Take the gambling out of global expansion by making decisions based on real data


Take the gambling out of global expansion - decisions based on real data

Take the gambling out of global expansion - decisions based on real data

Many companies hesitate to enter export markets because of perceived risk. Certainly there are some legitimate risks to be mitigated. There are also a number of “risks” which are exaggerated and promulgated with common myths.

But there is one fundamental risk which has traditionally challenged export growth – market selection. Technology is quickly helping to obviate that risk and clear the path for more companies to expand internationally.

The first market gamble

Companies considering global expansion typically follow one of three paths to market selection:

1. Follow a customer – an existing domestic customer is going international themselves and requests global support

2. Accidental – an order comes in from somewhere, unsolicited

3. Speculation – “market research” is conducted and an informed “best guess” becomes the basis for the speculative allocation of resources to market entry and development

There’s a reason why many companies that export follow existing customers. In that case, the only barriers are the transactional challenges of compliance and logistics. There’s very little downside for companies in that situation.

Accidental exporters occasionally stumble into success, but typically they develop a series of ad hoc transactions which don’t justify developing an internal infrastructure, but tax the operations team. This common scenario often leads to organizational frustration with the “complexity” of export sales.

The “well researched” approach is the most problematic. Companies realize that they can’t just throw a dart at the map to select an appropriate market successfully. So they research the options. Sometimes they rely on a government agency to assist, while in others the task is handed off to interns, or management takes responsibility.

Regardless of who conducts the research, it’s inherently hypothetical and based on the company’s perspective – not an objective view from the outside-in, as prospects in the target market might see them, their products/services, or their viability as a vendor.

With a theoretically sound selection made, resources are committed – after all, it’s well researched and very likely to succeed, right?

And companies recognize that it takes time. So, based on the researched decision, they often commit substantial resources to market entry. These resources include not only cash, but also management focus diverted from domestic priorities for an extended period.

Committed to their well-researched initiative, they persist through discouraging experiences, confident that patience and hard work will prevail. And after 3 – 5 years of frustration, they rarely wonder whether their market selection process was proper. Instead, the conclusion is typically that “export isn’t for us.”

In short, the risk is that companies commit resources to do “everything right,” yet risk getting it completely wrong – and at great expense.

Let markets “raise their hands”

Technology substantially changes the way that prospects and sellers interact. While sellers used to have to go forth and find prospects, prospects increasingly use the incredible power of the internet to find what they need/want at the time of their choosing.

They often search for ideas and information, and later search for solutions to challenges they have, and then products/services which may help them.

It’s said that there are already more internet connected mobile devices in the world than toothbrushes, and the rate of growth of connectivity shows no signs of slowing. That means that potential buyers globally have the same access to information, and products/services, as your domestic buyers.

This in turn means that great digital marketing, an imperative regardless of your market focus, generates rich data which provides valuable insights.

One can quickly determine, for instance, by country/region:

• who is finding you when they’re searching
• what searches they’re doing (some of this data is direct and some inferred)
• who interacts with your “content” initially
• who interacts consistently
• where leads concentrate
• where substantive, viable projects develop
• and even where you can consummate profitable orders

This approach provides real market intelligence. While it’s no guarantee of success or profitability, it’s a powerful tool both to identify what may be easier markets to enter, and to challenge and validate the traditional research.

Enter every new market agilely

This approach to market identification offers another huge potential benefit: companies can adopt an “agile” model for market entry.

As successful digital marketing generates international traffic, leads, projects and orders, and certain markets evidence themselves to be particularly promising, companies can progress step-by-step. It’s no longer necessary to skip directly to an extensive and expensive “on the ground” commitment.

Instead, companies can progress incrementally by testing assumptions, efficacy and return at each step along the way. And again, they can focus all efforts on markets where they have data to indicate they’re likely to have some traction.

A reasonable progression might look like this:

1. Collect data generated through great digital marketing focused on the domestic market

2. Use early projects to learn about the prospects’ challenges, concerns, buying process, common questions, goals, market barriers, etc.

3. Create some approximate ideal customer profiles, target buyer personas and buying journey maps

4. Begin to optimize some content around those learnings, gradually incorporating local language keywords (from those interactions, not translation!)

5. Adopt a CMS (content management system) that delivers contextually appropriate content (using IP address, for instance, shows a different version of the site to a visitor – not just language, but even primary content, images, etc.)

6. Start to display some content offers, to targeted visitors, that are designed for those markets

7. Transcreate some early articles, landing pages and eventually some offer documents (while translation converts words, and localization considers dialect, context, images, colors, etc. transcreation builds content from the bottom up as it should be locally)

8. Create a local language microsite

9. Undertake sophisticated SEO (TLD/top level domain, hosting from an IP address that corresponds to the TLD, etc.)

All of this can be accomplished from the home office.

Much of this groundwork can be done for less than the cost of a flight to the target market.

And each step will yield data which will be used to refine subsequent steps and inform resource allocation decisions for deeper engagement within markets as well as guide priority of entry into future markets.

And much of the work contributes to improved results across all markets.

It’s a process, not a solution

Is this a substitute for being on the ground building relationships in a market? Of course not. What this does, however, is provides a platform for companies to explore international market opportunities with much lower risk than the traditional approach.

That allows them to iterate inexpensively until they identify great markets for more intense focus, and helps to guide the direction of limited resources with a series of data driven decisions, rather than a gut feeling.

Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.

About the author

Author: Ed Marsh

Ed Marsh founded and runs Consilium Global Business Advisors and is Export Advisor for American Express. He is an expert in 'industrial grade' business growth consulting for mid-size manufacturing companies. Ed loves and excels at recognizing and creating business opportunities; at synthesizing the science/engineering with the art/design; at connecting the business strategy dots; and at challenging traditional assumptions.

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1 thought on “Take the gambling out of global expansion by making decisions based on real data”

  1. Ed – I agree with your observations and comments, and have found many of
    the same general issues in my own practice for those manufacturers
    exporting direct from Canada.

    Your suggestions on low cost entry methods will offer good value, and should be
    considered by anyone seeking to export.

    I would further suggest that most of those exporting direct from Canada could benefit
    breaking with tradition, and adopting the new reality of doing business
    that is increasingly based on a local presence combined with a credible
    online presence.

    Exporting manufactured goods from Canada is a
    sector that should be aggressively pursued, but is actually shrinking
    fast, and is much smaller than most Canadians realize. It is also facing
    strong international competition: at a recent petroleum equipment trade
    show in Mexico, the ratio of Chinese vs Canadian expositors were 19:1
    and all offering equivalent products. The message is increasingly
    clear: you can’t do it from Canada.

    Integrative Trade (EDC term)
    that leverages Global Value Chains and is tracked using Trade in Value
    Add (TiVa) methods, has dominated since 2009. Over 50% of Canada’s
    exports sales actually derive from foreign affiliates, and are not
    exported from Canada at all. Further, about half of Canada’s exports are
    services – not goods. Note that these stats exclude commodities and
    energy exports.

    I would like to discuss my experience exporting professional / technical services and
    intensive manufacturing that either require significant R&D (=
    client relationship) or incorporate a lot of electronics and software.

    In my practice I have found that the most effective method for market entry, for any
    and especially for services, is to first establish a local division
    (Foreign Affiliate), and use that base to develop sales.

    This is based on the need to meet at least two of the following three requirements:

    1) Many (most?) customers demand that suppliers are located close by, or at least

    provide in country service and support, particularly with products that
    involve R&D, computers / software or are fussy and require ongoing
    calibration (which is why Magna has 28 plants in Mexico).

    2) Services as knowledge products usually require that we move people as they are

    the repositories of that IP and knowledge, however obtaining visas are
    difficult to impossible, and therefore selling services now demands
    establishing foreign affiliates and transferring IP / knowledge to them.
    For example, we have found it nearly impossible to provide engineering
    services in Brazil, but Mexico with NAFTA is a great place to work.

    Agility as you mentioned is key, but agility depends on obtaining real
    time, in depth local knowledge that will allow immediate identification
    and response to customers needs, changing trends and being able to adapt
    / develop / deliver the right product. Agility also depends strongly on
    using all 4 scaling methods and not just depending on growth. This is
    very difficult to accomplish without a bespoke local office (not an
    agent !).

    Obviously opening an office requires that the firm
    first establish that sufficient potential market exists before
    committing to the expense, but we are talking of “significant” potential
    that can be identified relatively easily using the well proven methods
    you suggested.

    Few firms will consider opening a local office as
    the first step. As you pointed out, most will follow a client, or based
    on research chase an opportunity, and I agree that most of these
    companies will make some spectacular and fully avoidable errors on the
    way. But, experience has demonstrated that putting the cart before the
    horse is often much less expensive, lower risk and can ramp up success
    much faster.

    My approach is based on my experience as an agent and distributor (I lived / worked
    ran businesses in 4 countries in Latin America), and have established
    international networks of agents, distributors and licensed IP for
    various clients. In addition, I have opened +/- operated over a dozen
    divisions in 6 countries.

    I suggest that after researching markets, instead of trying to manage that market from
    that the firm open a small office in the target market, staff it with a
    person with a proven track record in facing equivalent challenges,
    opening new markets and with an extensive and intimate knowledge of the
    local market. In other words, leave the Canadians at home, and give the
    local manager the needed autonomy.

    The cost of opening and operating a local office can be surprisingly low – and be
    extremely effective.

    several clients, the cost of maintaining a technical sales team to
    build and maintain client relationships was prohibitive. In fact, for
    20% less than the annual cost of one sales rep selling in 4 countries, I
    could have opened and operated 4 local offices, and provided 24/7
    service and support to customers. One example of effectiveness was
    where $35,000 investment resulted in over US$2M in annual sales with
    margins of 55%, within 18 months of opening.

    relationships are key, and a local rep can go golfing, and usually has
    extensive university, family and social connections (not to mention the
    critical opportunity to share beverages). It should be noted that this
    office need not (initially) be more than a sales / support and
    intelligence unit, and as such is cheap and cheerful.

    Some stats to demonstrate the value of foreign affiliates and establishing Global
    Value Chains:

    of manufactured goods from Canada are down about 5% since 1990, and
    down around 7% since 2000, whereas growth from foreign affiliates are up
    20% for manufactured goods (04/13), and 86% for services (04/13).

    between 2000/09 we lost over 20,000 manufacturing firms and 500,000
    jobs – while services foreign affiliates added over 200,000 positions
    (none of which were in Canada).

    Services now account for about
    50% of Canada’s international trade (since 2008), and that agrees with
    the WTO reports that just over 50% of world trade is now
    in services (mainly financial, insurance, freight etc).

    The EDC reports indicate that over 50% of Canada’s exports no longer come from
    they derive from Foreign Affiliate sales to local customers in the host
    country, or (usually) within the FTA of the host country. Because they
    are sold by Canadian divisions they count as Canadian

    Sales by foreign affiliates have grown from about 10% of GDP in 1993 to about 40%
    Of this 40%, just under half is in manufactured goods, ICT, and
    professional / technical services, and the balance is financial services
    (Scotia, RBC et al are the big players).

    Further, sales in services by foreign affiliates are now double that of services
    exported direct from Canada.

    have about 40,000 exporters in Canada (out of about a million potential
    exporters: Statscan), and while growing at about 17% (04/13), they are
    outsold by a few thousand foreign affiliates that have
    demonstrated 39% growth over the same period (and recall that goods
    sales decreased by about 7% during this same period, clearly
    demonstrating the sharp growth in services).

    Bottom line is that
    while exporting goods direct from Canada is increasingly competitive and
    specialized, the trend towards establishing integrated Global
    Chains, tapping into real time local knowledge and developing an agile
    response, has probably been the single most powerful factor in driving
    export growth.

    More firms should be looking to break with
    tradition, and consider opening a local office as their first step, but
    at the same time, not ignore the low cost and proven methods of market
    intelligence and establishing an online presence.