Business Strategy for Medium Size Organization to go international markets
Tips on global expansion for small and medium-sized businesses
As most Canadian CEOs would attest, growth opportunities at home will take an organization only so far. At some point any expansion-focused business will need to look abroad to grow its bottom line.
But this can be challenging for small and medium-sized businesses.
To grow in foreign markets, SMEs need to invest heavily and tap the necessary resources to make key business contacts, set up distribution or supply networks, hire local staff or establish a local office or warehouse or manufacturing presence, navigate often complex legal and bureaucratic systems and then (in most cases) attempt to operate in a different language with a divergent set of cultural and business norms (and sometimes ethical standards).
And that’s assuming that the political, social and economic climate in the overseas market is stable. Everything from government coups to currency fluctuations can derail even the most carefully laid expansion plans.
While it may be difficult, gaining a foothold in foreign markets is a very real opportunity for Canadian companies – assuming an organization employs the right due diligence and expansion strategy.
Here are four tips to take the uncertainty out of exporting abroad:
1. Know your market
Figuring that an overseas market will be as receptive to your products or services as customers in Canada is a naïve assumption. Everything from cultural differences to legal hurdles (foreign ownership rules, in particular) and stiff local competition are factors that can dictate the success of any overseas venture.
“You need to look at what your products or services deliver to each market,” explained Andrea Tunney, Export Development Canada’s (EDC) regional vice-president for the Americas in a July interview. “As a new exporter, you need to look in-house and examine your company. Does it have what it takes to be successful in the market? You also need to have a proven business plan here in Canada. Most companies that are exporting are successful in their domestic markets first.”
2. Play the long game
As Ms. Tunney points out, senior management should be fully committed to any overseas move in areas including human resources, operations and finance – then be prepared to wait. “Companies that start in a market work with negative cash flow for two and up to five years,” she points out.
As such, organizations need to be prepared to sustain operations when losing money, then put even more funds aside for less predictable challenges such as bureaucratic delays – a major issue in developing countries – and even currency fluctuations that could erase slim profit margins overnight. Her other piece of advice: Focus on one or two foreign markets at most, and ensure they offer low risks and high potential. Overexpansion is a surefire way to derail a company’s global ambitions.
3. Use government resources
As Thomas Jones, a senior partner with Canadian Export Consulting Services in Ottawa, notes, government organizations such as EDC and Business Development Canada can help businesses by providing accounts receivable insurance (for 30-, 60- or 90-day terms) and financing on goods and services exported from Canada. This is a particularly useful resource to tap when risk-averse lenders such as the major banks turn down financing requests. In addition, Industry Canada, EDC and Foreign Affairs, Trade and Development Canada (DFATD) offer reports on local economic, social and political situations to help entrepreneurs select export markets.
“One of the things we’ve noted is that people are very satisfied with the Trade Commissioner service,” Mr. Jones explains. The DFATD-funded service allows Canadian business owners to connect with trade commissioners in countries around the world, free of charge. The commissioners are tasked with helping entrepreneurs build business contacts, bid on contracts, identify potential customers, obtain the help of local service providers such as lawyers or accountants, and better understand the market into which they hope to expand.
4. Understand the culture
As Ms. Tunney explains, many Canadian companies fail in their overseas ventures because they don’t understand the local business and cultural climate. Citing South America as an example, she points out that strong relationships are a prerequisite for doing business – and relationships can take a long time to build. “[Prospective customers] want to get to know you, meet face to face and they expect regular e-mails and phone calls to develop that relationship and have that communication,” she says. “A general rule that I give to clients is that it takes 12 touch points in emerging markets to make the sale.”
Language is another major hurdle, along with basic differences in work styles. That’s why many companies opt to partner with a local business person, or use representatives on the ground that either come from that country, or understand it well. Having someone on the ground to provide sales service and support, and explain cultural peculiarities, is a definite advantage.
Jorge is absolutely correct. One of the easiest and safest ways to accomplish these four objectives is to partner (joint venture works the best) with a local company that is currently working in the market. They know the market, they have dealt with the government, they know the language. The JV structure gives them the opportunity to creat success for your comapny and be rewarded for it. You are far less perceived as a threat to other local companies, you are seen as an expansion of services by a local company.
Exporting is usually the first step towards internationalization for most small and medium enterprises. And then some enterprises may go on to establish offices or even manufacturing units overseas.
Internationalisation may be undertaken by enterprises for either proactive or reactive reasons.
The usual reactive reasons are : compensating for home market decline, potential to increase sales, getting closer to clients, reducing cost of operations etc.
The usual proactive reasons are: exploiting economies of scale, taking advantage of overseas market's growth etc.
Any organisation that wants to break into new international markets must answer the following Questions: what competitive advantage are we trying to gain? Then 3 other questions: What markets to enter? With what strategy? With what type of structure? NEED CLARITY around these Questions.
The organization seeking to internationalise will need to adapt to the different cultures, languages, religions and legal / administrative norms of the country as well as different levels/ aspects of consumption, competition and distribution.
Need to weigh / consider not just the opportunities but also the related risks
Agree with Jorge on all the points. Know your market means that both you have adapt to it (what is working in Europe couldn't just be doubled in Asia) and you need to know not only the local culture but the language as well. Think about how you plan to distribute products, set prices and negotiate deals. Everything needs to be adapted to the local culture.