Jim Mann
The toughest questions most entrepreneurs face will involve international expansion. Whether to, when to, where to and how to expand all involve a wealth of complex considerations. The stakes are high: Success could mean the creation of a global multimillion-dollar business, whereas failure can often be fatal to a startup’s long-term viability.
Luckily, international expansion doesn’t have to be a blind gamble. With the right research and strategy combined with knowledge of the most common pitfalls, founders can mitigate a lot of risk and give their startup the best chance to succeed.
Naturally, many of the factors that we need to explore vary considerably between tech verticals. For ease, we will concentrate on midsized startups that sell directly to consumers. However, don’t be disheartened if you operate a B2B startup, as the approach I will outline may broadly apply to your business, too.
Go big by staying home
A mistake we often encounter is that businesses see expansion as a goal in itself rather than a move necessary to fulfill a clearly defined commercial strategy. There can be a tendency to rush the process without doing all the objective reflection needed. It’s important to ask yourself, with the risk involved, if international expansion is the only way to realize your dreams for your business. If so, are you really ready?
In relation to being “ready,” the most successful consumer businesses use their home market to refine their product offering, build their team and infrastructure, and critically, learn to adapt their business per shifting consumer expectations and demand. It is generally much cheaper to gain experience and make your mistakes at home rather than abroad. If, after mulling these questions over, you’re ready to roll, great! Where should you go?
Start with the simple questions
There is absolutely no substitute for research, and you can never do enough. You’ll first need to gather data points from your existing customer base. In an ideal world, a percentage of sales would already come from international clients, and this information may, on the face of it, point to potential demand in a particular region.
However, this is by no means definitive. Sales may be concentrated in a particular country simply because of the language your website is in or, if you’re selling via a third-party platform, due to where that customer base is. Pay attention to the customer journey and how interest has fluctuated over time. Flat demand or outlying surges could indicate a ceiling in that market or an extraneous factor that has skewed the data.
The next step is to shortlist locations. Countries with a similar time zone, commercial culture, language, and legal and regulatory framework should be at the top of the list.
The size of the customer base is a more complex question. More populous countries would equate to a bigger potential market share, but the wealth of a nation — indicators such as gross national product — will give you more insight on the potential value of the market, and importantly, whether the price points of your products will be competitive. It’s also worth remembering that larger countries can have added complications such as longer and more complex supply chains and regional variations in regulations.
Important questions include:
- Delivery infrastructure: Is it public, private or hybrid? How extensive is it? What are the limitations on next-day delivery? Is it a competitive market? Do global logistics companies operate there? If so, do they use local suppliers?
- Internet access: The overall number isn’t enough to know. You need to check geographic spread, demographics and average speed. Put simply, is your consumer base actually online?
- Online sales adoption: Thrasio has encountered a lot of businesses that have been tripped up by this question. Statistics can be very misleading, as in the majority of countries online sales can be climbing, but the type of goods bought online varies massively due to differing cultural or consumer expectations.
You would be surprised how many companies have been stung when they realize that the cost of getting the product into the hands of their customers makes their offering untenable.
Get legal and financial advice
At this point, research should flip toward understanding local competition and assessing costs. We strongly recommend getting professional legal and financial advice to better understand corporate and import regulations and everything from employment conditions to invoicing rules. Free advice can be obtained from trade bodies and government websites, but there is no substitute for the peace of mind and security of having lawyers to assist you.
When assessing competitors, look at how they price their products, marketing copy and collateral, product imagery and descriptions, and customer service channels.
If there isn’t a direct competitor to your product, be careful that this isn’t an indicator that there is little demand for what you sell rather than a real gap in the market. If you can afford it, commission local market research for more accurate market opportunity figures and areas where you can gain a competitive edge.
A lot of important intelligence can also be gathered by simply talking to local experts via your existing contacts. If that’s not an option, search for expat business communities, LinkedIn groups or networking advice.
Boots on the ground versus a central hub
The second most consequential decision you will make is whether to have a full physical presence in the country. This will be largely dictated by what you sell. For most e-commerce companies, a legal or physical presence will not be necessary, as global and local selling platforms combined with localized websites, products, etc. will be all that is needed.
However, setting up an in-country office can have a number of benefits, including:
- Local customer knowledge to help shape evolving country strategy.
- Logistics and supply chain support.
- Local customer service and/or ability to physically showcase goods.
- Easier contracting with local suppliers.
It’s also important to remember that hiring staff for a new office will not necessarily be more expensive. It may actually be cheaper and more flexible than scaling your home team. Again, seeking professional advice on local labor laws can help prevent you from making a costly error.
Scaling and avoiding company bloat
Assuming your expansion isn’t going to be facilitated by a local acquisition, you will need to hire and grow your infrastructure. The two big areas of development will involve your supply chain and marketing department.
Businesses often struggle due to a “build it and they will come” mentality. It may be that through luck or ingenuity, your business has thrived in your home country with minimal marketing spend, but there is absolutely no guarantee this will happen abroad. Failure to spend up front can doom your sales strategy before it gets going.
The fastest and most efficient way to scale your marketing in a new market is to employ a local agency or freelancer. Not only will they already have a tailored approach, you can benefit from leveraging a team with a variety of skills. You can also switch it off quickly should it not result in decent ROI. In time, you can build your in-house team using what you’ve learnt from the agencies or freelancers you employ.
As for logistics, using a large platform such as Amazon should be the first port of call. However, as mentioned earlier, local cultural conditions do mean that it is always worth researching and considering country or product-specific platforms to both sell and fulfill shipment of your goods.
If you’ve decided a third-party platform is not the way to go, I would fully recommend getting boots on the ground to manage the supply chain. It can be taxing to coordinate and manage any problems that arise if you do not have local insights or are hundreds or thousands of miles away.
Customer service is another facet you should consider. Scaling with at least some people who have lived or worked in your new market is a must. It is essential for brand management and an invaluable source of consumer insights. Remember, the rule about first impressions: It’s better to scale this team ahead of launch so that you can manage all queries rather than stretching your existing team and risk damaging your brand.
Employing new people on flexible or short-term contracts will enable you to quickly slim down your operations should demand not hold up as expected. Similarly, if you work with agencies or contract with new suppliers, ensure that everything is on as short a notice period as possible.
“Localize and learn” is a good motto to operate by. This means keeping a very close eye on your analytics and being ready to respond quickly to what this information tells you. A copy-paste technique from your home country is never going to work.
Today’s generation of entrepreneurs are lucky to have more data at their fingertips than ever before. The true challenge is figuring out how to use the data to make strategic decisions and give your company the best chance of success.
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