The finance leadership in your organization has a huge role to play when it comes to international expansion. And it’s more than a role focused on risk management or approval stamps on budgets.
It’s an active, creative role, in export experiments.
Why? Well, let’s consider the alternative. If finance leaders don’t involve themselves in the early stages of the process or take their seat at the table, it’s easy (and sometimes tempting) for sales and marketing teams to work around them in the interest of speed (which can mean haste) and simplicity (which can mean lack of oversight).
So to avoid being worked around or waiting to be asked, you can reframe the role. What if international expansion wasn’t a plan to approve, but an experiment to help design?
This article breaks down, in easy-to-implement terms, how finance leaders can add value to international expansion conversations, collaborate successfully with their energetic sales and marketing teams, approach pricing, and help shepherd a sound strategy through the hurdles of budgeting and resourcing.
First off, why should you expand into international markets?
The usual reasons for seeking international expansion are overall business growth or diversification in pursuit of long-term sustainability. Simply put, many businesses see international expansion as a way to grow or maintain their business by finding markets that they can access efficiently, by leveraging their current capabilities and resources.
Simple enough in theory. But to avoid becoming embroiled in a complex reorganization of resources, or blocked by regulatory obstacles, it’s important to have a clear picture of what success looks like ahead of time and what could get in the way.
That starts by acknowledging the various entry paths, and selecting the one that best fits the organization’s needs and abilities.
And you, as finance leader, play a role in these early conversations, as you bring a unique perspective to the table. You’re helping design the experiment after all.
Choosing a balanced path to expansion
Organizations typically choose between two options, or attempt to strike a balance between them:
- “Run & Discover”: Plan loosely ahead of time and revel in the agile adaptation process as you learn about the new market by actively participating in it
- “Plan Ahead”: Work out as many details and contingencies as possible ahead of time and methodically enter the new market prepared to conform to its requirements
As you can imagine, these two paths benefit from balance. To enter a new market completely blind, even with a propensity for flexibility, would be fool-hardy. And assuming you could ever understand a market completely without ever being part of it would be naive.
A balance must be struck.
And you can strike that balance by running an “FVP check”:
Feasible, Viable, Profitable.
It’s here that you can speak up in those early export conversations and help the individuals planning for international expansion test the feasibility, viability, and profitability of their entry plans.
Core questions to be asked—and that Finance will help answer:
- Is this idea feasible?
- Can we do this logistically with what we have today, or do we need to adjust something?
- Can we do this legally, with the permits and certificates we have today, or do we need other credentials?
- How much time and budget would we need to get ready? Do we have that available or accessible
2. Is this a viable path?
- Does this have longevity or is this a seasonal trend?
- Is this a reaction to a domestic market change?
- Are we responding to consumer demand or is this a blank slate approach?
3. Can we do this profitably?
- What is the profit margin we want (or need) to realize?
By identifying the feasibility, viability, and profitability of the expansion efforts, you are rewarded with clues as to which path to choose and how to balance its upsides and downsides.
For instance, if the organization determines FVP is a resounding ‘yes!’ and this is driven by both leadership energy and consumer demand with a seasonal timeline, it may want to lean toward a more adaptive and flexible approach (aka Run & Discover), making changes as the market context reveals itself.
But if the organization needs time to shore up logistical steps and is responding to changes domestically, with narrower profit margins, it may want to lean toward a more thorough and detailed plan before taking the next step. This could help ensure that it doesn’t financially overstretch itself in the early days and put undue pressure on the business and teams.
But it’s one thing to identify a market that might be ready for a new entrant. It’s entirely another thing to ensure the new entrant (your organization) is ready for the expansion.
How can Finance help manage these risks? By seeing things as experiments to be explored, established, and tested. This isn’t about creative brainstorming. It’s about shaping credible, constrained experiments. Ones that protect margin, mitigate risk, and give your team confidence to move.
Selecting the right sales channels
Once you’ve chosen your path, international sales and marketing expansion requires choosing your channels. And these have many financial considerations and impacts:
How will you sell and market your products or services in a different geography? How will customers become aware of the opportunity, how will they purchase it, and how will their purchase be fulfilled or delivered?
These can feel like Sales and Marketing questions, but savvy finance leaders get involved in these creative conversations.
The answer to these questions starts with an “assessment of control”.
Think about it this way: If the organization doesn’t need any control and doesn’t care to have it, you can partner with a firm that will handle all of these pieces for you and send you a cheque for sales and/or a bill for services rendered.
If it requires all the control, you’ll likely need to set up a permanent, local office to handle marketing, sales, distribution, and delivery. Not to mention the legal and regulatory paperwork and communication.
As you can see, the likely best path forward for most organizations is some balance between these two extremes. Therefore, you want to consider your capacity, your customer’s expectations, and the market’s behaviour.
For example, does anyone in the company speak the language? Can someone regularly travel to the market? Do you have the team bandwidth to manage a new market, or will you need to hire? What does your customer expect: hands-on help, asynchronous support?
The ensuing Venn diagram of your capacity, customer expectation, and market behaviour, will reveal an ideal market entry strategy to explore, and direct the pricing strategy to adopt:
- Direct or Indirect (aka Trading Entry) where you can leverage the supports of agents, resellers, distributors and wholesalers if you want extra help along the way
- Through licensing, franchising, or subcontracting (aka Transfer-Related Entry)
- With physical presence in the foreign market (aka FDI Entry)
You’ll notice that all of these have associated costs and/or savings and will impact (and be impacted by) the firm’s profitability.
Choosing the level of profit margin your organization wants to maintain or achieve is often either market-driven or value-based. And your export experiments will be structured around it.
Setting your starting price
Your prices can be set by the market and its expectations and bargaining power, or they can be set based on your costs and the value delivered with an additional margin added on.
This is another critical area for finance leaders to be involved in conversations and decisions. It may not be clear to sales and marketing teams what a planned price will do to the organization’s overall profitability, even if it makes the product or service easier or more likely to sell.
Conversely, sales and marketing teams may not be aware of opportunities to create savings or provide lower prices by benefiting from the firm’s financial capacity or tolerance for risk.
Pricing and selling decisions, made in a vacuum, are unlikely to fully account for your organization’s financial situation, requirements, or goals.
One key area to fully investigate is the “Export Price Floor”: That is, what is the absolute minimum at which you could sell into a new market without losing money?
To design the right experiment, you need to know it, including the often-overlooked export costs that can quietly undermine profitability.
Additional product costs can include:
- Modifications for market requirements
- Certifications for safety testing
- Packaging adaptations
Additional Sales and Marketing costs can include:
- Travel and trade shows
- Website adaptations
- Legal reviews
There are shipping and financial trade costs too:
- Duties, customs, and clearance fees
- INCOTERMS implications for insurance and payment timelines
- Commissions and professional service fees
If the price floor is higher than sales and marketing feel is feasible, this could trigger a careful look at the feasibility of the expansion. If the price floor, however, is well under what is deemed achievable, that represents a significant opportunity for profit.
And then, of course, there is the ceiling. Sales and marketing will likely have a clearer sense of the absolute maximum at which they could sell into the new market and still expect any customer uptake.
It is the balance, the just-right Goldilocks scenario, struck between these two boundaries that represents your “experimental space.”
No matter how thorough the pre-planning or preparation, it is unlikely that the first price will remain the permanent price. Costs will change as scale develops, competitors will emerge as success is demonstrated, and customers will assert their bargaining power as familiarity builds.
That’s why it’s key to see this range of possible prices as a space in which to credibly experiment. To find the right price by experimenting with what is possible and what is preferable to the firm and its customers.
It’s imperative for you to be comfortable with the terms and structure of those experiments. And that’s done by being at the table, collaboratively designing them from the start.
The winning mindset is a team mindset
Success is a team effort.
Financial leadership can guide teams toward successful expansion into new markets. But only if you’re playing an active, interested, and engaged role on the team.
When it comes to international expansion, nobody gets to stand on the sidelines and still expect to influence the final results. Your leadership will be critical to your team’s success.
So, with these reminders and questions on your mind, it’s time to proactively guide your organization’s expansion.
Because when you help design the experiment, you don’t just approve a plan.
You create the ideal outcome.
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