imagined.

Making assumptions about the ease or difficulty of working in or selling to a particular place is, a recipe for running into all kinds of obstacles that you hadn’t even imagined, from unexpected customer preferences, to snags with packaging and labelling requirements; from problems with getting your product onto the shelves of a local supermarket to difficulties in firing an underperforming distributor; from hassles setting up bank accounts to challenges with getting paid on time by your clients … or at all.
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Try to enter more than one market at one time

I liken this mistake to trying to light multiple fires with one magnifying glass.

Depending on what type of business you run and how you decide to enter the market, trying to go into more than one market at a time is distracting at best and suicidal at worst.

If you’re new to international business, selling to or setting up in multiple countries when you first expand overseas is more or less guaranteed to break your company unless it is already reasonably large and/or highly successful at home. The exception to this rule might be Saas (software as a service) products or small items that can be sent directly to a number of markets by courier.

It’s not worth getting it wrong!

No matter how amazing the rush of making a quick, ‘gut feel’ decision to sell to a particular place feels, it’s not worth getting it wrong, because the consequences of making a poor choice of market are serious.

In the short-term you’ll waste resources, time and energy that you could have invested in a venture that would create better outcomes for you and your company. If things don’t go to plan and the venture performs worse than you’d expected, you might experience cash flow problems and there’ll certainly be an opportunity cost, which could well sour the prospect of expanding internationally.

The longer-term consequences of a poor choice of market can be much grimmer (particularly if you make your mistake on a large scale), and can include damage to your brand and a downgrade and a depreciation in the value of your company. This really matters if you are planning a future exit via a trade sale.

If you’re planning to “go global”, I encourage you to do the work necessary to make a smart decision about which market you’ll sell to. To find out where to start, check out my blog Four Questions to Ask in the International Market Selection Process.

Whether you’re choosing your first international market or leaving the China market and aiming to make smart decisions on market selection, don’t miss our one-day masterclass, Choosing the Right Market in 2021 – Where to after China? We’ll be running a virtual session on 3rd & 4th March, or an exclusive in-person event in Sydney on 12th March – register here.

Kick-start your international expansion today

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