Economic slowdown in the United States, media-hyped GDP growth in emerging markets, insatiable demand by the global middle-class consumer—these and other factors make international business expansion more compelling than ever. These factors are often offset by such staples of international business as strain on national infrastructures, rampant corruption, political unrest, mind-numbing bureaucracy and protectionism.
How does corporate management weigh the pros and cons when selecting priority markets for expansion?
Several elements remain important ingredients in the evaluation and design process for effective global expansion strategy, including:
• Forecasted market growth
• Rule of law, IP protection and contract enforcement
• Market size
• Political stability
• Income per capita
• Availability of financing and political risk insurance
• Education level
• Inflation and currency stability
Corporate management should also follow these approaches.
Commit: An organization’s commitment to international expansion is the second most important factor for success after selecting the right local partner. Commitment needs to be total, from the management suite down to the shipping dock.
Screen: There are about 180 countries worth looking at. Several screening tools exist to narrow down the choices for further research. World Bank’s Doing Business rankings, CIA’s World Factbook and Transparency International’s Corruption Perceptions Index are among the most popular.
Simply choosing media-hyped markets such as the “BRICS” or “Next 15” countries may be a costly mistake. Despite their sizeable populations and breakneck growth rates, these markets’ entry windows might have disappeared or become extremely competitive.
Research: Once a list of potential markets has been identified, research each market in-depth using online tools from the U.S. Commercial Service, U.S. State Department, local investment promotion agencies and direct contact with the target country’s commercial attachés, as well as any contacts with experience in the prospective market.
Evaluate: Senior managers and international business development staff should organize brief visits to the top three to five markets to explore the competitive landscape, gain a realistic picture of what it takes to do business, establish contacts with government officials and key potential clients, and search for potential country managers and local partners.
Re-Commit: Once the decision is made to enter specific markets, commit sufficient human and financial resources to make such market entry a success. Draft a market-entry plan and deploy local contacts and professionals to identify potential local partners. Hire local attorneys and other professionals. Regular trips to the target country should be undertaken every four to six weeks. Develop support infrastructure such as drivers, interpreters and lodging. Explore putting political risk insurance in place, along with compliance policies for the Foreign Corrupt Practices Act (FCPA) and Patriot Act.
Train: After the basic setup of operations is complete, establish initial and ongoing training. This is arguably the most important part of the market-entry process. The personnel in the target country should undergo training on corporate values and culture, products, service, sales, FCPA, available financing for customers and safeguarding the corporate brand name. U.S. corporate personnel should be trained on the country’s culture, customs, business etiquette and interaction with local personnel. Training should be ongoing and viewed as an integral part of the foreign expansion.
Monitor: Nothing ever goes smoothly when venturing abroad. Establish careful monitoring procedures, supported by management’s long-term commitment and buy-in. It is important that management at headquarters realizes the different time cycles and adjusts performance expectations accordingly.
By breaking down the process of international expansion into several clearly defined steps, a company can maximize its chances for success and avoid costly mistakes.