In part one of this blog post, I look at four of the seven essential questions that companies entering a new country need to ask themselves.
Imagine the following scenario:
You’re the owner of a small but successful company that makes organic food products. The company is based in a regional centre (think Townsville, Newcastle or Ballarat) and has been operating for 10 years. You’ve done well selling your products in your state and in other parts of Australia and now have a team of seven staff. You’re thinking of exporting your products overseas, and are wondering how to get started.
Here are seven questions for you to consider before you jump in. Companies that can answer ‘yes’ to these questions have a much higher chance of going on to be internationally successful.
Is the company ready to enter a new market?
This might seem like a very basic question, but it’s a vital one. Before you get started, you need to be sure your team has the right skills and expertise to start operating in an international environment. For example, if you are selling your products in China, you’ll need a staff member or a consultant who knows how to market the product in China. It would also be very helpful to have someone who speaks and reads Chinese on your team.
It is also essential that you have made sure that the company has enough money to begin exporting. If you haven’t calculated how much it will cost you to export over a 12-month period and worked out how you can pay those costs if you don’t make money immediately, do it! There is nothing worse than starting to do business internationally and then discovering that you can’t afford to keep the operation running.
Are you confident you have chosen the right country?
Unless you’ve been living under a rock, you’ll know that markets like China and India are all the rage just now, and the idea of expanding there can be very tempting. If you’re just starting out, however, it might a good idea to start with a country which is similar to the one you know already. The reason is that the more similar the market, the less unknown variables you are likely to encounter, and the less risk you take on.
So, if you’re based in Australia, New Zealand might be a great place to make your first international foray (depending on your product – it it’s dairy products, maybe not). It’s culturally similar, they speak the same language and it’s not too far to travel if you need to visit. Contrast this with China, which is vast, culturally very different to Australia, linguistically diverse and quite far away. While the Chinese market seems much more promising at first glance (especially for dairy products), it’s also very different to Australia and so much riskier than New Zealand.
I’m not saying that new exporters shouldn’t go to unfamiliar markets – many have done it successfully – but it is important to carefully weigh up the risks before choosing a country, especially if you’re just getting started.
Are you sure your product or service is right for the country that you have chosen?
If you’ve been successfully making and selling organic food products in Australia for a decade, you may think that this question is ridiculous. After all, if your stuff is top quality (and it is) why on earth wouldn’t it sell elsewhere?
Don’t be fooled! You can have a great product, but if it isn’t valued by people in the country you are targeting, it won’t make you any money, no matter how good it is! Make sure that you’ve done your homework on whether similar products exist in the country you’re thinking of expanding to and how successful they have been.
If you sell multiple products, a good way of mitigating your risk is by simplifying your offering. You don’t have to launch all of your products into the new market all at once. You might prefer to test the waters and launch just one or two products in a couple of major cities. That way, you’ll be able to gauge what works and what needs adjustment before you’ve outlaid a lot of money putting your goods into the market. If your initial trial is successful you can ramp it up from there.
Do you understand your customers in the target market?
Wait a second – of course you understand your customers! You’ve been keeping them happy with the best organic food on earth for a decade. You know what they like and dislike, when they’re likely to buy and what will make them buy more.
The thing is, you’ve acquired that knowledge through years of customer contact in a particular market, but you don’t have any of that contact in a new market. You don’t know your new customers and they don’t you know!
What’s even worse is that customers in different countries can behave differently and there can be huge differences in traditions, social hierarchies and spending patterns. Television advertising may be different. Consumer credit may be different (or non-existent). Even apparently minor differences can have a big impact on customer behaviour.
The take-away here is that it is a mistake to treat a foreign market as though it is your home territory. When businesses expand into a new country, they need to identify what is different about winning and retaining customers in that country – before they start.
Cynthia Dearin is managing director of Dearin & Associates, a boutique international market entry consulting firm.