Strategies for Global Expansion: Entering New Markets Successfully
Global Expansion

Strategies for Global Expansion: Entering New Markets Successfully

Expanding internationally is enticing for many companies. Globalisation is accelerating, opening up possibilities. Emerging economies like India, China, and Brazil offer lucrative opportunities with their large populations and rapid growth.

Expanding overseas has significant challenges. Despite planning, companies are often caught off guard by nuances in diverse cultures and operating environments. Remember Uber’s debacle in China or Amazon’s losses in India? When they get the formula right after trial and error, the payoffs can be huge. Let’s explore global expansion for transformational growth instead of chasing mirages abroad.

The critical starting point is defining why your company should go global. What strategic objectives are you aiming for? Do you want to access new customer segments not reachable domestically? Or diversify risks by reducing dependence on your home market? Once the rationale is clear, we can select markets, find local partners, adapt products, hire regional talent, and counter operational risks.

Execute well, and opportunities arise. Falter, and global aspirations unravel, disappointing teams and frustrating customers. The stakes are high for international expansion. Success is worth it with planning, research, partnerships, and local adjustments.

Why expand globally?

Companies expand beyond their home markets for three primary strategic reasons:

Access new customers

Entering new regional markets allows companies to tap into previously inaccessible customer segments. Consumer preferences vary across geographies. Products that appeal to American tastes may fail to entice Indian or Chinese buyers. Companies focusing solely on domestic consumers restrict their access to millions of potential new customers abroad.

With the rise of the middle class in emerging economies like India and China, new demographics with purchasing power have emerged. The scale of these “hidden” markets makes them attractive. Product categories near saturation domestically have room for growth overseas. Companies leading in their home markets must look to international regions to sustain ambitious targets.

Global expansion is imperative for ambitious, growth-oriented companies. In 2019, overseas revenue accounted for 28% of S&P 500 and 35% of Fortune 500 corporations, highlighting the importance of international markets for corporate performance.

Diversify business risk across markets

Companies that rely on one location are exposed to local economic and political volatility. For example, Mexican conglomerate Femsa gets 80% of its revenues from Mexico. So, when the economy slumped in 2019, the company’s performance declined despite no operational issues. In contrast, Unilever operates in 190 countries, delivering consistent results by balancing softness in some markets with strength in others.

Global interlinkages between economies mean that weaknesses in domestically focused companies reflect in poor share price performance during global crises regardless of their underlying businesses. For instance, during the 2008 global financial crisis and 2020’s pandemic-induced meltdown, inward-looking firms suffered share price declines similar to multinational corporations across down markets.

Multinationality serves as a helpful shock absorber when weakness in some areas cushions corporate performance drops by offsetting strength in other markets. Harnessing international diversification requires establishing operations across critical regions and optimally allocating capital based on market conditions and priorities.

Gain a competitive edge

Expanding globally allows companies to incorporate regional insights from new geographies into their offerings, gaining an edge over rivals confined to domestic markets. Products can be tailored to local tastes, preferences, incomes, and climates. Companies can leverage diverse talent pools and cost variances between countries to their advantage.

Companies like Unilever, Procter & Gamble, Toyota, and Samsung operate global R&D facilities to improve existing products and develop new ones. Unilever found that American consumers prefer citrus scents in cleaning products while Asian consumers favour eucalyptus fragrances, leading to regionally differentiated formulations.

Engineering talent costs in India compared to the U.S. This attracts firms to position software programming and chip design teams there without compromising quality. For instance, Samsung has made India one of its largest R&D hubs outside Korea, allowing it to benefit from the country’s technology pool and lower costs. Its centre is one of Samsung’s most productive sources of software and hardware innovations.

Harnessing global insights, resources, and talent gives companies lasting competitive advantages over rivals tied to their home terrain in innovation, costs, and customer experience.

Global Expansion

Global expansion offers transformational opportunities, but it requires meticulous planning and execution. Let's explore best practices for critical aspects like market selection, distribution partnerships, talent strategies, product localisation, marketing, and risk mitigation for successful international expansion.

Strategically choose markets based on data and internal resources

Companies are tempted to enter every growing market, but expanding into too many countries too quickly can overwhelm even resource-rich corporations. Hence, they must evaluate macro and micro aspects of potential expansion locations and prioritise markets strategically.

Assess market size, growth rates, demographics, competitive landscape, language, time zones, infrastructure quality, political stability, policy environment, and cost. Supplement quantitative data with insights from experts and visits to prospective geographies.

Companies must assess internal resources and capabilities to select markets that align well while deprioritising or slowing down entry into locations where capacities may be inadequate. Resource determinants include managerial bandwidth, technology infrastructure, operating budgets, working capital, and technical skills. The crux lies in selecting markets thoughtfully to balance growth ambitions with prudent risk management. UCLA exited Russia in 2015 after a failed expansion strategy, while car rental leader Avis retreated from India in 2013 after entering a decade earlier, so mistakes carry lasting consequences. Hence, companies must make their initial choices and prioritise right.

Research customer needs and competitor offerings

Aggregate market data provides an overarching perspective, but success in a market requires deep customer and competitor insights. Companies must invest substantially in primary and secondary research. Conduct surveys, focus groups, and ethnographic studies to understand consumer needs, values, aspirations, and pain points.

Analyse competitors’ product portfolios, pricing strategies, promotions, channel partnerships, and strengths and weaknesses. Japanese toymaker Tomy conducted on-the-ground research to identify gaps in incumbents’ offerings before entering India. It discovered that existing products did not fully reflect Indian sensitivity to affordability, allowing Tomy to gain share rapidly with competitively priced items. Research gives companies key customer and competitor insights for localising products, pricing them suitably, and positioning them effectively.

Forge partnerships with local entities

Navigating complex markets requires local partnerships with regulators, distributors, retailers, vendors, industry associations, and marketing agencies. These relationships provide business intelligence and execution capacity leverage. They keep companies updated as regulations in emerging markets evolve continually. Collaboration with local entities minimises missteps, as distribution patterns, shopping behaviours, credit infrastructure, and languages vary across countries. They also demonstrate commitment through local job creation.

A.P. Moller – Maersk partnered with government agencies and local companies during its China entry for permits, warehousing, and transportation infrastructure. Similarly, Apple partnered with local telcos and retailers upon entering India to scale distribution. Partnerships aid positive branding through goodwill creation with local entities. They enable gaining intelligence, building capabilities, expanding distribution, and elevating branding in new locations.

Tailor marketing communication and channels to local preferences

Product messaging and positioning that resonates in one culture may falter in another. PepsiCo had to alter ad campaigns created for Western markets before deploying them in the Eastern markets of India, China, and Japan. Similarly, messaging invoking individualism worked in youth-focused ads but failed in collectivist mindsets across Asia. Companies must adapt marketing communication to align with local lexicons and attitudes, deploy appropriate media mix and emphasise cultural values like relationships, family, or community.

The usage of digital channels versus traditional outlets for engagement varies. WhatsApp, WeChat, and Line dominate in Asia, while local cable TV channels command mass reach in Latin America. Digital usage in local languages far outweighs English – 90% of India’s Internet users prefer local languages. Marketers must channel messaging to platforms and languages aligned with local preferences through partnerships with local entities skilled in segments and cultures, or communication fails to ignite interest.

Attract and develop local talent

Success across countries depends on the capabilities of on-ground teams interfacing with customers, partners, and vendors. Locally hired talent possess language fluency, cultural know-how, negotiation skills, and networks that remain unrivalled despite the intensive training that headquarters teams might undergo. They grasp nuances and improvise ingeniously, creating lasting bonds with customers and partners.

Leading companies invest in attracting and developing local talent. Huawei hired over 150,000 people and opened 23 global training centres for technical and managerial functions. These initiatives resulted in 75% of positions overseas being filled by locals. Investing in local talent helped Huawei gain market share in Asia, Europe, and Africa through on-ground execution and relationships.

Companies must localise their employee base across functions to drive lasting success overseas, apart from SHO positions filled by HQ staff. Local talent pipelines embed key traits of trust, familiarity, and authenticity that are tough to instil otherwise.

Manufacture products locally

Supply chain advances notwithstanding, importing products instead of manufacturing locally is suboptimal. Producing creates local jobs, lowers logistics costs, adjusts production volumes flexibly to local spikes (hard to achieve via imports), reacts faster to regional competitors, and leverages vendor relationships for efficiency and quality.

Imported products face higher duties and longer lead times compared to local manufacturing. Lenovo and Xiaomi manufacture smartphones locally in key Asian and African markets to meet local demand and avoid high import duties that make pricing uncompetitive. Local production and sourcing align with government policies favouring Indigenous sourcing in pharmaceuticals, electronics, machinery, and automobiles. These advantages outweigh cost savings from centralized production for products targeting middle—and lower-income segments.

Mitigate operational risks

Some initiatives will underperform across international markets due to uncertainties like changing regulations, political upheavals, weak infrastructure, graft, cultural misalignments, or internal inability to scale programs despite best efforts. Companies must mitigate risks through thorough planning and disciplined governance.

Implement new initiatives as pilots focused on learning rather than scale. Target easily accessible regions within large countries to deploy—southern India ahead of the Hindu heartland, coastal China over interior provinces. Restrict budgets and decision authorities to minimize risks.

Establish clear review processes based on pilot outcomes. Metrics should cover business KPIs and process measures to capture scale challenges early. Assign accountability for milestones clearly.

Before allocating extra budgets, link rollout commitments to pre-agreed milestones. Set tight governance limits on in-country resources and authorities. Exit quickly if data confirms weak outcomes but increase efforts if there’s clear momentum. Diligent governance cushions against operational risks while permitting swift scaling successes.

Globalization’s Shifting Nuances and Continued Momentum

As companies navigate international markets, they must stay updated on policy dynamics. Geopolitical factors have led many governments to promote local production over imports. Despite initial foreign investments, nationalist regimes carry long-run risks. Tariffs can fluctuate due to political decisions. Mounting sustainability concerns means that environmentally harmful practices risk censure and activism. When expanding globally, corporations must blend optimism with calculated risks.

Despite the challenges, one must acknowledge globalisation's irreversible momentum due to transparency, connectivity, mobility, access, and innovation. Companies can harness these forces. The strategic underpinnings for expansion remain intact, if not more compelling. With prudent strategies rooted in rigorous planning, most can tap into global markets successfully. Globalisation's evolving nuances require agile adjustments, not wholesale avoidance of international terrains holding promise.

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