Contributed by Rong Yao, a Certified Management Consultant for Innovation Growth and Scaling
Summary
Companies wish to venture overseas to grow their business. Unfortunately, in reality, successful overseas expansions can be resource-intensive, potentially complex and risky.
Since going overseas can get risky, how do we minimalise our risks and take appropriate positive steps for expansion? What are the first steps to take? Being clear on the following indicators will be extremely useful before venturing overseas:
- In- what mode of entry do we have for this pilot? E.g. Are we going to create a new e-commerce store for that specific offer/country? Are we flying in to find distributors?
- Out – what does the exit/end of this pilot look like? E.g. For an ecommerce store, we can close it after servicing the paid customers / do the distribution agreements have early release clauses?
- How much – how much would this pilot/initiative cost, worst-case scenario / how much do we how to get out of it – worst case, best case scenario.
- When – start and end dates, estimated duration of the pilot.
- Goal/expectation setting, what success of this internationalisation pilot – not of internationalisation exercise:
- Platinum
- Gold
- Silver
- Bronze
It is a common assumption that expansion overseas is an easy way to grow your business. Unfortunately, this assumption has proved false. Depending on both external (overseas, business climate, geopolitical situations, etc) and internal (product/market fit, internal management/talent pool, relationships, current operations, etc) factors, international expansion may not be the easiest / most effective initiative that a company should focus on at that specific point. In other words, while international expansion clearly has its benefits, we need to get the company ready to maximise the chances of success and reduce the risks of international expansion. This article will help us identify how to get ready for international expansion while reducing risk and increasing the chances of success as much as possible.
Complications
- What works for others may not work for your business – different times, background, industry, etc. – the ugly truth is that success is affected by the right time / right person / right place / right product.
- Lack of certainty in knowing when we are ready.
- How do we know when we are on the right track.
- Lack of clarity on what success looks like – international expansion has multiple phases; different phases can have different definitions of success.
Solution / Roadmap for Success
- Get clear on the current state of your business and the importance of overseas expansion to your overall strategy
- Make sure your operations are stable enough, and your war chest is large enough to support you and your overseas team for a minimum of 3 months – essentially, since serious overseas expansion requires intentional resources and management focus instead of hiring additional staff, you could consider improving your business until you can allocate half your teams time on overseas expansion, while the local company continues to operate and grow smoothly, the benefits are twofold, improved productivity for your business and you, and a higher rate of success for international expansion
- Protect your core and existing business at all costs; this is the golden goose that generates your business’s cash flow and profits. The moment your international expansion affects your current business, take drastic measures to protect the golden goose. International expansion is like laying golden eggs – expensive, and you won’t know which ones will hatch.
- Conduct your international expansion in phases and treat it as an investment and experiment – where possible, don’t rely on a successful international expansion in the short run to save your business. Don’t assume that you will get it right the first time and make extreme decisions based on its success
Included below are the first 2 questions I recommend all businesses answer before they start their international expansion.
Know Yourself (and Your Business) – Prepare Sufficient Resources to Start
As Sun Tzu once said if you know yourself and know your enemy, you won’t fear the result of 100 battles. Taking that into the context of international business, we should first understand our current business intimately
Key questions to consider:
- Is internationalisation a key priority for the business at this point in time or has the business identified other priorities more critical to the business? What will it take to get key stakeholders to support internationalisation with appropriate resources?
Experience can be gained, everyone has to start from somewhere so I am not that concerned with lack of experience. A good indicator of financial resources would be the company bank accounts with more than 3 months of costs. E.g. assuming the monthly costs are $100,000. This would mean that the company has over $300,000 in its bank accounts to tide them over unexpected issues. Evaluating if the operations are ready can get more complex as it varies from firm to industry and is a gradual process. The general guidelines would be to free up to at least 50% of key management / overseas team’s resources to focus on overseas expansion. I normally recommend clients to start exploring international expansion after they have successfully freed up 20% of key management / overseas team’s resources.
Key Question
- Does the company/team support this international expansion?
- What level of support or priority is this?
With regards to Priority / Strategy, it can get uncomfortable but it is necessary. Included are a few common scenarios and the responses:
- Scenario: No clear priority/strategy; company does not have clear written annual or quarterly strategies or priorities.
- Response: Company is not ready for international expansion as it is not part of the overall plan. Key stakeholders within the company should align themselves and set clear priorities and strategies
- Scenario: Company has annual/quarterly strategies or priorities, but internationalisation is not part of them.
- Response: Review strategies and priorities and professionally evaluate why internationalisation is not part of the annual/quarterly strategies or priorities. Are there other more important goals that need to be addressed? Can we conduct a small initiative to explore overseas expansion within this year (the exact time is dependent on the company’s situation)
- Scenario: Certain stakeholders are uncomfortable or not willing to actually support international expansion.
- Response: Analyse and identify their concerns – spoken or unspoken – why certain stakeholders are uncomfortable with exploring international expansion. Address their concerns as much as possible before bulldozing your way through. Then, win those stakeholders over so they fully support your initiative and priorities and are willing to support a pilot.
- Response 2: If after genuine and committed attempts to win those stakeholders have failed, either decouple them from your overseas expansion initiatives or get support from other stakeholders so that the detractors won’t pull you down.
Your first step to international expansion (a journey of 1,000 miles starts with a single step) I would like to congratulate you on taking the most important first step.
Rong Yao is a certified management consultant that focuses on innovation growth and scaling. His clients range from startups to sovereign wealth funds and billion-dollar companies. He focuses on corporate strategy and helping companies achieve exponential results in their business.
References: Harvard Business Review/ Forbes Magazine