Why Expanding into International Markets Is Not a Crazy Idea (Part 3)
It's that time of the week again ... blog time. This week, I'm concluding my three-part blog on why expanding into international markets isn't a crazy idea.
In Part One, we looked at key global trends which make now the best time in history to enter international markets.
In Part Two, I outlined the three big challenges that I believe all companies face when they expand outside their national borders.
In Part Three, I want to highlight seven questions that I believe every entrepreneur and company must be able to answer before they can hope to successfully expand into new international markets. So, let's get started.
If you prefer to watch rather than read, check out the keynote that I gave atGrowthCon in Sydney a few weeks ago (from 18 mins:47 secs).
Seven Questions to Answer Before You Get Started
1. Is our company ready to enter a new market?
This deceptively simple question covers a bunch of stuff. For instance, do you know why you want to expand into a new market or markets? Is it to develop new products? Is it to capture a greater share of the market? Is it simply to generate more revenue? Are you doing it because your home market is saturated and this is the only way in which you can scale your business further?
You need to know what you hope to achieve by expanding outside your domestic market.
You also need to know why you’re going to succeed in your new market. Of course, your product or service is great ... but why is it going to work especially well in the particular market that you're targeting? What is it that's going to make your product or service competitive?
Do you know how much its going to cost you to expand? And have you calculated whether the business can you afford it? This is another rookie error that people often make - they don't factor in all the costs that could crop up as they carry out an international expansion and they get blindsided by unexpected expenses.
Does your team really have the skills to operate internationally? This might not be a big deal if you are considering expanding to a country and is culturally similar and has the same language as your country. But what if you're a US company going to China? Is there someone on your team who speaks Mandarin (or Cantonese for Southern China) and understands Chinese culture? If your staff don't have the right skills, what will you do about that?
To summarise, your first big challenge is making sure that your company is actually ready to internationalise.
2. Are we confident that we have chosen the right market?
If you just look at the map of the world and stick a pin in it, you could wind up anywhere.
If you're an English company, how do you know whether you go next door to a small market, like Ireland, which is very similar to England but has a tiny scope, or a gigantic market like India, which has massive scope but a totally different business environment? If you don’t know the answer, then you’re not ready to expand.
3. Are we sure that our product or service is right for the target market?
This question seems like no-brainer, but let me give you an example or two of why it's important.
If you export to the Middle East, there are regulations around food products and meat products must be halal. This means (amongst other things) that no pork can be in meat products destined for many Middle Eastern countries. There's no point thinking "we have these great new bacon-flavoured corn chips that would do really well in Saudi Arabia's booming convenience food market" ... even though Saudi Arabia is a market with 30 million people in it, if the regulations say "no pork, no bacon flavour", then your offering is not going to work in that market.
Or perhaps you sell high-end home decoration services which start at USD$25,000. It's probably not the most efficient strategy trying to sell these into a market where 87% of consumers earn less than USD$10 a day.
4. Do we know what customers in the target market really want?
It's easy to assume that you know what customers want, right? You’ve been running a business in Australia for ten years… you know what customers want? Wrong. The problem is that your customers in the new market are often nothing like your customers in the domestic market. They may have totally different expectations about products and services and you cannot simply replicate what has worked at home and expect the same result. Before you get started you'll need to research your potential clientele in the new market, find out who they are, what their preferences are and what they want.
The flip side of this challenge is to research the competition in the target market and work out whether you can do you what you plan to do better, or sell it for less. You may have the best product in the world, but if you go to a market that is heavily focussed on price, you might struggle to get enough market share to make your venture worthwhile, because your competition can perform almost as well as you can ... for a lot less.
5. Are we equipped to deal with the cultural nuances of the target?
If you're operating in a market that is very different home market, you need to be sure that you understand the culture that you are dealing with, so that you don't ruin the deal, so that you know how to develop good relationships with clients, suppliers and team members in that new country and so that you understand the business environment and how to get along.
6. How does the regulatory framework of the business affect our business
Don't forget to consider how the regulatory framework in the new market is going to affect your company and your business.
Bear in mind that you may need to consider things like company establishment in the target market, employment law, investment law, immigration regulations, how to go about repatriating capital, banking regulations and customs and quarantine rules. There are a bunch of regulatory frameworks that can make it easier or harder for you to do business in a new country and you need to consider potential regulatory challenges before you decide to move ahead.
7. Do we have have a cohesive strategy for market entry?
Lastly, have you created a cohesive strategy for going to market? If you've successfully answered the preceding six questions, have you sat down and worked out how you are going to translate those elements into a strategy with clear steps, milestones and performance indicators?
In short, if you're going to capitalise on the opportunity to take your business overseas, don't do it randomly. Don't jump on a plane and go around the world having meetings and generating excitement and interest without having a strategy to back it up. Because, while it looks like fun, it uses up time, money and energy that would be better spent doing the planning process and then launching your venture in systematic fashion, a little later.
To find our whether your company is ready to expand into a new international market, take the Dearin & Associates Strategy Stress Test.