As an International Business Consultant, part of my job is to detect patterns and trends. Is a foreign market going to expand or contract? Can we go viral with a referral marketing program? What are the buyer personas in a new market?
But there are more than a few patterns between unsuccessful international expansions. Some of these mistakes can jeopardize success in an overseas market. Others can destroy a company. Here are 5 classic international strategy traps everyone needs to prevent:
1. Slow Organic Growth into Competitive Markets
This may sound obvious, but international expansion costs money. Some companies are fortunate enough to have a steady stream of bountiful earnings to then fuel their international expansion. Others raise cash from either equity investors or on credit. But many expand very slowly into new markets, spending funds as they become available.
This raises two sizable issues: First, organically funded expansions are rarely consistent. Instead they trickle marketing and other operations. There’s no show of real commitment to would-be clients or partners. It’s difficult for the new market to take your company seriously.
The second and more ominous problem is the local competition. Instead of using a well-funded market launch to establish a clear foothold in the country, a slow entry gives the competition plenty of time to figure out ways to ensure your failure from taking their market share.
2. No Rainy Day Plans
International expansion is usually a sunny day activity. Business is good and opportunities are abound. The exchange rate is favorable and trade barriers are low. So now what happens when something shifts back and the rain begins to fall? Companies need to always be prepared for a range of possible international changes.
Canadians, this is especially important right now for you as the Canadian Loonie is low to the American Buck. While offering Canadian-level prices might seem like a great way to expand your American client base, eventually the exchange rate pendulum will swing the other way. When that happens, your margins will get squeezed. It’s better to prepare for both exchange rate scenarios and prepare for the long run.
3. Requiring Short-Term Gratification (a.k.a. The Toddler Syndrome)
Now normally this trap ensnares either newly public companies or internationally-inexperienced leaders. After an Initial Public Offering, the pressure is turned up by quarterly reporting requirements. It becomes vital to reassure current and future investors of the company’s financial health. International expansion does not run on a quarterly system. It’s decidedly messy as it grows and matures into steadier income streams – a bit like my teenage son’s room. Guiding an internationally growing company takes a steady hand, discipline… and definitely patience.
4. The Ugly Market Exit
When sales and profits are flowing, it’s easy to be the good partner or vendor. But when an expansion goes badly, many companies will cut their losses during the market exit. They may leave a trail of debts, broken promises, contract breaches and spoiled relationships. This is bad “rainy day planning”. By saving a few dollars in the short run, this fleeing company burns bridges. But it’s more than just that. A reputation in that market and neighboring markets grows. Should the company ever decide later to go after international potential, they will find their reputation precedes them and doors will remain closed.
5. Decision-Making Based on Assumptions Instead of Research
It is truly staggering how often companies base major expansion decisions based on relatively arbitrary assumptions or shallow relationships. Staggering. There are two main assumptions that steer decision makers off course. First is the assumption of sameness. We often assume that the new market will behave like ours: same sales motivations, same sales cycles, same budget expectations, same legal structure, etc. But even countries with many similarities (U.S./Canada, Indonesia/Malaysia, Belgium/Netherlands, etc.) have plenty of differences too. Without understanding the differences there is no way to avoid costly mistakes.
The type of assumption is that which is based on stereotypes. While this trap is widespread, I see it often in the U.S. when talking about China. “The Chinese don’t respect the contract.” “The Chinese will steal your trademarks.” These stereotypes are based on many companies’ experiences, but completely miss the point of how to effectively do business with what will soon be the largest market in the world. Assumptions often take the place of both solid market research and utilizing outside international advisors. Advisors can help a company navigate what is real and what isn’t, as well as provide more concrete information on which to make smarter decisions.
All of these traps are common and detrimental to an international expansion. If your company is experiencing the challenges of international expansion and needs assistance, please contact me. I offer a 30-minute complimentary consultation to companies looking to expand or improve their international operations.
Best wishes to all!
The International Entrepreneur