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Three Tips for Successful International Expansion

Different strategies fro growing shipments of export cargo and import cargo in international trade.

Three Tips for Successful International Expansion

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.

Adequately Prepare

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.

Summary

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.

Acquisitions strategies fro companies with shipments of export cargo and import cargo in international trade.

Should You Consider Buying a Company to Expand Internationally?

Successful international expansion offers promising opportunities, but how to enter those markets is key to your success.

There are seven basic approaches to reaching new foreign customers, each offering advantages and disadvantages: ecommerce, distributors, strategic alliances, licensing, new foreign office, joint venture, and acquisition.

In this article, we look at buying another company as a path to new markets.

If you’re looking to grow sales in a new country quickly, you might consider an acquisition because you’re buying a business that is already established. You could buy a local company in a specific country, or you could acquire a larger company that already has local offices in one or more countries. More and more companies are choosing this route: according to KPMG, crossborder acquisitions now represent more than 35 percent of all acquisitions worldwide.

Advantages of acquisitions

Acquisitions have many advantages. You don’t need to share the sales growth with a partner or other third party, so you get an instant sales boost if you’re the acquirer. And there is no need to constantly negotiate with a local partner—you have full control over branding, product positioning, customer interactions, and growth strategies.

Successful acquisitions depend on finding the right target company, so good pre-purchase investigation (called due diligence) is essential, especially when evaluating businesses in countries you are not familiar with. You will need to look at all the normal financial, legal and business aspects, but must also be adept at assessing your acquisition target’s culture and business practices. And post-acquisition, your integration strategy is critical so that you maximize the combined value of the two companies.

Disadvantages of acquisitions

No doubt about it: acquisitions are a high-risk strategy. First, they are expensive: there is not only the purchase price to buy the company, but effective crossborder due diligence and contract negotiations are costly as well. And after the deal has closed, many companies underestimate the time and money required for effective integration.

The data varies, but in general, well over half of crossborder acquisitions fail to meet their financial and business objectives. It is challenging to balance the need for control and uniformity to streamline operations and minimize risk without destroying value in the company you acquired.

For example, which corporate policies (such as those dealing with ethics and financial controls) should be pushed through to the new organization, and how quickly? How quickly should IT/data integration occur? Significant talent is often lost during integration efforts, as existing management and employees may not be comfortable with the new corporate culture. Replacing lost talent is particularly difficult if you don’t yet understand the complexities of doing business locally. Acquisition integration is an art form, and many companies do not execute well domestically. Layering on crossborder complexities increases the degree of difficulty.

When evaluating an acquisition strategy, be sure to consider any local laws that restrict foreign ownership. While China and Saudi Arabia are two countries known for these laws, even the United States restricts foreign ownership of media, technology, and transportation companies.

When to consider a foreign acquisition

You should consider a foreign acquisition if: (1) you need quick access to a new foreign market with high potential, perhaps because of competitor activities, industry consolidation, or need for scale; (2) you already have seen success in a local market and are looking to grow even faster; (3) you have identified one or more high-potential companies open to acquisition; (4) you seek a high degree of control over the customer experience or your intellectual property; (5) you already have substantial international expansion experience; (6) your target company is located in a country where the currency differential allows you to buy at an attractive price; and (7) perhaps most importantly, you have a past track record of business integration success, and are willing to devote the necessary capital and resources to extend that success on a crossborder basis.

Now that we’ve looked at each of the seven major models, we’ll look how different companies have used them to successfully reach new international customers.

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.

Joint ventures are one way to expand shipments of export cargo and import cargo in international trade.

The Pros and Cons of International Joint Ventures

Successful international expansion offers promising opportunities, but how to enter those markets is key to your success.

There are seven basic approaches to reaching new foreign customers, each offering advantages and disadvantages:  ecommerce, distributors, strategic alliances, licensing, new foreign office, joint venture, and acquisition.

In this article, we look at forming a joint venture to expand into new markets.

What’s a Joint Venture (JV)?

Although JV’s can be formed for many reasons and take various forms, a common international structure is where you agree with a local company to share legal ownership and contribute resources to pursue business opportunities together. You could buy into the local company, or you might agree to create a brand-new, shared company – either way, there is joint legal ownership and guidance.

JV’s offer many benefits.  Chosen wisely, your partner gives you an immediate base of local customers, distribution capabilities to reach them, and experienced and knowledgeable local employees.

You leverage the partner’s brand to gain market credibility and compete on even footing with local competitors.  Your partner might also provide new manufacturing capabilities or products. In certain markets, a JV may be the only permissible or practical way to enter.

This model is less risky than outright acquisition—the capital investment is typically half or less.  JVs offer flexibility if local conditions change, or if the market or relationship proves unattractive. Typically, your JV interest can be sold back to the local partner, costing less than closing a local office or writing off an acquisition. Conversely, the market may prove to be so attractive that more investment makes sense. Many JVs provide for outright acquisition after a test period, which also lowers risk.

Companies considering JVs should consider many things, such as:

Strategy/objectives:  How much control do you want, and how should it be exercised?  What programs and processes must your partner have in place? How much oversight can you realistically provide? Will the J.V. have its own employees or simply “loaned” to the J.V.? What functions are essential that you provide, and how will you do that? Is it important for you to book the sales from the J.V.? On what operational decisions do you want a say, or the final say?

Partner fit:  How well does your partner’s business culture match yours?  What is their reputation locally? How risk-averse or risk-taking is your partner? What is their willingness to invest?

Operational clarity:  What investments will be made, and by whom? Who will the employees report to? How will success be measured, and rewards shared?  How will disputes and disagreements be resolved?

Disadvantages of Joint Ventures

Joint ventures are fragile. Clashes in corporate culture and disputes about control and operational decisions are common.  For example, which financial, ethics, or operational policies should the new joint venture follow?  If the parties disagree about strategies and investment, which has the ultimate say-so?

Finding balance is often difficult. Too little oversight can mean lack of direction, or damage to your company’s brand or reputation.  Too much oversight or control can result in frustration, and value destruction rather than creation.

Because of these challenges, JVs are often short-lived, and thus, providing for the end is therefore also important.  The technology and know-how shared with your local partner can result in a strong competitor when the JV dissolves, particularly in countries with weak intellectual property protection.

Good legal counsel is needed to draft effective crossborder JV agreements.  Because there are many complex employment, tax issues, financial, and compliance issues to be considered – as well as preparing for possible termination or acquisition — they can be costly to set up.

A joint venture could make sense if: (1) you’ve identified a high potential marketplace and a good prospect partner, or local markets require one; (2) you have substantial international expansion experience, as J.V.’s are seldom a good option for beginners; (3) you’re able to partner effectively, while balancing risk vs. control; (4) you can afford to provide the necessary capital and internal and external resources; (5) you’re seeking a lower-risk, albeit slower, way to make local acquisitions.

Next, we’ll look at acquisitions to reach new international customers.

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.

Opening a foreign office is one way to generate shipments of export cargo and import cargo in international trade.

Successful International Expansion: Should You Set Up a New Local Office?

Successful international expansion offers promising opportunities but requires preparation and planning.  How to enter those markets is key to your success.

There are seven basic approaches to reaching new foreign customers, each offering advantages and disadvantages: ecommerce, distributors, strategic alliances, licensing, new foreign office, joint venture, and acquisition.

In this article, we look at setting up your own foreign office.

Many companies set up an office in key countries to sell to customers locally (sometimes called a “greenfield site,” since you are starting from the ground up).  To do this, you generally need to establish a local legal company, have an office of some sort, and some local “feet on the street.”

Greenfield offices provide maximum control

You have complete freedom to decide how to structure the office, who to hire, and how your products will be marketed, sold, and serviced. You build direct relationships with local customers, and get immediate, unfiltered market feedback. Every dollar invested builds your brand, and you recognize 100 percent of the sales revenue.  As a local company, you may get preference in bids and tenders, or experience better, faster product acceptance.

There are often economical options to get started.  Your can often start with a Regis-style office with people mostly working from home. There are also companies that will payroll your first employees or provide back-office support services, allowing you to create a virtual office.  The right logistics providers can also help with many operational aspects.

Greenfield site disadvantages

This strategy is high-risk because there is no partner with whom to risk-share or pool resources.  Unanticipated complexities are common, even with in-depth investigation and planning. It may take longer, or cost more than originally planned, both to get started and to recoup your investment. It is difficult to truly understand how to be successful in a new foreign market before diving in.

The initial costs with setting up a new foreign office are many. Finding the right people is pivotal to your success and speed to market, so you may need to pay a premium to hire away from a competitor or send over someone from the home office temporarily. Employment and benefit laws are often complicated and costly, and certainly will differ from those in your home country.

A high level of parent company commitment is needed to properly support the new office. This model provides maximum control, but that is only effective if you can clearly and consistently articulate the decisions you want made locally vs. headquarters. Most companies underestimate the cultural differences, requiring frequent and effective communication. Failure to do this often results in disappointing results, or worse — local business practices can get parent companies in trouble.

You will need to find and continually manage a good network of outsourced providers to provide functional support.  These might include finance (accounting standards differ by country), payroll, tax, IT, human resources, warehousing/supply chain, and customer service. You will want clear operational guidelines in place across all these functions. You may need to even add experienced staff at headquarters to support these activities.

Expenses can mount quickly, and since your customer base is typically small or non-existent, local offices take time – sometimes years — to become profitable. Your new outpost is essentially a foreign startup company, not a branch of the home office, and needs to be supported and managed accordingly.

Does a new foreign office make sense for you?

You should consider setting up your own local office if you (a) desire full control over all the decisions; (b) choose markets with excellent long-term growth potential; (c) have carefully assessed all the costs and likely payback, and (d) are willing and able to fully support the new office with both internal and external resources; and (e) can afford to wait (sometimes years) for long-term growth and return on your investment.

Setting up a new foreign office—when done carefully—can provide opportunities for substantial long-term growth.  And while there’s a very steep learning curve, your processes can be replicated in other countries.

Next, we’ll look at joint ventures to reach new international customers.

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.

Licesning is one way to achieve international expansion and generate more shipments of export cargo and import cargo in international trade.

Successful International Expansion Through Licensing

Successful international expansion offers promising opportunities but requires preparation and planning.  How to enter those markets is key to your success.

There are seven basic approaches to reaching new foreign customers, each offering advantages and disadvantages: ecommerce, distributors, strategic alliances, licensing, new foreign office, joint venture, and acquisition.

In this article, we look at licensing.

What Is Licensing? 

A license is a contractual agreement to allow another company to use your intellectual property (IP), such as patents, brands, designs, or know-how, in exchange for a payment. Licenses may be exclusive, exclusive for certain territories or uses, or non-exclusive.

Done wisely, the licensee reduces risk—they’ve assessed the market and believe they can sell your products. You leverage that experience, giving you product and brand exposure that could be slow, expensive, and risky on your own.  Capital investment for the licensor is low:  typically no new manufacturing plant or sales force is needed.  And you receive upfront cash and/or ongoing license payments that increase the return on your IP investment.

While licensing can take many forms, two common models include 1) private label manufacturing and 2) franchising.

Private Labeling

In this model, you might: a) share your technology (including molds, source code, etc.) with a local company to manufacture your product, either with their branding or yours, or b) provide your products or product components to a local company for them to market, again either with your branding or theirs.

This arrangement could be with a local partner that has sufficient brand recognition of its own.  Or it could be with a larger, multinational company that wants your products or components as part of their portfolio in certain foreign markets.

With either model, your products are reaching more new markets with little direct capital investment and marketing/sales risk, but with substantial risks to the value of your IP unless planned carefully with highly-reputable licenses.

Franchising

Franchising is highly detailed form of licensing.  Franchisees use your business model and name to operate under tight guidelines as your alter ego.

Many McDonalds are franchises owned by local businesses. They pay McDonalds franchise fees, and in turn receive how-to operating templates and use of the McDonalds brand.  Operating standards are carefully monitored, and there is limited ability to modify the franchise.

Franchising laws are particularly complicated, and require your processes to be carefully detailed and organized into a blueprint others can easily follow, and you need to be prepared to provide ongoing marketing support.

Licensing Disadvantages

Crossborder licensing agreements have many complicated legal and tax issues. There are the IP laws to consider in every country where you license.  You will need pricey IP lawyers with crossborder licensing experience to help organize your IP and processes, file for foreign protection where appropriate, and negotiate complex agreements.  Don’t skimp on good advice –your company’s intellectual property is valuable, and it’s not worth risking it to save a few dollars in legal fees.

Your license agreement should specify how your IP can be used, but ultimately, you have limited control over your licensee’s local business operations.  You’ll need to spell out in detail how and where it’s produced, and the consequences for no or low production so you can assess other options. Poor quality or service can degrade your brand unless you choose licensees carefully and invest resources in “policing” the license, and build in auditing rights to verify payment accuracy.

Licensing increases the chances of your IP being shared with others, and theft of your IP could be very damaging.  Certainly, any legal disputes will be expensive and difficult.

Does Licensing Make Sense For You?

You should consider licensing as a mode of international expansion if you (a) have IP that is valuable and can be protected; (b) are willing to invest in good legal counsel; (c) choose your licensees carefully, and (d) are willing to invest in ongoing oversight.

When done thoughtfully licensing can provide opportunities for substantial long-term growth.  The initial investment can be large, but once made, can often be replicated in other markets.

Next, we’ll look at setting up a foreign office to reach new international customers.

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.

Expanding international markets fro shipments of export cargo and import cargo in international trade.

Successful International Expansion

International expansion offers new markets for your products. How to enter those markets is one key to your success.

There are seven basic approaches to reaching new foreign customers, each offering advantages and disadvantages: ecommerce; distributors; strategic alliances; licensing; new foreign office; joint venture; and acquisition. In this article, we look at using strategic alliances.

What’s a Strategic Alliance?

An alliance is a contract between two companies to cooperate to achieve a common purpose. Alliance partners are not competitors, but have similar or complimentary products or services, and/or operate in different geographies. The partners share costs and expertise, and leverage each other’s customer bases, thus minimizing investment. Partners can also help position your products to have more local appeal.

There are many types of alliances, but two common ones for international expansion are: (1) sales agents (or manufacturer’s reps), and (2) referral partners.

Sales agents. In this model, you partner with a local individual or company (the sales agent) to find customers and close sales. You sell directly to those customers and pay the agent a commission based on the sales they generate.

To be successful, your agents must have the right customer base, understand your products, and be sufficiently motivated. Typically, this works when your products naturally complement those the agent is already promoting to his/her customers. Agents generally don’t get paid until sales are made, so they won’t invest much time unless they are confident they can sell your products.

It can be challenging to find the right agent. They are the face of your brand locally, and their business practices may be different from yours. Suppliers must fully support the agent much as they would an employee. They must be prepared to sell directly to foreign customers, which requires excellent communication and logistics, knowledge of taxes and duties, local credit, currency exchange, and payment terms (or have financial partners to help), and the ability to provide customer service in different countries and languages.

Referral partners. In this model, you forward sales leads in countries you cannot serve to a partner who can handle them, in exchange for an agreed referral fee. This allows you to meet your customers’ international needs when they otherwise might go elsewhere, and to collect some revenue on the sales. Even better are mutually beneficial alliances where your partner similarly refers customers to you when there are leads in your markets.

These relationships can be implemented quickly. They often involve co-branding, so that both companies get more market recognition. The best ones pool expertise and talent, and foster creative solutions and new offerings.

A classic example is United Airlines’ Star Alliance. Each alliance member remains a separate company, but through agreement can serve a larger, combined base of customers more effectively than any operating individually.

However, many alliances fail to deliver as expected. They are challenging to execute domestically, and the degree of difficulty multiplies in cross-border settings.

Successful alliances depend on finding like-minded partners, necessitating careful planning and due diligence, as well as excellent partnering skills. Disconnects in expectations and company cultures are common.

Control may be limited. Your reputation and brand are tied to your partner, so failing to consider the business practices of a potential partner can be costly, if not disastrous. Margins are often small, and therefore, often a disincentive to invest in the relationship or have patience for long-term results, and since little is invested, it’s easy to disengage. While generally easy to exit, termination can produce a new competitor.

Are Strategic Alliances Right for You?

Local agents can make sense if you have very expensive or custom-made products, or your items have a very short shelf life, since distributors may not find them cost-effective to purchase and support.

Consider referral partners if you find a like-minded company in different geographies than your company.

In summary, alliances offer relatively low investment and quick access to new customers. Success requires finding the right partners, excellent partnering skills, significant time investments, and a longer-term dedication to the strategy to achieve best results.

In the next article, we’ll look at licensing as a way to reach new international customers.

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.

Using international distributors to sell shipments of export cargo and import cargo in international trade.

Are International Distributors Right For You?

International expansion offers new markets for your products. How to enter those markets is one key to your success.

There are seven basic approaches to reaching new foreign customers, each offering advantages and disadvantages: ecommerce; distributors; strategic alliances; licensing; new foreign office; joint venture; and acquisition In this article, we look at distributors, one of the simplest and fastest ways to find new international customers.

What’s a Distributor?

In this model, suppliers sell products to another company (the distributor) who is not the end user, but instead re-sells the products directly or indirectly to its customers located in foreign countries.

This model has several variations, but in each, the distributor purchases the product from the supplier and sets the price at which it is resold. The difference between your selling price to them and the end price to the customer is the distributor’s margin.

That margin covers the distributor’s many costs – carrying inventory, local sales, marketing and customer service, and customer delivery. They must replicate many of the functions the supplier provides for its local customers – thus, the distributor’s margin can be viewed as internal costs avoided by the supplier, rather than a cost.

The right distributors already have an existing local customer base which they can quickly tap into. They know their local market well, and are a low-cost source of market information. They can help strategize about product pricing and positioning, customize local marketing and sort out any local requirements.

No expensive brick and mortar investment is required, and this strategy can be implemented relatively quickly. It can be scaled to access many different foreign markets. While investment is needed by both supplier and distributor to develop the local market, this method can produce significant longer-term sales growth.

Distributor Disadvantages

Many companies underestimate the commitment and resources needed to effectively find, support, and manage distributors. Finding distributors is easy. Finding distributors to truly invest in growing your business, and fully training and supporting them is much more difficult.

Maximizing local sales may require product/marketing changes, and if you’re unwilling to do this, the distributor may lose interest in your products. Changing distributors and/or exiting markets can be time and resource-intensive.

Effectively managing third-party companies can be challenging without the required skills and sufficient focus. A common risk is over-extending and trying to manage too manage countries. Another is slow or non-payment. While insisting on cash in advance is appealing, this can create cash-flow issues for your distributor if they are not paid promptly by their customers. Investment in financing tools may be needed to address this.

The biggest disadvantage: distributors have the relationships with the customers, often limiting supplier access to users and unfiltered market feedback. Suppliers often disagree with their distributors about the amount and types of local investment needed, but cannot directly control how their distributors spend their time and resources.

Suppliers need to consider distributor due diligence, export/import compliance, and often-complicated international returns, and corruption risks, as the distributors’ business practices are often different than at home.

Are Distributors Right For Me?

You should consider using a distributor if you lack resources or experience to make larger investments, are somewhat patient for growth as distributors get up to speed and develop their local market for your products, or would like to selectively test demand in a promising market.

The model also is appropriate for companies whose products are easy to store and ship, and are priced so that distributors can purchase in quantity without having to lease or finance. In addition, companies should consider distributors if their products require some minor customization, or need servicing and support, if the partner already has these skills or can be trained, or if the supplier can provide this directly.

In summary, finding new customers using distributors is an attractive strategy for many companies. It requires relatively low investment, and offers potentially quick access to foreign customers. However, control over the local customer experience is limited, and it requires more considerably more investment than e-commerce and requires dedication and specific skills to achieve best results.

Next, we’ll look at strategic alliances as another way to reach new international customers.

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.

Expanding into international markets with shipments of export cargo and import cargo in international trade.

Is Ecommerce the Right International Expansion Model For You?

There are seven basic structures for reaching new foreign customers: ecommerce; distributors; strategic alliances; licensing; new foreign office; joint venture; acquisition.

Each offers advantages and disadvantages. In this article, we look at ecommerce. It’s growing rapidly: global ecommerce sales are on track to reach $4.058 trillion by 2020.

In this model, you sell your products directly to foreign customers by allowing them to order and pay online. ecommerce is typically done in one of two ways: setting up a “storefront” on an existing platform (think Amazon or Alibaba) to sell, or setting up a company website where foreign customers can buy.

New customers come to you, without the overhead and complications of a local presence. Sales may come quickly, and you get low-cost market feedback on product acceptance and pricing. Customers can not only learn more about your products, but also immediately purchase them, avoiding currency exchange and credit issues and generating great cashflow.

Using An Existing Platform

You can set up on one or more existing platforms in a matter of hours. They have a large built-in base of customers, so your products get wide exposure. Some platforms even arrange international shipping and customs paperwork.

Research carefully, though, as services, fees, and flexibility among platforms vary widely. You may still be responsible for things like export compliance, duties, and VAT. Customer service demands must be considered, and shipping to an international customer’s doorstep and returns can be complicated.

Setting Up Your Own Site

Companies can also choose to set up their own website store. If you already sell to domestic customers this way, it could be the more attractive option. You’ll need strong IT help to set everything up and integrate it with your company’s various internal functions. You’ll be responsible for compliance, logistics, customer service, and returns. You may also need to investment in search engine optimization and social media to build demand for your offerings.

Many companies find the initial investment, along with ongoing support and maintenance, are far greater than originally anticipated. This is particularly if they are setting up a website store for the first time.

Ecommerce Limitations

Ecommerce offers many advantages, but it’s not for everyone. First, transitioning away from this model to other approaches can be tricky. Companies with ecommerce success often want to appoint a local distributor in a particularly good market. However, finding good distributors may be difficult unless 1) they can bundle your product with services/other products, or 2) you can “turn off” customers in specific countries. Distributors generally have little incentive to invest and grow the local market if customers can buy directly from you, often at a lower price. With platforms like Amazon, you generally can’t choose specific countries. Thus, you may need to completely remove your products, forgoing sales everywhere else—a difficult decision.

Some companies resist giving up the distributor margin because they’re accustomed to collecting the entire internet sale profit. Ecommerce is also a difficult method of building repeat sales through brand recognition and loyalty because the customer relationship is limited.

Second, pricing isn’t flexible, so you’ll miss sales opportunities in places and lose margin in others. And in general, the internet pushes price down, potentially impacting your overall profit margins. Finally, it’s difficult to fully penetrate foreign markets. You must wait for customers to find you. Unless your product information is in the local language and positioned for that market, many customers will never find you. True localization adds substantial costs and complexity—even large companies only do it in select markets.

Is Ecommerce Right For Me?

Your company should consider ecommerce if you: lack resources or experience to support other approaches; prefer short-term sales to long-term growth; want to quickly test international demand; and sell products that have clear features and benefits and require little customization, are easy to store and ship, require no installation or after-market service, and are lower-priced so that can be paid for upfront by buyers and are easily returned (or written off).

Ecommerce is an attractive strategy for many companies. It requires relatively low investment, and offers fast, low-risk access to foreign customers. However, long-term growth potential and control over the customer experience are generally limited. And it’s a challenging model when services or customization are a key part of your offering.

Next up, we’ll look at using distributors as another way to reach new international customers.

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 .

Expanding to international markets for more shipments of export cargo and import cargo in international trade.

Maximize Your International Sales with the Right Expansion Model

Once you’ve decided to enter a new foreign market, you’ll need to choose the best way or ways to tap into customers in that market.

There are seven basic approaches to do this: (1) ecommerce; (2) distributors; (3) referral partners/strategic alliances; (4) licensing; (5) new sales office; (6) joint ventures; and (7) acquisitions.

Each of these models offer tradeoffs. The best choice depends on your market, your expectations, and company objectives.

In selecting the best entry model, companies should ask themselves the following five key questions:

Investment. How much are we willing to commit? Companies must realistically assess not only the capital outlay, but the internal resources and skillsets that will be needed. Companies with little international expansion experience are often unrealistic about the amount of investment needed.

Generally, the fewer the resources (i.e., money, time, and expertise) the company wants (or can afford) to devote, the better it is for the company to enter the foreign market on a contractual basis—through e-commerce, distributors, alliances, or licensing.

Control. How much control do we want? Control comes in many forms. It may include control over branding and the customer experience, which will vary depending on the expansion approach chosen. For example, a company that establishes its own local subsidiary in a country has control over advertising campaigns, how inventory is stocked and managed, and how its products are positioned in the local market. A business that uses a local distributor must depend on that partner to manage these things well.

Control can also come in the form of knowing which people are hired, whether and how local laws are followed, including how financial transactions are booked, and whether local corruption is tolerated.

The more control a company wants, the establishing their own local office or buying a local company is likely to be.

Risk. How much risk are we comfortable with? Like control, risk in international markets comes in many forms. There are financial risks – the likelihood of return on investment, foreign exchange risks, and credit risks. There are also opportunity costs, because you have alternative ways to invest your money and time.

There are also market risks when entering a country where the ways of doing business are not fully understood. In some cases, there are significant political risks, where the overall business climate could change very quickly.

Ease of exit is also a risk factor to consider. For example, it is relatively easy to stop selling via e-commerce on short notice if a market becomes unprofitable or too difficult to manage. In contrast, winding up a joint venture or local subsidiary can be expensive and take months.

Speed to Market. How quickly do we want to see significant sales in this market? Speed to market is a key consideration for many companies who are under pressure to show sales and sales growth after investing significant resources. The faster that company can start making sales, the more quickly their investment can be recouped. Speed to market, however, must not only be balanced against the initial investment, but also against the ongoing support costs needed.

Potential for Growth. What time horizon do we care about? Generally, international markets—if chosen wisely—represent excellent long-term growth potential. Some models, as will be shown below, require low investment, but long-term growth potential is often limited. However, some companies simply need or want short-term sales growth and are less concerned about the longer term.

The key in selecting the best international expansion model is to be realistic and honest about each of these questions, and to rank order the importance of each. Companies new to global expansion naïvely think they will invest only a little and take few risks, yet still get fast, sustainable growth. This is unlikely, so balance these tradeoffs to select the approach that is most likely to meet your specific needs.

In the next article, we’ll look at the ecommerce model, which is rapidly growing in popularity as a model for tapping into new foreign customers.

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 7 international expansion models discussed in this series .

Expanding into new international markets with shipments of export cargo and import cargo in international trade.

Maximize International Sales with the Right Expansion Model

International expansion offers new markets for your products. Much is written about how to choose the best markets, but how to enter those markets is also key to your success.

In this series, we’ll look at seven basic structures, or models, for reaching new foreign customers: e-commerce, distributors, strategic alliances, licensing/franchising, new foreign office, joint venture, and acquisition.

Each has advantages and disadvantages, depending on the country, industry vertical, company culture, and other factors.

To help companies choose the best one that fits their situation and business objectives, we’ll look at how each model works and key considerations. We’ll also share situations where each model might (or might not) be a good fit.

First Comes Thought and Planning

The importance of research and preparation cannot be overstated. Even the best-planned market entry strategies entail risks and investments, and it is not possible to eliminate all the unknown risks.

Businesses should consider many factors when evaluating international expansion. These fall into two basic categories: (1) market considerations and (2) company considerations.

Market Considerations

Companies expanding overseas usually discover they have many misconceptions about a new market. They are surprised at how many things “are not like home.” It’s critical to fully investigate all aspects of any new local market. Even small details can matter.

The multi-billion-dollar failure of Target in Canada, for example, was the result of several small market misreads. They stocked shelves with products that sold well in the US, like camouflage clothing and milk in plastic cartons, that simply did not appeal to Canadian customers.

For others, the issues seldom make the news, but can be equally painful. A US manufacturer lost months and a great potential distributor in Japan when they prematurely presented them with a written contract. The distributor felt they had not yet developed a sufficient relationship and broke off negotiations.

Tap into every source of information that you can access at a reasonable price, including the internet, trade associations, government agencies, and peers. Many companies pay for market research, but then find their mistakes often cost even more. Whatever your approach, take plenty of time to investigate, ask questions, and assess.

Company Considerations

Businesses expanding internationally need to make sufficient investments to be sure their efforts are rewarded. They must have the mindset, skillsets, bandwidth, processes, and tools to support their growth model and expectations. Businesses that are not seeing international success are usually lacking in one or more of these.

Businesses often underinvest in their international expansion efforts. They tackle too many countries at once, or their team doesn’t have the skills or processes to be fully effective, and so the company loses sales when new customers are frustrated with the lack of support.

Or the company gets frustrated. A PVC product manufacturer was excited to begin exporting to the U.K. He showed up at a trade show there, handed out product samples and brochures, spoke over the phone a couple of times with one prospective distributor, but got no sales. Based on this, he announced he was “done” trying to export.

Mindset is also important. A colleague informally surveyed 100 companies, asking them how quickly they expected their international expansion investments to pay off. The majority responded: “in less than 1 year,” which is seldom realistic.

Companies — even large ones– sometimes forget that they are essentially a start-up operation outside their home market. And like any other start-ups, there are unexpected bumps in the journey. Growth is seldom steady and predictable. Experienced consultants can be a good investment to help set reasonable expectations and identify mindset challenges. Companies are often so close to the situation that they cannot assess their situation realistically without outside facilitation.

After carefully deciding to seek new foreign customers, one of the next important decisions is HOW to enter that market. In the next article in this series, we’ll look more at these important company considerations, and will discuss a framework for evaluating and comparing ways to enter a new market.

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 7 international expansion models discussed in this series .