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.

The post Take the gambling out of global expansion by making decisions based on real data appeared first on Trade Ready.

From the tale of the tortoise and the hare, to the African proverb which counsels eating the elephant one bite at a time, we’re conditioned to tackle challenges with consistent and deliberate effort.

That conditioning and mindset, though, has both positive and negative implications to companies’ global growth plans.

Of course it’s important to avoid rash moves which could jeopardize a company, or even impinge on other important, strategic projects and core business. But it’s also often easy to rationalize hesitance, or to justify an excessively timid and incremental approach to growth, based on “prudence.”

Sometimes bigger, bolder steps are essential for global growth.

The advantages of grinding it out organically

Most small and medium size companies approach international expansion with the assumption that they will build their sales one customer and one partner at a time. It’s an understandable assumption, since most export support resources start with that bias as well.

Advice on finding customers and distributors is common, and implicitly validates the presumption that organic growth is “the right way” to go global.

The organic growth model offers SMB’s some clear advantages.

It is inherently incremental. It allows companies to step into exporting generally, and specific markets gradually; with minimal investment and correspondingly low risk.

Where traditionally market selection required extensive research and, ultimately, a best guess, today’s digital marketing allows companies to incrementally take their market opportunity cues from tangible data such as the flow of traffic, leads, projects and customers, which they generate remotely.

For many small and lower-middle market businesses, this approach is also the most viable one. Whether $2 or $20 million, companies are cautious about making a large greenfield investment in entering a new market, so most SMB international expansion tends to be organic growth.

The stagnation and frustrations of the organic growth model

Of course, there’s a flipside to the gradual and incremental nature of organic growth. It takes a long time and a lot of hard work to move the needle.

Growing one customer at a time at home requires patience and a long-term perspective.

Doing it internationally, with the attendant frustrations, longer selling cycles, and resource requirements of travel and management attention, magnifies the need for patience and a long-term outlook.

Market-based factors also confound organic growth approaches in certain cases. For instance, commercial success in some markets follows long-term relationship building. Companies often require a certain length of time, number of projects worked and degree of cultural exposure to begin to understand buying habits and value proposition for products in new markets.

Regulatory idiosyncrasies of markets may also act as a drag on organic growth efforts.

You can accelerate international growth with an inorganic approach

Assuming a company can scale rapidly to meet demand (manufacturing/service delivery, working capital, etc.), there’s another option which doesn’t get as much middle market attention as it should.

Inorganic growth, expansion through M&A (merger and acquisition), or other ownership activity such as JVs (joint ventures) afford acquiring companies the opportunity to “bolt on” a going concern in a market.

That immediately provides:
• revenue
• profit
• existing relationships
• captive customers for horizontal sales
• in-house market savvy
• regulatory infrastructure
• brand equity
• sales, customer service and logistics infrastructure

In other words, it’s an instant foreign market business.

Many assume this is only the domain of the F1000.

While the most widely discussed transactions are the mega deals, there’s nothing that limits middle market, or even small companies, from such activity.

In fact, sitting in a hotel lounge in Abuja several years ago I met a Chinese-born American attorney from New Orleans whose specialty is due diligence on foreign acquisitions by U.S. companies with less than USD $10MM in revenue!

That’s a niche for sure, but proof positive that small and lower end middle market companies can use the approach as well.

SMB’s need to change their perspectives and mindsets

Much like exporting and international sales itself, the biggest barrier to inorganic growth is often mindset. American SMBs don’t typically consider acquisitions or JVs as a path to growth.

In contrast, companies from other countries are more commonly predisposed to international sales expansion, and according to data recently published by MergerMarket & Mazars:

• 50% of global middle market companies plan to make a foreign acquisition over the next three years
• 34% anticipate making at least three acquisitions
• 73% say that “access to a proven business model is the key driver of their acquisition strategy”

They plan to not only “buy” new customers, often paying for the acquisition largely with the accretive earnings they acquire, but further buy a strong business with a track record of success in a market which would take them time, energy, and costly mistakes to penetrate and develop.

Bank of America’s 2015 CFO Outlook found that CFOs cite “in market subsidiaries as the most popular vehicle for international expansion.” Building those from scratch is generally slow and speculative – acquiring them solves both problems.

A transaction can also unlock strategic opportunities.

In Brazil, for instance, tariff barriers make market entry from abroad extraordinarily difficult. Often a local assembly partnership is an important element of a market entry plan which avoids the competitive disadvantage of high duties.

I wrote recently about how the current chaotic state of the Brazilian economy is creating an environment of distressed valuations among established companies with unexpected liquidity challenges.

It could be a great time to enter the market – and a transaction could be a fabulous way to do so.

Be sure to manage the risk

Acquisitions can be complex and there are many stories of deals which went sideways – even domestically. Some research indicates as many as 70-90% fail.

International considerations complicate the upfront due diligence, and the cultural and business integration which follows the transaction. It’s not appropriate for every company or market.

It demands a well-developed corporate strategy, clear market objectives, an acquisition profile, and talented advisors and investment bankers.

Companies which are committed to long-term global growth, have some foreign market experience, and weigh the opportunity cost of missed opportunities resulting from gradual market entry will find that it’s an important growth strategy to consider.

Have you considered inorganic expansion strategies for your SMB? What inorganic tactics have you used to foster international growth?

The post It’s time for SMB’s to consider inorganic growth strategies to expand globally appeared first on Trade Ready.