Starting Small, Thinking Big: How to Select Your Ideal Export Market

In the last couple of weeks, I’ve been working with a company in the food & beverage space which is right at the beginning of its export journey.

We’ve done some initial research for our client and narrowed down the markets we believe they should target to two countries. They’re quite different markets and they’re located on different continents. One is larger and further away. One is smaller and closer to home. One is culturally similar, one is quite different.

Among the leadership team there’s excitement at the possibility of scaling internationally, but also some nerves.

Two of the questions that keep coming up are:

How do we know which market is the right one?

How do we know if this will work?

I know that many business leaders who are ‘going global’ are asking similar questions, so I thought it would be worth sharing the answer I gave my clients here …

Feasibility or value?

In selecting a target country, businesses are faced with two competing goals: feasibility and value. In other words,

“ How do you assess the likelihood of success in the target country? And how do you assess the ultimate market size of the target country?”

Knowing how to answer these questions is important because it helps us to understand:

• where we can get the most bang for our buck (usually in the biggest markets), and
• whether we can successfully operate in the markets that provide the most bang (big markets are usually complex and challenging).

If we aren’t ready to successfully operate in a major market, we need to work on developing our international capabilities by, for example, choosing an easier market first and then working up to the larger, more difficult market in time.

No need to "bet the farm"

The good news is that the decision to go into new markets does not have to be one big, irreversible commitment - there's no need to "bet the farm". Going global can be? a series of smaller experiments. This ‘test and measure’ method is a great strategy for mitigating risk. If the experiments result in success, you can use the lessons from that success to help you explore future commercial opportunities. If the experiments lead to a money-losing operation, you can use the lessons from the failure to consider whether you ought to try expanding elsewhere or can make your operation profitable by making informed changes to the strategy. That said, the more structure and logic you use and the more research you do before starting, the less likely you are to lose money.

In my opinion, international expansion should be a series of relatively inexpensive experiments. You begin with a hypothesis, such as ‘that expanding into China will be profitable for our company’. If you can analyse the risks and opportunities of expanding to China before you actually commit resources, you can use the insights gained from the analysis to boost your odds of expanding profitably into China.

If you are expanding internationally, it is also very important to work out which country best fits your criteria.

What are our criteria?

What should your criteria be? Here are some key points to consider:

a) Don’t underestimate the complexities of the new market. Many countries seem similar, at least superficially. They have similar languages, currencies, transport systems and hotel lobbies. However, every market has its own practices; some of them are cultural, other are mandated by law. It’s not always easy to discern these differences from the outside. The point is, it’s easier to start with an easier target than a more complicated one. You are learning and so is your company. One challenge for a lot of businesses is that everyone wants to run a marathon, but no one wants to run a lap. One way of taking some of the risk out of expanding internationally is to start with a country that allows you to run a lap.

b) Realise that the end comes from the beginning. Where you end up is not necessarily where you want to start. Ambition is very healthy and it is great to have big dreams, you just need to temper it with what is possible in the immediate future. If your goal is to be the best at what you do in China, it doesn’t mean that you have to start in China if you haven’t worked or sold overseas before. You could (and probably should) start in Singapore and Hong Kong, both of which are far easier markets for foreigners. You will build expertise with each market. China will still be there when you are ready and you’ll have the expertise to do well there, rather than making mistakes and encountering hurdles which sink the business. Your ability to compete and win in the Chinese market will be improved if you take time to develop international expertise. Going there too early will expose you to added risk and the possibility of setbacks and consequent reputational damage.

c) Keep it simple. Pick a small target. You don’t have to launch your entire product line all at once in a new market. You don’t even have to cover the entire new market all at once. Just start with one city, test out your mode of market entry and see how it goes. This is a smart way of dipping your toe in the water.

d) Use an incremental business model. Don’t hesitate to start in a modest way, using a simple, low-cost business model. Don’t invest in buying offices and warehouses if you can rent them. Better still, work with a distributor or look at creating a strategic alliance with someone in-market who can reduce your overheads by loaning you office space and save you company registration and licensing fees while you figure out whether the market is really right, by letting you operate as part of their business.

e) Take advantage of proximity. If you’re an Australian company (for example), the US and UK are key markets that you may want to target. But if you are small and haven’t done anything outside Australia, you might consider trying New Zealand as an initial step. One reason for this is that you can hop across the Tasman Sea on short notice and do it frequently, without it destroying your normal work habits, your sleep and your family life. There’s no way around it, you just can’t bounce up to N.Y. or London as often as easily.

f) Seek homogeneity. Because of the complex nature of expanding a company internationally, you should do whatever you can to minimise the number of variables that you have to deal with. To the extent that you can, reduce language, culture and currency differences, this will increase your chances of success.

g) Understand trade barriers. Trade barriers have declined rapidly over the last 65 years, but they still exist in some markets and depending on your industry, you may need to understand tariffs and duties as you go about choosing a market. Even more important are non-tariff barriers (NTBs). These include barriers of standards and labelling that can be punishing for foreign operators. E.g. if you manufacture a food or a cosmetic product, how will the testing body in the target market evaluate your product? To keep it simple, you are better in the early days of international activity to stick with countries where your country has a Free Trade Agreement (FTA) or a well-established trading relationship.

h) Focus on downsides as well as upsides. Initial market selection has to be carried out with a focus on the management of cost and risk as well as on the opportunity in the market.

i) Remember the global channels. Technology now gives us the ability to market globally even as we pursue a new target market. You can reach clients around the world through Facebook, LinkedIn, Instagram, Twitter, Tik Tok, WeChat, SnapChat … and the list goes on. You can make your website accessible to foreign customers by localising it (translating it into their language) and adding options for payment (e.g. PayPal, Union Pay if you are dealing with China). You can also participate in international trade fairs.

If you’d like some help to get your market selection right and make sure that your venture into international markets flies (not flops), connect with me here on LinkedIn or visit dearinassociates.com to find out more.