The 7 must do's for a successful internationalization
If entering foreign markets can be a significant growth accelerator, it also produces long lasting benefits that goes far beyond the sole generation of income. Indeed, the innovation, the acquisition of new talents or the valuation of your company are noteworthy "side effects" that come with the successful opening of a new market. In this article we will explain these effects but also cover 7 must do to's go international.
Innovation
Confronting different customer needs, new competitors, unfamiliar standards or new regulations presents a lot of challenges, but it also brings opportunities of innovation that can be propagated throughout an organization.
It is now well established that the tremendous surge in innovation that began in the 80s was largely fueled by the overseas deployment of production, sales and R&D functions. Creativity is not a disciplined, linear process; it is nurtured by multicultural interactions and the continuous confrontation of partial and dispersed ideas. In The Internationalization of Innovation, INSEAD Professor Arnoud de Meyer presents several examples of major innovative breakthroughs resulting from the collaboration of teams located in different geographies and cultural settings. To confirm this, you can observe how the fashion, cosmetics and food industries are today capable of adapting their products very quickly and often even before consumers express a need for change.
Talent acquisition
While in Europe, some sectors have a chronic shortage of talent, in other countries, that have a deeper bench, these same talents are available. Many US technology companies, facing a structural deficit of IT engineers, were able to take advantage of their APAC presence very early on. Long before Sundar Pichai and Satya Nadella took over Google and Microsoft, India had been, and remains, an almost inexhaustible source of top engineers for American West Coast tech businesses.
Valuation
Between two start-ups offering the same product and with identical financial structures, the one that can claim a successful presence abroad will be rewarded with a higher valuation multiple than the one that will be exclusively domestic. This difference stems from the premium that investors attribute to:
A more extensive and proven managerial capacity
The diversification of income sources
The reduction in the cost of gaining market share increments. All other things being equal, capturing 1% in a well penetrated domestic market will be more difficult than in a brand new market
The new growth potential opportunities
However, it also comes with a few challenges. Internationalization carries its share of uncertainties and risks. Costs are often difficult to predict, investments can be substantial, and resources required are always limited.
As a result, many hesitate and engage in it too late or too timidly. The main question is therefore: "How can I make my internationalization a success?" and more specifically "When should I start it? Where should I go first? How do I penetrate the market quickly?"
When to start, where to go and how to enter a new market?
While there is no secret formula or standard solution, at GROW we have observed that a successful internationalization meets 7 imperatives:
1. Think early on about the future. Internationalization will not happen by spontaneous generation or by accident! It requires anticipation, agility and a strong ability to react. Preparing for it early on will allow you to set the stage for an optimal implementation. It is essential to avoid the creation of irreversible "ratchet effects". Some examples among others:
Ensure that new developments do not make products incompatible with foreign demand or standards
Set up English as the main language of communication as soon as possible. It will avoid having to translate everything in a hurry
Recruit multilingual, multicultural and mobile resources in order to accelerate the implementation of internationalization by minimizing the need for lengthy "change management" efforts
2. Identify a champion. This will be the role of a member of the executive committee. Experienced and motivated, this leader will be the advocate of the project and the vigilant sentinel who will identify weak signals and stealth alerts of opportunities or difficulties coming ahead. He or she will conduct the preparatory work and mobilize the necessary resources.
3. Continuous analyzes. Internationalization is a strategic issue and should be treated as such. Only a precise understanding of the conditions for success will lead to an effective planning, to a clear and realistic vision of priorities and to the choices of the right trade-offs. Do not aim for exhaustivity but for relevance. A selection of insightful, timesaving analyzes can be as valuable as a comprehensive suite.
At GROW we structure our analytical framework around 4 areas: (1) the market attractiveness, (2) the competitive environment, (3) the operating model and (4) the financial impacts (cash flow, ROI).
4. Each country has its own approach. Each country has its specificities and requires an adapted approach. Direct entry may be perfectly suited for a country with characteristics similar to those of your local market, while for another, indirect (through partners or local resellers) will be more appropriate. One region may be developed from where your HQ is, while another will require a local presence. It is the in-depth analyzes that will allow to make these trade-offs and determine what can be pooled and what should be tailor made.
5. The effect of proportionality. Resources allocated and results obtained are closely correlated. It is essential to calibrate efforts and investments proportionally to the objectives sought. Not enough resources, and the project will be at risk of being neglected or even abandoned; too many, and they will be difficult to manage and the opportunity costs for the domestic market will be too high. Each project has an inflection point that the analysis and planning work must determine and which will allow the appropriate calibration of resources.
6. Careful planning. Reducing the uncertainties inherent to any new initiative will result in avoiding time-consuming and resource-intensive stop & go trials. The implementation plan will enable you to translate ideas and ambitions into precise indicators (KPIs) and realistic deadlines. Risk weighted scenarios make it possible to optimize the allocation of resources, quantify the outcomes and plan contingent options.
If we attach so much importance to the quality of the implementation plan, it is because experience shows that it always conditions the soundness of the execution of the project.
7. Resilience. No one expects an international expansion to follow a long quiet course. Even careful planning will not shield you from the unexpected. The inevitable succession of successes and failures can weaken the motivation of the most seasoned. But it is by overcoming small failures and solving difficulties as they arise that fatal strategic mistakes are avoided. The leadership and determination of the champion and of his team plays a key role here!
International, your next challenge?
Yes, if your product or service is adaptable abroad or if your domestic market share starts to reach a glass ceiling... But only if the motivation of your management team and your investors is real, if you have a champion determined and if you have the available resources to undertake such a commitment.
Internationalization is a process that combines the short, the medium and the long term. Its course will be marked by rapid progress (3 months), operational achievements (3 to 9 months) and strategic milestones (up to 3 years)...
Focusing on the 7 imperatives set out above will not necessarily guarantee you a successful international development but it will help tip the balance of probabilities in your favor.
If you are interested in exploring this topic and learn more about our experiences, please contact us.
Alexandre Giry-Deloison, founder & CEO of GROW
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