Why Expanding into International Markets Is Not a Crazy Idea (Part 2)
In last week's post, Why Expanding into International Markets Is Not a Crazy Idea (Part 1), I talked about why I believe that there has never been a better time to take your business to the world. I also outlined a few of the key reasons that companies should be looking abroad and considering how they can get a slice of the global pie, rather than just focussing on getting a larger slice of a domestic market.
This week, in Part 2 of the post, I want to talk about the three key challenges that you’ll face, as soon as you get out of your comfort zone and into a new market.
If you prefer to watch rather than read, check out the keynote that I gave atGrowthCon in Sydney a few weeks ago (from 15 mins:45 secs).
Three Big Challenges to International Expansion
I have been working internationally for close to 20 years, as a diplomat, management consultant and CEO, so I have seen companies strive, struggle and sometimes crash and burn when they start up in a new country. Over time, I realised that companies typically face three key problems when they try to enter new international markets:
Not Enough Commercial Intelligence
Companies often don't have enough information about what is going on in their target market, so they are guessing rather than researching thoroughly and they don't have much of a strategy. They see an opportunity which looks good and they believe that they can succeed, without doing the groundwork to make sure that this is actually the case. And frequently, it doesn't work out.
If you haven't thoroughly assessed and understood what is going on in your target market - what the conditions are, how your product or service is likely to be received, who the competition is - and formulated a plan for dealing with the challenges that are likely to arise - regulatory hurdles, cost overruns, delays, challenges with staffing - then you're potentially heading into a world of commercial pain and personal stress.
Not Enough Cultural Awareness
The second challenge that people face is that they just don't have enough cultural awareness. If you haven't run a business internationally or operated with foreign clients, suppliers or team members, there is absolutely no reason that you appreciate the importance of cultural awareness. However, what I find is that people often go into foreign markets thinking that they'll be able to "copy, paste" what they do at home and just translate it to the new market.
The problem is that the culture of the new market is often very different to the company's home market and the business owner and staff don't understand it. There is a risk that they will unwittingly make a cultural gaffe, offend people and blow up their business deal. On the other hand, they may become very frustrated with the process of trying to do business in a market that operates differently to what they are used to and they end up walking away.
In 2012, the Economist Intelligence Unit published a report, Competing Across Borders: How Cultural and Communication Barriers Affect Business. After interviewing some 600 CEOs and decision-makers in large companies, the researchers concluded that lack of cultural awareness was a leading cause of deal failure and a key contributor to slowing the speed of business down and increasing the cost of business. This is a great piece of research and worth checking out if you have the opportunity to do so.
Not Enough Contacts
Lastly, people often don't have enough contacts. Operating in a new market is not like operating in your home market. You don't have friends and connections from school and university. You don't have existing clients who you can ask for referrals and you may not even be sure about where to start looking for help. Lack of contacts is a simple problem, but one which can dramatically affect the success of a business venture in a new country.
Stay tuned for the third and final part of this series. I'll be talking about the seven questions that you need to be able to answer before you take your business to a new market.
Dearin & Associates is an international business consulting firm that helps established companies to access opportunities and capital in fast-growing international markets.
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