Successful international expansion offers promising opportunities, but how to enter those markets is key to your success. In this series, we examined seven basic approaches to reaching new foreign customers, including ecommerce, distributors, strategic alliances, licensing, new foreign offices, joint ventures, and acquisitions.
In this final article in the series, we offer some tips for choosing the best approach.
We started the series by encouraging companies with global growth aspirations to do adequate preparation. This includes finding the right advisors and allocating sufficient resources to engage them effectively. Most importantly, this means taking a hard look at your company culture and your expectations.
Companies are often frustrated with their international growth efforts because they have unrealistic expectations. They spend little time getting to know prospective distributors and offer them little support, and then are surprised when these distributors don’t meet their aggressive sales targets.
Businesses believe they are ready to partner, but find that their alliances fail because they are fundamentally unwilling to relinquish control or embrace new ideas. Others expect their new foreign offices to be wildly profitable in two or three years (seldom the case), or are frustrated when their joint venture partners want to invest differently than they.
Take plenty of time to research, investigate, and prepare. Find a corporate mirror somewhere so that you’re brutally realistic about what your company and its culture expects and can provide.
Allocate Sufficient Resources
Another common reason many companies find global growth frustrating is they do not invest sufficiently to maximize their success. The potential new sales are attractive, no doubt, but companies that do not seek out and take adequate advice (and there are many sources that can be tapped) often run into problems.
The problems may simply be wasted time and effort on distributors who deliver poor results. All too often, however, the outcomes are more painful, such as lawsuits with foreign employees who are improperly terminated, licensing arrangements that end and create formidable competitors, or writing off huge capital investments in acquisitions that fail to meet financial and business expectations.
Companies that expand internationally need both sufficient resources and the right resources – otherwise, the chances of failure are high.
Crawl, Walk, Run
One piece of universal advice when it comes to international expansion: first crawl, then walk, then run, whenever possible. Of the seven ways to expand internationally, ecommerce and distributors arguably fall into the crawl category.
There’s a reason most companies start with ecommerce or distributors to reach new foreign customers. Both approaches allow them to test many potential markets without investing large amounts of capital. Beware, though – even with these beginner models—longer-term growth will likely require more investment than you initially think.
Strategic alliances and licensing arrangements might fall into the walk category. They require a willingness to invest the appropriate resources to find and support your partners and benefit from strong partnering skills. In the case of licensing, be sure not to skimp on the right legal advice.
Finally, new foreign offices, joint ventures, and acquisitions are appropriate for those who already know how to crawl and walk, and are ready to run. These are high-risk, high-reward strategies: there’s a lot at stake, and the likelihood of failure is high, even with adequate skills and resources.
So, for example, we recently advised a company that had limited exporting experience (a single Canadian distributor) to say no to the Turkish company that approached them with an exciting joint-venture proposal. We counseled—and the company ultimately agreed—they would be ill-prepared to be a good joint venture partner in Turkey, because they really did not have the resources or skills to investigate this company and negotiate an agreement with them, much less operationalize the relationship.
Successful international expansion is a journey, not a destination. Accept that your journey will take whatever time it takes.
Expanding internationally entails many details and risks. Careful planning, allocating sufficient resources, being realistic about expectations, and taking things slowly all help maximize your chances of success.
In our next series, we’ll look at some successes, failures, and lessons learned from companies on their international expansion journey.
Doris Nagel is CEO of Globalocity, and has over 25 years of hands-on global experience, focusing on strategic partnering, indirect sales channel management, and market entry. She’s a frequent speaker and author, and is currently working on a book on international distributor networks. Check out Globalocity’s free infographic summarizing the seven international expansion models discussed in this series.