"The life of a typical entrant is nasty, brutish, and short.” - Paul Geroski, London Business School
There’s nothing that quickens the pulse of a growing enterprise-level business than expanding its footprint beyond its native borders. “Taking a company international,” as it is often less formally referred to, is no small task. What works well at home might be less than perfect abroad. It is also difficult to manage from a distance, so successfully going international takes some planning. CEOs need to keep target markets, objectives, entry mode, organization and execution in mind.
It’s little wonder that many companies toil mightily to realize a decent return from a global shift. According to a Harvard Business Review study of 20,000 companies in 30 countries, it can take almost a decade to realize a positive rate of return on an international investment.
To best prepare for expanding its horizons, a company must have a strategic rationale for going international. Good reasons can include going after growth opportunities, or following a key customer abroad. Perhaps the home market is getting saturated, or competition is heating up and pushing prices down.
There are also some very common -- but usually bad reasons -- for going international. One significant downer: Pursuing unsolicited proposals from would-be distributors or agents. Following this folly often carries the risk of not going for the most attractive export market, and disappointment when the foreign partner does not deliver the promised sales.
Once a decision is made to go overseas, it is important to understand company strengths and vulnerabilities and to be very level-headed about what characteristics are needed for success. This is not the time for wishful thinking!
Instead, do a fair amount of homework to identify the target market(s) and the most suitable products for your overseas endeavors; develop clear objectives and goals, taking into account how sophisticated the target market is; and map out how production and supply chain will be organized. Finally, but not insignificantly, it is crucial to really understand the political, economic and socio-cultural factors of the target country.
Miscues at any of these stages can lead to big mistakes, including misguided assumptions around terms, payments, warranties, court system, liability, agency agreements, et cetera. A good lawyer or international accounting firm can be very helpful. For example EY, PwC and Deloitte all have “doing business in country X” -type guides that are concise and have good information.
Probably the most key decision has to do with entry mode. The company can decide to export products from factories at home, or sell licenses for manufacturing abroad. Both of these approaches are less complicated, and the effects of failure are less severe.
An investment like an equity joint venture or an acquisition represents a higher stakes foreign-market entry. However, done right, this can allow you to, in effect, “buy” excellent market access and good knowledge of the local business environment. Also, some companies choose to enter new markets through a direct investment in plant facilities. This allows efficiency gains, as production lines can be copied from other plants and staff transferred to run the operation.
Equity investments carry bigger risks than exporting products and take longer to give results -- but can also be very lucrative.
The next step is to design an appropriate organizational structure around your chosen entry mode. At this stage, It is important to assess special problems and approaches to managing, and to make sure leaders have good intercultural understanding (or are local hires).
Needless to say, language skills are paramount – speaking in the native tongue shows commitment, creates respect, and opens doors. There is a joke in expat circles that goes something like this: “What do you call somebody who speaks three languages? Trilingual. What about two languages? Bilingual. What about somebody who speaks only one language? American.”
English being the business lingua franca is good on one level, but it also puts Americans at an unknown disadvantage – though counterparts may speak English fluently, this is not an indicator that they share our thought processes or business culture.
Specific marketing plans must be developed for each geography. The same goes for necessary support systems like customer service, technical service, or handling of warranties. It is not enough to just translate manuals and collateral; they also have to be adapted to local laws and customs.
Going through rigorous planning steps like above will greatly increase the likelihood of success – but you will quickly learn, as I have, that running an international business can very time consuming. In a typical U.S. manufacturing company, exports may account for 10 to 20 percent of sales, but require 60 to 70 percent of top management attention.
Failure can have many reasons: Executives may have over-estimated market size, or they believe company skills are more relevant than they really are, or they bump up against strong competitor responses.
A good approach is to learn from others’ experiences. What business models have been successful? What about learning curves or competitor abilities?
Among those who have successfully “gone international,” there is general agreement about the most important factors for success:
For a smaller company, it can make a lot of sense to undertake internationalization gradually. Starting with exporting, a company can then find a local distributor and grow a market presence. When sales reaches critical mass, a decision can be made to license or manufacture locally to improve the cost situation. There may even be opportunity for re-exporting products back to the home market, if manufacturing costs are low.
Feel free to reach out for a conversation if you are thinking about going international.