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.
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.
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 .
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