This week I wrapped up a 3-week project researching American IT companies that expanded into international markets. Normally my clients hire me to focus on markets outside the U.S., so it was interesting to study the industry I serve.
Honestly, I thought I knew all about the American IT industry. I have spent the better part of the last 22 years working for American IT companies as an employee and contractor. What I learned about my home market and industry surprised me and I wanted to share it with my readers.
Market Insights from Studying American IT Firms
I identified 200 American IT companies that had less than 1,000 employees worldwide and were actively internationalizing into new foreign markets. Most of the companies picked for my study were recruiting staff both in the U.S. and in overseas offices. I did not choose any companies that were clearly locked in a 2-country model for outsourcing or similar purposes, with no plans for global domination. I did not target specific states or metro areas. I understand that this is not a study with full academic rigor, but still it was hard to ignore the trends.
Here’s what I discovered:
- Not all American IT industry clusters are producing internationalizing companies. Almost HALF of the internationalizing IT companies were based in 2 metro areas: Silicon Valley/Bay Area (68) and Boston (26).
Then came Tier 2 Clusters of internationalizing tech companies: Los Angeles/San Diego (18), New York City (16), Seattle (8), and Chicago (6).
What was just as interesting were the metro areas considered to be strong in IT companies that are disproportionately low in internationalization: Denver/Boulder, Phoenix, Portland (Oregon), Philadelphia, North Carolina, Twin Cities and Washington DC.
Two notable additional bright spots were Manchester, NH and Salt Lake City, UT both coming in with 4 internationalizing IT companies apiece. Here is a map showing where the U.S. high-tech markets are. Clearly the internationalizing clusters are a subset of the whole.
- Internationalization seems to take place between 100 and 200 employee counts across a wide variety of IT markets. This includes companies doing everything from developing gaming platforms to offering SaaS business processes to security networks to storage technologies. There are 2 noteworthy exceptions: healthcare IT and B2G (business-to-government) industries. After reviewing dozens of both types of companies, neither internationalize until much later in their product cycles. It’s a shame, really, since both government and healthcare technologies are bought and sold all over the world.
- IT services offshoring companies rarely made the list of 200 companies even though their entire business model is based on globalization. The truth is that these companies may have Indian or Mexican operations, but they don’t sell into any market except the U.S.. Opportunities are being missed.
- There is no standard international expansion market pattern. Companies literally had a patchwork of offices and operations around the world. While there are definitely popular overseas office locations: London, Singapore, Toronto, Sydney, Amsterdam; companies seem to be weighing options in various markets instead of following a predetermined step-by-step rollout. In my option, that’s proactive and positive.
What is internationalization?
For quick reference, here’s my practical definition of company internationalization:
- A company that is PROACTIVELY entering new foreign markets to sell products and services. This also applies to the supply management side sourcing materials and services from around the world.
- A company that is actively engaged in understanding the market potential in various parts of the world.
- While many companies begin their international expansion using in-country local representatives or distributors, I think true internationalization is when companies begin to expand directly to new markets with new offices and hiring in-country staff.
Why is internationalization important?
Globalization is a defining force of our time. Its momentum rides right along with the other primary drivers, technology and entrepreneurship, as changes that will affect our grandchildren’s grandchildren.
For companies, internationalization is a game changer. It means:
- Having the choice to expand into international markets (internationalize) at much earlier stage than ever before.
- Increasing your overall market size by somewhere between 100-500%.
- Learning industry advances and operational efficiencies in one market that can be applied to the rest of the company’s markets (called “arbitrage”).
- Access to investment funds and other resources not necessarily available in your home market.
- Country portfolio risk reduction. Not all markets go through downturns and upturns at the same time. Multiple markets balance out the risks.
- Access to the global talent pool to help drive smarter decision making and better leadership and management.
As I often discuss with IT company leaders, internationalization is like your planet developing “warp drive technology” on the TV/movie series Star Trek. Pre-warp-drive planets have a single planet view of what is possible. But once the planet’s scientists and engineers develop this high-speed capacity for travel, Star Trek sends an envoy to meet your leaders and welcome you into the larger intergalactic realm. Internationalization in a similar way opens up the business environment to the other 95% of our planet?s population.
So if you are an IT company leader or someone invested in a local IT cluster’s success, what does all of this mean for you?
- It means that clusters like Silicon Valley and Boston have investors/VCs who expect internationalization as a company’s “Warp Drive” when they reach their growth stage. These industry clusters cultivate available resources to help make that happen. This can be developed in other markets as well.
- It means that if your company has a headcount of 200+ and you don’t yet have international operations in at least 2 foreign markets, you may be late to internationalization and should actively be researching the advantages and risks involved. To expedite this, hire outside international business expansion consultants.
- It means there is no one best way to expand internationally. Use your own competitive advantages and market research to optimize this process.
Now, in the immortal words of Star Trek’s Mr. Spock: Live long and prosper!
Becky Park, The International Entrepreneur