June 24, 2015
As anyone who has worked to build and expand a business knows all too well, growth is hard. Expanding your offering in existing markets rubs elbows with the competition and can erode differentiation, leading many companies to turn their sights overseas. But branching out into new regions has become more complex than ever. Globalization has opened the door to flourishing homegrown industries that can pose a potent competitive force in their own right, and unfamiliar local market dynamics, regulations and financial complexities can create a pile of red tape to cut through (see our most recent InSights article for further explanation of these challenges, and solutions to address them).
So what are the true keys to successfully expanding overseas?
- In a recent posting on HBR.org, “What Tesla and Apple Both Know About Entering New Markets,” Ron Adler asserts that ‘ecosystem carryover’ is the key to success in new markets. He suggests that brands such as Tesla and Apple are successful in expanding into new enterprises because they can leverage synergies from their existing businesses to branch into new markets. Apple’s strength in one application of mobile technology (MP3 players) opened the door to another (smartphones), just as Tesla is parlaying its strength in the electric vehicle market to build a competitive edge in the market for batteries. In essence, the new markets are really part of a larger, previously unrecognized ecosystem. Success, the article contends, is independent of company size or brand strength, but instead is predicated upon zooming out on the strategic vision and seeing the forest for the trees, the synergies between markets, and exploiting those parallels.
- Ron Rogowski, CEO of visual translation company Waygo, tells Entrepreneur that a deep understanding of local culture and behaviors is essential in new geographic regions. Having worked extensively in China, Korea and Japan, Rogowski points out that the business practices, and basic consumer needs in foreign markets, can be quite different from those at home. Even small nuances can spell the difference between success and failure when operating abroad. Companies that thrive do their homework to not only understand the local culture, but embrace it and adapt their business to fit the environment.
- Ultimately, before deciding to embark on any new market entry efforts, it’s critical to be able to answer the fateful question, “what if it doesn’t work out?” In their article for Consultancy.uk, global consultancy BDO asserts that judging when to pull back from a new venture is one of the toughest decisions a business can make. However there may come a time, while assessing and testing new markets, that the potential costs outweigh the benefits. Determining where that inflection point lies, and how the ultimate question of whether to stick it out or pull back will be decided, is key to success.
HighPoint consultant Luiz Zorzella, a seasoned expert on new markets and growth who recently concluded a Latin American expansion project for a provider of asset-based financial services solutions, suggests an approach combining many of the elements suggested above. “Approach entering new markets on an experimental basis,” he says. “Instead of treating the venture as an expansion of the existing business, see it as a new start-up business. That comes with its own set of risks and unknowns, but it allows greater freedom to adapt to local conditions, test hypotheses about the business, and minimize risk, should the effort be unsuccessful.”
At HighPoint, we’ve seen this formula work with remarkable success. By following this experimental approach, businesses can tap opportunities in foreign markets that result from big-picture market synergies. They gain the flexibility necessary to adapt their model to fit the new culture and market realities. And they can dip a toe into new markets in a way that minimizes sunk costs and provides an exit strategy should initial efforts fail to deliver the results expected. But when the new venture is a success, it’s simply a matter of ramping operations up to full-scale to achieve a significant market advantage over the competition at home.