Thursday, August 25, 2011

Lesson #81: Considerations for Global Expansion

For us internet entrepreneurs, we are smart enough to know that the internet is a global medium, and many of us are already serving international clientele through our U.S. websites.  But, when do you pull the trigger to formally enter a new international market?  Nobody should consider expanding internationally until they are standing on solid footing in their core domestic market (e.g., meaningful market share, financial position).  This is because expanding overseas is like starting the company all over again.  You can't simply take what you have and move it overseas.  You have to localize everything on a market by market basis.

When we talk about localization, we are talking about tailoring: (i) your core product; (ii) your name, packaging and marketing materials; (iii) your pricing and currency hedging strategies; (iv) your call center fulfillment processes; (v) your distribution center locations; and the list goes on and on from here.  The point being you need to fully grasp each country on a stand alone basis, and customize your services for their culture, religion, demographics, language, currency and ways they currently do business.

Here are a couple real life examples.  McDonald's needed to have an alternative to beef for their hamburgers in India, since cows are sacred in their religion and would never be eaten.  Chevrolet tried to sell their highly popular Nova car in Spain, and nobody bought them because Nova translated to "don't go" in Spanish, which is not good for a car.  Most of Africa consumes their media through their cell phones, as most of the population doesn't have computers or televisions.  Most teenagers in China need to access the internet in internet cafes, since their parents are ultra conservative and do not allow them to access the internet from home. You get the point.

I think each country is so specific, that you can't enter a market without a resident expert that knows the intricacies of the local market, and can help navigate through all these issues.  So, find your onstaff country manager or local consulting firm that is going to help you make the required localization decisions.

In terms of prioritization what specific countries to expand into, I think the market size for your product or services rules the day.  If France can lead to $1BN market potential, but Serbia can only lead to a $100MM market potential, it is pretty clear France is where you start.  So, you need to research the global market for your products and services on a country-by-country basis, and sort the list accordingly, from highest potential to lowest potential.  Then start at the top of the list and move down from there.

One wrinkle in this sorting is language.  Many American businesses just feel more comfortable expanding into Canada, England and Australia first (and in that order).  They start with Canada because it is geographically closer to the U.S., making it easier to manage.  Then comes England because it is the largest English speaking country in the world, next to the U.S.  And, then comes Australia, the next biggest English speaking market.  If it helps you feel more comfortable getting your international "sea legs" beneath you in English speaking markets, great, go for it.  But, I would personally follow the Dollars (or Rupees or Yuan), to see where the biggest market could be made.

In terms of determining the speed of your international roll out, I think there are many factors that drive speed: (i) how many potential competitors are breathing down your neck trying to target the same markets; (ii) what are your available cash resources; and (iii) how much do you want to try to bite off at once.  In more mature markets, it is OK to move slower, as the business hasn't changed for decades.  But, with a hot new technology with you leading the market in the first mover position, you want to keep your first mover position globally and further distance yourselves from your competitors before they have a chance to own a market before your do.

As for a case study here.  Groupon believed they were a first mover with a unique product and that they needed to move at light speed to expand their product in most major global markets overnight.  But, they had hundreds of millions of dollars in venture capital to work with, and could afford that call.  That said, some would argue that they expanded too fast, as in China, where they are having a tough time with operations and are already going through a round of layoffs there. 

And, on the topic of China, it has proved a very difficult market to crack for many other companies, as well.  We all remember Google's stand-off with the Chinese government, pushing for an open internet there (immediately followed by China shutting off Google).  And, China is the only major market that YouTube has not been able to gain a leading market share for internet video, far behind Youku and Todou in visitor traffic.  So, the key learning here: in certain international markets, like China and Japan, it really makes better sense to find a key, respected local company to work with as your in-country partner (instead of trying to tackle the problem alone).  Their culture will allow them to be much more accomodating to "their own", than "outsiders".

Which brings up the topic of international acquistions.  If you can find reputable international businesses with leading market share positions doing largely the same thing as yourself, I would suggest you acquire those overseas businesses, instead of trying to build a new business yourself in those markets.  The advantages of the acquisition route are: (i) you acquire country specific expertise with a team that firmly understands the local market; (ii) you have an overnight base of revenues and clients (no longer a startup); and (iii) you take a competitor out of the way in the process.  But, don't force the acquisition route.  If the team doesn't gel or you don't share a vision or you can't make the economics work, you'll have no choice but to go it alone with a lot of headwind in the process.

Global expansion is a very complicated topic with a different answer for every business and for every country, so make sure you seek good counsel from proven international expansion veterans that can assist you in avoiding the known pitfalls along the way.

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