Joe rolled his chair over to company founder, Mary’s desk with a quizzical wrinkle in his brow. “Can we sell our security product to someone in Romania? We just got an email basically ordering 50 software licenses from somewhere called Timisoara?” said Joe as Mary looked up from her multiple computer monitors.
Mary was just as surprised as Joe. The company had launched only a few months ago. How could someone from Romania have heard about their product, much less have decided to buy it? Their small team of developers were focused on a few potential clients in the United States.
Mary hadn’t even considered when the international would enter into the company’s plans. But 50 licenses was an order that was difficult to ignore. So Mary and her company became Accidental Exporters, taking orders from foreign clients without any real understanding yet of their global markets.
International Clients Always Arrive Before You Expect Them
A byproduct of the world’s Digital Revolution is that anyone anywhere can read your company website. As a consultant, I don’t travel to over 200 countries but this article will. Businesses and consumers now have access to product options and pricing information allowing them to make more informed choices. If you have something of value like Mary’s security software product, then clients from other parts of the world will begin to make contact.
Mary and her team will likely weigh the revenue of 50 licenses against the risks of doing business with these Romanian clients. Will the clients pay in dollars? How much interaction is needed for software implementation and service?
If like much software today the delivery is a SaaS model, then allowing access is easy. But are there any regulations related to doing business with Romania in terms of taxes, data location requirements or other restrictions? Most companies ignore compliance issues at first and focus on the money. (Tip: Always know what you’re getting into before you just move forward.)
Accidental Exporting Becomes the New Normal
Mary and her company take on the Romanian client, then soon a Canadian client, and on it goes. The company figures out ways to serve these foreign clients in the same way that they serve the domestic base; in the home country language, home country currency, home country customer service hours, and home market expectations. In my experience, this directionless approach is the international growth path for about 98% of small and medium-sized companies.
The surprising part of reactionary-based international expansion is how long this phase typically lasts: for years and sometimes decades. Companies often seem content to continue building their international client collection with little thought to the larger markets left untapped.
An extension of Accidental Exporting are overseas distributors who find your company through the website or a trade show; and offer to represent your product in their market. Now you have a distributor based in Australia who gets to build business for you in the APAC region for a 25% discount margin. Most companies just accept this new extension to the reactive model without any visit to the distributor’s offices or 3rd party background checks on their reputation. That’s just crazy and irresponsible.
What’s the Alternative to Accidental Exporting?
International expansion planning is the answer. And it needs to start almost as soon as your company initially opens its doors for business. In the start-up phase, a company needs to decide what it can and cannot handle in terms of orders from international clients. Can you convert foreign currency? Can you deliver your product compliantly using the Internet, air or ocean freight? Are there regulations for your product or industry that you should be aware of? For instance, you may decide that Canada is a market you can serve but that Germany’s laws regarding cloud data residing in servers located on German soil rule that market out for now.
Despite anecdotal evidence that startups can be “born global”, few are actually capable of true international market entry from Day 1. Instead, internationalization works best when a company plans for overseas market entry years before the first foreign subsidiary office is opened. Incorporate international considerations into:
- Product development: Are there any additional product requirements to be compliant internationally (CE Marking, etc.)?
- Company talent recruitment: Are we looking for candidates who also have international and cross-cultural experience?
- Key outside resources: Can our accountants, attorneys, bankers and PEO providers also advise on international tax, legal issues, foreign exchange and international payroll?
- Financial capital: Are we budgeting for our initial global market research and first market expansions?
Preparing for that eventual international rollout will make the transition much smoother.
When Should We Get Serious About Internationalizing?
There is no specific milestone that marks when a company should proactively begin its international expansion. But here are some general guidelines:
- If you have a profitable company providing value to your home market clients
- If international clients have found you and you are able to successfully serve their needs
- If your home market is a small one, then you will need to internationalize earlier than large home market companies
- If you have 100+ employees (this can vary by industry, but IT companies should heed this criteria)
- If you have earnings, loans or outside equity to fund early expansion efforts
My hope is that by writing about accidental exporting it will prompt business leaders to examine their own company’s approach to international markets. With luck a few more “accidental exporters” can reach their greater global potential.
Onward & upward
Becky Park, The International Entrepreneur