Going global: Three traps for new players
Tuesday, February 21, 2017/
Planning to expand a business overseas is an exhilarating prospect, but the road to success is littered with failures. While it’s easy to imagine your company with offices around the globe, leading the world in your particular sector, the reality is far more gruelling. It’s all the more so for small businesses, which typically have little experience in operating outside the domestic market and few resources to spend on an international expansion.
I want to highlight three of the biggest traps for businesses that are trying to expand their footprint beyond the home market for the first time. I see people falling into these frequently and I’m continuously surprised at how the simplest mistakes can have an extremely negative impact on an international expansion project.
So here goes.
1. Not knowing what you don’t know
It seems almost trite to spell it out, but when you expand into a new geographic market there will be a lot to learn and many variables that you won’t be aware of when you start out. The trap here is proceeding blindly and making assumptions, rather than doing research to find out what the market reality in the new target market is.
Taking this approach almost inevitably results in failure, or at the very least, wasted time and resources, as your new target market is almost guaranteed to be more different from the domestic market than you would have predicted—even if it’s a market that is similar to your home market.
2. Accidentally over-extending yourself
Launching a company overseas is very similar to starting your business from scratch, but with a whole lot more complexity attached. Before setting out, it’s imperative to know whether you are resourced—both financially and in terms of your team’s capabilities—to move forward. Not doing so leaves both the new international business, and the core business at home, exposed to a very significant level of risk.
If something goes wrong overseas, you may find that all your attention, and a good part of your finances, is diverted to propping up the international business, and this can have negative flow-on effects for the original business.
That said, it’s staggering how many teams skip the exercise of sitting down and calculating the potential direct and indirect costs of opening up abroad and working out a contingency plan in case things with the international business don’t go according to plan. These are the companies that are at greatest risk of over-extending themselves.
Last, but certainly not least, is the trap of rushing. Because the idea of world domination is so appealing and so different to the humdrum of running a well-established business, a fair number of business owners succumb to the temptation to rush into setting up abroad.
This can also be fatal, strategically and tactically. Strategically, because the company sets out without a picture of what success looks like and a roadmap for getting there, and tactically because the company embarks unprepared for the contingencies—commercial, regulatory and cultural—that inevitably arise.
Cynthia Dearin is managing director of Dearin & Associates, an international business consultancy that helps companies access opportunities and capital in fast-growing international markets.