You are on page 1of 4

Reasons

Reason #1: Expansion for the wrong purpose


The first mistake companies make is in choosing the wrong reason to expand internationally.
Going abroad simply because the domestic market has little or no growth is a bad reason,
according to Aneel Karnani, a professor of corporate strategy and international business at
the University of Michigan: Too many times, that kind of thinking results in adding a lot of
new costs that dont deliver new value, he said.
According to a survey of 3,700 US senior executives sponsored by SAP, one third said they
planned to expand their customer base by exploring new international markets. Specific
targets for this expansion are Brazil, China, India and Russia. As seen below, the allure is
strong, but must be approached with caution.
Advice: Play the long game and gradually erode your rivals market
share
Snyder recommends adopting a slow-build approach and gradually eroding rivals market
share before taking over the competition. This could take years even decades. Understand
that things may take longer abroad. He advises companies to allocate the level of investment,
strategy, adaptation and time needed to be successful. He says,Plan for a long- term
investment in the region, not a short-term win. Be patient!
The urgency of expansion plans is driven by the perennial business driver to reap the first-
mover advantage. This desire to be first in a market can blind otherwise cautious executives
to the pitfalls and missteps that line the path of a global business strategy.
Dont rush in. Impatience causes entrepreneurs to do some stupid things that can jeopardize
key relationships, says Joseph Monti, a partner at management consulting firm Grant
Thornton LLP in Los Angeles. It takes time to establish your company in an international
market and form lasting business relationships. Although Americans prefer efficiency, much
of the rest of the world moves at a slower pace. It all comes down to understanding cultural
idiosyncrasies and realizing they play a vital role in all international relationships. Consider
some of the most common mistakes:

Reason #2: False assumptions about the nature of the international market
Companies who have products and services that are successful in the US often assume that
the appeal in international markets will be just as great and that this under-served market
will be a bonanza requiring a small investment in sales and marketing.
The painful lesson that many companies learn at great cost is that their product or service
doesnt fit the market, or even more commonly, that the pricing is way out of line with what
customers are willing to pay. Adequate and objective market research can help avoid this
pitfall.
Advice: Consider strategic acquisition
An alternative approach that can achieve the same goal is a strategic acquisition of a
company already established and operating in that market. This approach allows the
leveraging of many advantages such as local contacts, existing business relationships, and
legal requirements.
Yet another approach is to allow your customers global expansion to pull you into the
international market. The risk is reduced because you will have a base of demand in advance
of your investment in support and delivery infrastructure. Its a pay-as-you-go model.
However, all of these considerations may be premature. Joseph Monti advises, Identifying
the primary characteristic that distinguishes your product or service from the competition is
the smart entrepreneurs first move. Is it a brand name? Monti asks. Does it establish critical
mass? Does it provide access to existing distribution channels? Is it proprietary technology?
Unless you know these answers, youre clearly not ready to take on any market outside your
own, he maintains.
Reason #3: Underestimating the operating costs in an international market
Failure to account for all of the costs of operating in the new market can cripple an otherwise
successful marketing and sales effort. Local expenses may include higher taxes such as a
value-added tax (VAT), additional fees and assessments that are uncharacteristic of business
overhead in the US. Many times these unaccounted-for expenses deplete the anticipated
profit margins based on domestic sales and marketing models.
It is critical to engage the services of knowledgeable and experienced people in the local
market who can help you understand the real cost of doing business locally and steer you
past dangerous miscalculations about the true financial opportunity available.
Advice: have a local general manager
Dont entrust the management of an international operation solely to expatriates. In my
opinion, its not the best strategy, says Monti. While they understand the company and the
product, they dont understand the local practices and culture and dont have the
relationships. The best strategy is to have a local general manager with a support staff that
could be seeded with expatriates.
In order to succeed in a local market, companies and products eventually must be accepted
as their own. With the exception of products that thrive on being imported or whose brand is
tied to an allure of the originating country, companies should strive toward acceptance as a
local brand.
Success in this effort depends upon a variety of localisation efforts. Assuming that
marketing materials and collateral simply need to be translated into the local language is a
serious mistake. Marketing and advertising campaigns are most successful if they originate in
the local market and reflect local values, culture, language and marketing nuances that may
not be understood by domestic marketing resources.
Reason #4: Deciding to become a global company too late
Companies are complex structures not unlike houses. The foundation is laid and the
supporting infrastructure is built based on the expected character and intended use of the
house. Additions to the house expand the square footage but are unlikely to change the
character of the house. They are easily identified as additions to something existing.
Companies are much the same way. A purpose-built global company has an infrastructure
that more easily supports such operations. Companies with a bolt-on approach to global
expansion will have a more difficult time appearing and behaving like a global company. That
being said, the earlier in their growth process a company establishes the strategic direction of
a global company, the earlier they can take on the appearance and behavior of a company
positioned and organised to support global operations.
Having this international expansion vision early sets the management expectation early and
cascades through the organization from the start. This vision impacts organisation, staffing
and business strategies from the very beginning which is far more advantageous than having
to retool the organization and dislodge entrenched interests in the status quo.
Advice: Have a globalisation strategy right from the start
lanning early is about being committed to grow internationally from the start. This means
understanding the implications of decisions made on future international business early.
Having that thought process in planning growth early is a vital part of building a platform for
international success in the future, even if the plan is not to do something on an international
basis immediately.
Reason #5: Failing to get expert advice
Few entrepreneurs possess all of the knowledge and skills required to lead their companies
into a global expansion. There are many experts who have been there before and can
provide the advice and guidance to help avoid the many missteps and pitfalls awaiting the
unacquainted.
Expert advice is not cheap, but it pales in comparison to the costs, missed opportunities and
damage to the corporate psyche and reputation caused by failed first attempts or other errant
initiatives.
Additionally, commit the internal resources required. Select an internal staff for which the
international expansion is not just an extension of their current responsibility. Have this as
their primary responsibility. Partner them with external experts and ensure a knowledge
transfer so that youre developing internal expertise while growing the business.
Advice: Be cautious, be clear, be patient
Most importantly, the company leadership must have a clear understanding of why they want
to grow internationally. Their vision of global success must be tempered with the recognition
that international business is not simply an expansion of their domestic operations beyond
their own shores. It is very much a different business with additional requirements,
considerations and cautions than they have known before.