8 Considerations for global expansion
Global expansion is one of the growth tactics that every business will examine at one point. But before you tie up your capital or dedicate resources to an international expansion project you should have concrete answers to the following questions:
- Is there an idiosyncratic fit?
This is a great starting point; if there isn’t a specific market with a defined market need there’s no point in carrying on. Finding a defined market is essential, especially if you are a new brand. You need huge marketing budgets to create a need and communicate that need to the market, especially a mass market.
2. Is the market big enough?
The infamous Dubai high rise crane statistic provides us with a relevant example. 1 in 4,500 people live in Dubai yet 1 in 4 cranes* are employed in Dubai. If I’m a crane manufacturer Dubai not only has an idiosyncratic fit, but it has a market large enough to warrant entry.
3. Is there a positive market economy?
A positive market economy; or free market economy allows supply and demand to drive the functional interactions of consumers and brands. Essentially this means that government interactions are minimal. This is the most important factor to consider when introducing a disruptive technology to the market. Uber’s international expansion in 2014 has provided a great examples of this. Uber’s expansion into Spain was destined for success when you look at idiosyncratic fit and market size. Yet the government’s restrictions on allowing consumers to use ride sharing services makes Spain a not-so-attractive market for Uber. That isn’t a commentary on Spain’s governmental policy, just on Uber’s global expansion model.
4. Do you have a plan to engage the community?
This can’t always be quantified, but is increasingly becoming the most important item to answer on this list. Too often businesses enter new markets focusing strictly on the numbers and not on the people. But it’s the people who make the numbers work. If a community doesn’t accept a brand or product on ethical grounds, or if they don’t believe in what your company stands for your products will fail. And it will fail expensively. This goes beyond having a credible social responsibility program. A sincere community engagement and communication plan is needed to effectively deliver your product to a new market. This plan shouldn’t be finite in scope, it should grow with your presence in the market.
5. Is there a Post democratic / post war market?
Post democratic markets provide an abundance of growth opportunities. Brands can capitalize on the liberation of consumerism and a population often just emerging from the shadows. Yet these opportunities bring on their fair share of risk. Post war markets introduce instability and uncertainty. If you entered the Egyptian market in 2011–2012 the post war market would seemingly be attractive. But the instability that has plagued the nation into 2014 causes for unfavorable business environments that make one wary to consider entry.
6. Does the Market makeup and sizing work for your business?
This is always an exercise in quantitative analysis and qualitative investigation. Market size is important to quantify the ROI for your international expansion. For example imagine you are in the mobile hardware business and proposing expansion into the Middle East. Qatar has the highest GDP growthof any country in the world at 13.4%. Yet this is a country with a population of just over 2 Million, or a fourth the size of New York City. The market makeup of consumers with discretional spending may look great, but the opportunity of selling to 2 million people isn’t so great.
7. Practical implications: is it worth it?
This can be a very difficult question to answer honestly. Some markets provide such a great upside, market fit and idiosyncratic fit that the practicality of doing business in the country can be overlooked. Virgin Airlines found this out the hard way. Virgin Nigeria was founded in 2004. In order to enter the Nigerian market Virgin was forced to give 51% of the company to governments owned institutions. This led to Virgin being a minority shareholder in their own company; having very little control of their own brand. That’s a dangerous position to be in. To compound issues, if CEO Richard Branson made decisions the government didn’t agree with, “Hammer-wielding men [would] demolish their lounge.” After 5 years of destruction, massive losses and frustration Virgin sold its business in 2009 at a loss. Nigeria is a high growth market (5.4% GDP) but if you are a foreign airline and you ask yourself the question: is it practical to enter this market? You may find your answer should be no.
8. Can you source a supply there?
This question needs to be answered through a long-term and scalability perspective. The question of resources is a difficult one as the rate of consumption has exponentially increased across the globe over the last 30 years. The availability of resources can also be effected by governmental legislation. For example if you want to enter the Madagascar market to build timber houses you would have opportunity from the tourism market. Yet, you would struggle mightily to source a supply. Illegal logging in Madagascar and other regions have led to logging bans by the Malagasy Government. This means the wood supply would have to be shipped from Indonesia or Ethiopia (2 of the top ten timber exporters). The astronomical costs of imports into Madagascar would prevent your business from being profitable. While this is quite a unique example, the principle applies to all concrete products.
Answering these 8 questions before you enter a new geographic market doesn’t guarantee that you will be successful, but it does increase your chances while protecting your brand equity along the way.
*Wall Street Journal contents this widely sourced statistic but it is useful for making the market size point in this example
