Should Your Company Expand Internationally?
By Beatriz A. Bonnet, CEO & President of Syntes Language Group Inc.
(Originally published October 2012)
Reading the business news entices many executives to consider international expansion. After all, how could they ignore the market potential in the BRIC countries (Brazil, Russia, India and China)?
According to the Financial Times, “The past decade has been to a large degree about the success story of the emerging international markets.” Companies expand internationally for various business reasons including:
To diversify their customer bases;
A desire to grow revenue;
The need for high-growth markets to offset declining or flattening sales domestically;
To improve balance sheets.
The business plan decisions to expand internationally are comparable to the decisions to expand within the country. First and foremost, expansion decisions should always be market-driven. Is there a customer base that requires or wants the products and services?
In this vein, Inc. Magazine suggests three questions to answer in the expansion analysis:
How competitive and profitable are the target overseas markets?Is there a customer need that is not being filled?
Is the company uniquely qualified to profitably fill that gap?
Which customers should the company target? What is the go-to-market strategy?
In other words, the market analysis should evaluate the quality of the emerging market and the quantity of revenue available.
The qualitative decision revolves around the culture of the emerging market. A thorough understanding of prospective customers can be gained through focus groups, and international business consultants can assist in this effort.
A focus group should be undertaken to answer these questions: What are the demographics and psychographics of the target market? What is the prospective use of the product or service? Do the desired features and benefits differ from home markets? Does the product or service need to be modified? What promotion and sales strategies are appropriate to the target market? What pricing would the target market bear? Who are the competitors? How can you distribute the product/service? Will demand for this product/service grow, stay stable or decline over the next 10 years?
Qualitative researchers may encounter several language issues requiring accurate translation and interpreting during the research process. Particular attention needs to be paid to cultural nuances that skilled linguists can assist with. Syntes makes it a practice to use linguists with language, culture and industry experience related to the research.
If qualitative research confirms the desire to expand internationally, then market quantification is pursued. Through this process, the company answers these questions: How many customers are available? What percent of market share can it garner? What is the average price per transaction? How many purchases will one customer make per year? Every five years? How much will sales increase per year (growth curve)?
All of this market and marketing analysis can be completed before an office is open abroad and precedes the development of a full business plan for an international operation. In that plan, the company decides how it will expand internationally with four plausible directions:
Acquire a company abroad;
License its products/services to other companies;
Open an office/new business or new division in another country.
The financial analysis determines which of these four options is most feasible.
Launching a company, brand or product abroad causes additional language issues. Most importantly, the name of the brand, product and company need to be vetted. Again, consultants with language, marketing, cultural and industry experience are invaluable to a smooth start-up.
When considering where to expand, the accounting firm BDO International’s Ambition Survey research indicates that the BRIC countries receive the most interest. However, these markets in addition to Western Europe, Australia and South Africa require the greatest resources and the strongest competitive advantages.
Experts at the University of Pennsylvania Wharton School recommend starting smaller. “….Those companies that are small- or mid-sized—would be best advised to consider starting their international foray with smaller markets, in countries such as Vietnam, Ukraine, Romania, Bulgaria, Poland, Hungary, Turkey, Kazakhstan, Georgia, Turkmenistan, Costa Rica, Panama, Chile, the Caribbean Basin and Sub-Saharan Africa. Each of these markets can provide terrific additional revenue and profits to any U.S. company that takes the time and effort to study the markets and enter them carefully.”
As with any business decision, learning from others’ experience is always valuable. The accounting and advisory firm Grant Thornton recently released its own study entitled 10 Common Misconceptions in Current Thinking about International Growth and Restructuring. Through its report, it cautions:
Following customers abroad does not guarantee profitable growth. Businesses need to carefully consider how its clients do business abroad to determine if a business model shift is necessary.
The current business model will work for local market requirements abroad. Grant Thornton recommends mapping the optimal model using “outside-in” thinking.
Revising the organizational structure can wait until other elements are in place. In truth, adding an international business operation puts stress on the domestic business and requires thinking out the optional design.
International expansion can incorporate several language and culture issues. The quality linguists of Syntes Language Group, Inc. can assist with a variety of services as companies look at international expansion, including consulting, translation, interpreting and localization.