As I write this post, the COVID-19 pandemic is reshaping the global business landscape and the world as we know it. For many executives, just surviving is a fight to the death and expanding internationally is the last thing on their minds.
But if you’re a business leader with big dreams, you still need an international strategy. COVID-19 has slowed the movement of goods and all but halted the movement of people, but global business isn’t going away. It’s evolving. To keep up, grow and flourish, you need to evolve too.
The death of distance is a key driver for international business, even as we grapple with COVID-19. Massively improved supply chain logistics, travel and technology are enabling goods, people and ideas to move around the world faster than at any other time in history.
Activities that previously had to be done in one place have been unbundled and spread out around multiple geographies. In many industries, especially elaborate manufactures, supply chains have become truly global. New technologies let us meet people on the other side of the world, transmit our data across the globe in a heartbeat and make and receive payments in the space of a few minutes. Services including telemedicine, architecture, design, accounting, coaching, management consulting, and dozens of others can be provided from virtually anywhere, irrespective of where the customer is.
The death of distance has implications for almost everyone in business, because we can communicate and work with customers and suppliers who were unreachable just a few short years ago. For now, global trade in goods has slowed, but it will eventually return to historic levels, because the movement of goods is far less risky than the movement of people. That said, I believe that we’ll see a big, permanent step change in the way services are sold.
Limitless opportunity means unbridled competition
The downside to limitless opportunity is a massive increase in competition. If barriers to entry fall and you can suddenly sell anywhere, people from all over the world can suddenly sell into your home market too. And if they can create and sell a better product at less cost and market it with equal flair, that’s the end of your market share. The truth is that the dark side of borderless markets (increased competition) should be just as great a driver for a perceptive CEO as its bright side (increased opportunity).
Even if you put current global trends aside, the classic reasons for international scale continue to matter.
Reach more customers
Access to international markets enables access to more customers. This matters for any company that only has clients in one geography, and is especially true if you are based in a country that has a relatively small domestic market.
Over the last 20 years the global marketplace has grown by around 3-4 billion new customers, to a total of around 7.6 billion people. This reflects the way in which economies have evolved in that time. Not so long ago, China and India were still considered developing countries. These days they are leading economies whose rapidly expanding middle classes have money to spend. Similar trends are apparent elsewhere in the world as the middle classes grow rapidly throughout Asia, the Middle East and Latin America. In many cases, 99% of the people you could sell to are now located outside your own country.
According to the Brookings Institute, the next decade could see an even faster expansion of the middle class than at any other time in history. Globally, the middle class is already spending $35 trillion annually, and could be spending $64 trillion by 2030, accounting for roughly a third of projected GDP growth. Within a few years, based on current forecasts, a majority of the world’s population could have middle-class or rich lifestyles for the first time ever.
This explosion of middle-class populations with increased purchasing power and a hunger for higher standards of living has generated huge demand for all types of products and services, which host countries often can’t meet. The sheer volume of the opportunity that the rising middle class represents is often difficult to grasp. For example:
India’s electronics market, valued at USD 120 billion in FY17/18, is expected to grow to USD 400 billion by 2025.
And in China, high quality Australian milk can sell for up to $9 per litre, compared to its $2-$4 price tag in Australia.
Incredibly, even these enormous markets for “traditional” products are dwarfed by the opportunities in emerging sectors. For instance, the global market size of Internet of Things (IoT) platforms was USD1340 million in 2017 and is expected to reach USD9960 million by the end of 20252. And these examples aren’t outliers. Do a quick Google search for your sector… you’ll find dozens of opportunities of the same magnitude.
Many multinationals, tech giants and luxury brands have gone on the front foot to gain a first mover advantage and position themselves to capture middle class consumers as they move out of poverty and into the middle income bracket. The good news is that micro-to-medium-sized businesses can capitalise on these opportunities too. Plenty of smaller companies are carving out their niche in international markets and gaining access to new clients that they wouldn’t have won if they’d stayed at home.
Case Study: Siteminder
Mike Ford and Mike Rogers started Siteminder in 2006. It began as a two-person operation working out of a rental home on Sydney’s northern beaches. The company now has 800+ staff, services over 35,000 hotels around the world and generates more than AU$100 million in annual recurring revenue. 80% of Siteminder’s turnover comes from offshore and it processes 87 million hotel reservations a year, or $38 billion worth of hotel, Airbnb or bed and breakfast stays. These days, Siteminder is considered one of the 20 greatest pioneering technology companies to come out of Australia and New Zealand.
Case Study: Emma and Tom’s
Australian juice and snack company, Emma and Tom’s was founded in 2004 by childhood friends Emma Welsh and Tom Griffith. Getting a fruit based drinks business off the ground was anything but easy in the early years. The first batches didn’t taste good, Emma and Tom couldn’t get anyone to make their instantly recognisable bottles, and the distribution just wasn’t working.
Today, Emma and Tom’s Emma and Tom is an international brand, sold in Jordan, Dubai, Hong Kong, Singapore and Malaysia.
Case Study: Jane Jackson Career Coach
Jane Jackson is a career management coach and solopreneur who services clients all around the world. Originally from Hong Kong, Jane established her coaching business in Australia in 2001 and recognised the opportunity that rapid advancements in technology offered her business.
Instead of flying around the world to deliver training for her clients, Jane began using videoconference technology while maintaining the same standards of service as her in-person clients received. She discovered that changing her delivery model radically changed her business as well. Jane was able to reach hundreds of new clients while dramatically reducing the cost of providing advice. She saved time, money and energy by working remotely, and maintained a healthy profit margin. Today, Jane has worked with over 1000 professionals from Asia and Australia to reinvigorate their careers.
Spread your risks
The expression “don’t put all your eggs in one basket” applies equally to investment portfolios and customer bases. In an investment context you spread risk among different types of assets to protect the portfolio against wild price fluctuations by just one or a handful of stocks. The same principle applies to a company’s customer base. A business can pay dearly if too many of its customers are concentrated in one country and conditions change quickly. If you only sell in one market and there is a downturn, new competitors appear, regulations change or your machinery fails – damaging your product and losing you a major contract – sales may drop dramatically, putting the company at serious risk.
Diversifying your markets offsets risk in the domestic market by opening up opportunities with new clients, new partnerships and joint ventures, as well as new opportunities to develop products for specific geographies. Diversification can also help smaller companies survive tough economic times and political volatility, factors which are increasingly important as global politics and the dynamics of international trade continue to shift rapidly and unpredictably.
Case Study: Skimlinks
Alicia Navarro, Founder of automated affiliate marketing firm, Skimlinks started her business in Australia in 2012. When she realised that there was virtually no market for her product in Australia, Alicia moved her operation to the United Kingdom. Through her clients in London, she was able to target many of their parent companies in the United States as well. Two years later, the company expanded to the US market. Today, Skimlinks facilitates $1 billion worth of transactions for its clients and is used by more than 4 million websites worldwide.
Protect against competitors
International expansion doesn’t just let you reach more customers, it’s also a hedge against the competition and it’s never been more important than now. As I mentioned above, the transformation of global economies has created 3-4 billion newly-minted consumers with money, but it’s also created a sea of well-educated, hard-working people with aspirations. Meet your new competitors.
In the services sector, it’s becoming easier and easier for these competitors to take your clients as technology continues to shrink the world. You don’t need a big imagination to see how a surge of new, international competitors could threaten your market share.
When it comes to goods, tariffs were once a major hurdle to doing business internationally and a barrier to competition. Despite the US-China trade war that has plagued international markets recently, that’s generally not the case anymore. 60 years of trade liberalisation has dramatically reduced tariffs, making it cheaper to sell goods overseas and compete with locally produced products. In some senses this is a plus, but low tariffs also make it easier for international competitors to sell into your domestic market. Sooner or later, most sectors will face threats from foreign entrants, and in sectors like retail, local players are already feeling the squeeze.
Foreign competitors are not the only worry. Even if you’re confident that your industry is safe from external threats, you can’t afford to ignore the threats at home. Some of your canny domestic competitors have already realised that they can turn geo-arbitrage to their favour. They’re using web developers and designers from Jamaica, graphic designers from Hungary and Slovenia, bookkeepers from India and virtual assistants from the Philippines to source services for themselves and their clients at a fraction of the cost of buying domestically. And that means they can reduce their cost of goods sold and undercut you, while still making a profit. I work with companies that have built their entire offering around the geo-arbitrage model, and they’re doing well.
Expanding overseas remains a smart way to counter the threat from overseas competitors and local firms capitalising on geo-arbitrage to compete with you at home.
Every astute CEO wants to reduce expenses and entering the global arena can help to achieve this.
Across Asia, countries are competing to attract foreign businesses to set up on-shore, by offering low taxes and set-up costs for companies. Vietnam and Malaysia are leaders in this space and both markets also offer extremely high-speed internet and attractive living conditions, making them an emerging hub for the media sector.
If done correctly, using offshore resources can be a highly effective way to reduce costs. In Asia and India top talent is available across a range of business functions at a fraction of the cost of hiring the same person at home. This trend is no longer just the domain of big organisations. Growing numbers of smaller companies now rely heavily on virtual assistants and back office staff, as well as professionals including engineers, architects and accountants from countries with lower costs of living and employment.
You may also find more economical solutions to your production and manufacturing challenges offshore, although in the current climate, COVID-19 has manufacturers everywhere reevaluating supply chain reliability and looking for supply chain solutions closer to home.
Overseas markets may generate higher returns for your business, especially if they are less advanced, attractive or competitive than your domestic market, or harder to do business in. Difficult markets usually attract fewer foreign companies and you may find that there is a blank space in the market that you can fill, potentially allowing you to charge a higher premium than you can attract at home. Niche milk-producing companies Bellamy’s and A2 Milk – which sell infant formula products to China at higher retail prices than they can command at home – are good examples of companies that have tapped international markets to maximise profits.
Expansion equals innovation
In an era when robots are replacing highly trained professionals, business leaders can’t afford to be complacent about innovation. The commercial and technological environment is changing so quickly that those who stand still will be left behind.
The good news is that research suggests that operating internationally drives innovation. In other words, if you want a company that is more innovative, productive and competitive, look offshore. Exposure to new ideas and clients and the challenge of generating solutions to new problems will help you and your team become more innovative and more productive, creating an enduring competitive edge, at home and abroad. The result? A virtuous circle with the potential to drive further international success.
The word ‘innovation’ conjures up images of ground-breaking new inventions and revolutionary technologies, but most innovations are an evolution, rather than a revolution. A change to your processes, delivery model or even your marketing can be just as effective as a new product in creating a lasting competitive advantage, increasing margins and helping you unlock profitable new markets.Here are five different ways that small companies can use innovation in international markets to drive growth:
- Product and service innovation – Selling internationally can help you find a broader customer base for an innovative, niche product that may have a limited market onshore. It also lets you capitalise on innovative product features with unique appeal offshore — the same features which might not appeal at home.
aussieBum, Sean Ashby is a living case study of product innovation on the international stage. After his concept was scorned in his native Australia, Ashby took his apparel ideas overseas, securing none other than luxury London department store Selfridges as his first stockist. These days, aussieBum has global sales in excess of $150 million.
On the flip side, adapting your products and services to the special needs of an overseas market is also a proven route to international success.
- Delivery innovation – Finding an innovative way to distribute your product or service can be game-changing for your company’s performance in international markets. Digital technologies have made it easier than ever before to reach out to overseas customers directly, creating many new opportunities, particularly in the services sector.
- Business model innovation – New business models have the power to overturn established players and reshape entire industries. Businesses like Amazon, AirBnB, Google and Uber have revolutionised entire industries with powerful digital platforms that can be used to deliver a whole range of products while sidestepping traditional distribution channels. Yet some of the most effective business model innovations are refinements of existing strengths, rather than revolutionary new methods of doing business. If you already have a great business model, think about which aspects of it could be tweaked to reach new customers overseas.
- Marketing innovation – Making sure that your marketing appeals to customers in new markets is essential to international success. Although this takes some work, innovation in international marketing is easier and less expensive than ever before, thanks to digital technologies and social media.
- Financing innovation – Securing finance for international ventures is a key challenge for many small companies. But innovative finance methods are becoming increasingly popular and creating new opportunities for international businesses. For example, a growing number of startups are using crowd-funding: raising capital directly from the public, usually via websites and social media channels.