Here's a hypothetical situation to consider:
Let's say your maternal grandmother emigrated from Poland and you've always wanted to learn more about your ancestry. And now, as you plan to expand your business globally, you're thinking about starting there.
Poland might be an appropriate selection as one of several markets. For instance, it is well positioned now for a variety of reasons:
- Reasonably favorable demographics
- It's a strategic focus of the U.S. (as buffer to resurgent Russia) along with corresponding economic support
- American products are very highly regarded and sought after there
- Most successful of the "transition economies"
Reconnecting with your heritage might be a nice side benefit of internationalizing your business. But if done right, your success will offer the resources to pursue personal interests at your leisure. So then, from a calculated risk point of view, how should you select and rank potential overseas markets?
DOs & DON'Ts
First, focus on the "Dos" - the goals of your diversification initiative. These normally include the following:
- Diversification of revenue, assets and interests.
- Access to other legal jurisdictions.
- Counter-cyclical market trends to balance revenue peaks and valleys across your business.
Second, remember the "DON'Ts"! When selecting foreign markets, never:
- Base your selection on recent headlines or articles in common media.
- Use recent historical data without carefully considering what trends will support or disrupt performance going forward.
- Focus on a single risk to the exclusion others. Consider economic, political, currency, security, and legal risks.
- Reflexively chase the BRICs. They are seductively large markets but can be very difficult to work in (long cycles, corruption and stifling bureaucracy.)
This is a commercial decision. Therefore, the basis for your selection needs to be business and market oriented. The DOs and DON'Ts will provide broad parameters, but your detailed decision matrix is based on your own specific product or service.
So "wave your magic wand" and chart the factors that create the "perfect" environment for your business venture. These are different for every product, and you should intuitively understand many from your domestic marketing research. They often include issues such as:
- Trends (demographic, industrial, economic, and policy-related)
- Target customer/client profile
- Competitive positioning in terms of price, service, terms and especially uniquenesses and value according to local conditions
Beware of Traps!
By now, anecdotal familiarity may bring several markets to mind. But remember, we are talking about foreign markets here. This means not only different international legal jurisdictions, but also potentially vast cultural gaps. You may have to challenge and reassess your assumptions.
For example, it is logical - but perhaps absurd - to extrapolate from China's per capita rice consumption that a huge chopstick market exists in India where rice consumption is similar. It doesn't! Even experts make the mistake of confusing correlation with causation.
Remember that "what you don't know you don't know" is extremely dangerous here!
Seek the "showstoppers" and the "niche"
Now that you've mapped out top-level trends and steeled yourself against naïve assumptions, it is time to dig into details. Identify the myriad of factors that will ease or aggravate your initiative - and more importantly, those that will allow you to carve out a compelling competitive advantage vs. those that may doom your efforts.
These will vary by product, personal, and corporate objectives. (If your primary motivator is to build your personal retirement infrastructure somewhere in Central America, you will proceed very differently than if you want to find a free trade entry point into Southeast Asia.)
The factors often include the following:
- Regulatory environment (red tape, duties/tariffs, etc.)
- Ease of travel
- IPR (intellectual property rights) realities
- Political stability (risk of nationalization, terrorism, coups, etc.)
- Cost of shipping / Ease of logistics
- Access to free trade zones
- Distribution/retail/support infrastructure to get your product to market
- Network connections (up to 2 or 3 degrees removed) that might help you ease a launch
- Successes/failures of others that have tried before
- Available resources to support your effort (free trade or bilateral trade agreements, Export-Import Bank focus markets, industry support from government agencies, etc.)
- How fun or intriguing a market may be vs. how daunting or intimidating
- To what degree the markets mirror each other in boom and bust (remember, you want to balance risks through diversification)
- Inflation - annual escalators in lease agreements and wage increases can distort financial models!
- Idiosyncrasies of local labor or trade laws
- Historic and projected FX (foreign exchange) trends
Just snap your fingers
Wondering where you can find all this information? Feeling a little overwhelmed at the prospect of having to try to map it all out? The good news is there are a number of resources available to help.
Both Canada and the US offer a host of programs at the federal and provincial/state levels to assist companies that export goods. Market guides and background info are available on-line and personal counseling (and in some cases, even grants and subsidies) are readily available.
Volumes of data are available through free sources such as the CIA Factbook and WorldBank, and through subscription services like STRATFOR. Membership-based private and public groups like AMCHAM also provide support.
And remember that you don't have to "go it alone". Ultimately you have to make the final strategic decisions regarding targets and resource allocation, but there are companies and consultants who support export efforts. Selecting target markets should be fairly intuitive for an experienced advisor who takes time to really understand your primary and secondary objectives. This may be your "first rodeo", but capable advisory support is available if needed.
The internationalization of your business will likely be successful and enriching. But as a business, there will be mistakes and surprises. You'll learn from them and improve as you expand and continue to diversify your market selection (a decision, which alone, will protect you from catastrophic errors.)
To start, pick 3 or 4 different markets for an initial phase (plan on 8-12 months to establish sales channels and to start "building some pipeline".) Then, use a similar selection as a second phase to follow seamlessly after the first.
Leave some of the high profile and seductive (but very challenging) markets like India & Brazil for attention once you're past the rookie phase. And also, be sure to include a speculative market or two.
The bottom line
For many companies, the most promising markets and products are currently in Latin America, Southeast Asia and India. Turkey and the MENA region (Middle East North Africa) offer some potential for risk takers. Sub-Saharan Africa is poised to be the next decade's remarkable success, but guessing which countries and timing it properly will be almost by luck.
But whatever you do, make sure you do pick some market that will be fun or personally satisfying. Whether your grandmother came from Poland or not, it's sure to be a great personal and professional adventure!
Ed Marsh has in-depth experience on a number of continents, in various capacities and industries. He founded and managed a start-up in India; successfully built channels throughout Latin America; leveraged his German birth and marriage to a German national in his extensive work in Western Europe and has deep cultural experience with Vietnam. Ed's B2B and B2G pan-global experience has involved a variety of products and services including capital equipment, industrial automation, distribution services and homeland security and defense technology. He is a Founder and Principle at Consilium Global Business Advisors.