Unlike smaller countries that think globally from the beginning of a product’s life cycle, U.S companies typically consider global expansion only after achieving a high level of domestic success. In this scenario, a well marketed product or service already exists, but new markets are needed to continue upward profitability. Before starting the search for new markets, however, businesses must administer an honest self assessment with close examination of organizational commitment, budgetary constraints, human capital, international expertise, and global objectives. Given the assessment results, the precise time may not be right; but, being aware of the risks as well as the opportunities is important. In any case, businesses need to continually circle back to consider global sales outlets, opportunities and look for the right conditions. In today’s economic climate, no rock can be left unturned in search for new opportunities.
The million dollar question is the same: “What markets will generate the greatest success for my company?” There is no “one size fits all” solution. Only in-depth research and expert advice can attempt to answer this critical question. Too often, the lack of adequate market knowledge leads to failure. There are two categories of mandatory market research – secondary and primary. Secondary market research consists of information collected from published sources such as books, newspapers, market reports, studies and the internet. Primary market research fills in any gaps through direct personal contact with local industry experts, customers, trade commissioners and other local persons with the requisite knowledge to assist. It’s also important for businesses to tap into resources such as local trade associations, lawyers, experts in the field of global expansion, accountants and potential partners.
Selecting a Market
Choosing a target market(s) starts with knowing the product/service and what range of functionality it can offer the global community. Then, scan the markets that are suitable for that product. Another excellent starting point in evaluating potential countries/regions is gauging the U.S. government’s attitude toward them. For example, does the U.S. government maintain a line of credit with the country? Are there export controls? How is the country ranked internationally?
After a country/region is selected, it’s important to further identify their strengths and weaknesses, relative to your product and business. This process will prepare a business to anticipate potential surprises and be equipped with a carefully planned response instead of a hasty reaction when (not if) they occur.
Product Adaptation – “Know” the Target Audience
Various international audiences have different needs, unique preferences and diverse ways/nuances of conducting business. Consequently, a company needs the appropriate management expertise and human capital to plan and invest the time and resources necessary to familiarize itself them with the target market. This includes, but is not limited to, learning their culture, traditions, practices, philosophy, preferences and their way of conducting both life and business. Only with a thorough understanding of the target market can a business make wise and sustainable economic decisions about product adaptation and, ultimately, be certain that success is financially obtainable.
Each product, in every respect, needs to be tailored to suit the local tastes, customs and preferences. This includes packaging, branding, pricing and after-sale servicing. For example, consider color: In Asia, white is associated with death and funerals while in the western world it symbolizes weddings. Consider climate and terrain: A bike tire for rural China will look very different than one used on European roads. Consider home sizes: An appliance engineered for a U.S. kitchen must be redesigned for smaller home sizes in Japan. Consider practices: While Japan and the U.S. both use automatic laundry detergent, Japan only uses cold temperatures. Become thoroughly familiar with the local people; it may avert an expensive (and potentially embarrassing) mistake.
Market Entry: A “Dynamic” Actionable Plan
First, decide whether to enter the market alone or seek alliances with existing local businesses. Secondly, choose an appropriate distribution channel. To find the right partner, check their reputation. Due diligence is important as the perception of any foreign organization is filtered through whom they partner with locally: team up with the wrong partner and failure can strike before any business is conducted.
Strategic partnerships with other local companies or individuals with complementary skills and capabilities can shorten time to market and ultimately increase profitability. A local partner can also provide insight, contacts and expertise. A strategic alliance also provides more effective market access, resulting in higher foreign sales in less time. While the flip-side is less control, it forces cooperation with local business which can be a recipe for success.
Secondly, distribution is one of the most crucial decisions in a global expansion strategy. It represents a significant overhead cost and lies at the heart of the connection between what the market wants and what the market gets.
Ultimately, both decisions will be guided by the international business community, the type of market for the product (mass market or limited), available capital, sales volume and access to information technology. Overall, the mode of market entry is a dynamic process designed to flex with changing market conditions and emerging trends.
It’s time for U.S. businesses to take the next step internationally through the development of a winning expansion strategy – a practical approach that eliminates surprises and gets it right the first time.
Access to Talent – A Limiting Factor
One emerging trend to watch is a shrinking pool of talent – skilled labor, management, executives and board members. This promises to be a major obstacle for organizations looking to expand globally. In fact, several companies report “the only thing limiting growth abroad is that we cannot find enough people – engineers, sales staff, and marketing – who are bilingual, globally orientated and willing to live abroad.” The U.S., more than ever before, lacks professionals with the global experience necessary to bridge cross-border operations. With emerging markets around the world, the U.S. is now forced to compete for the talent it once took for granted.