Milestone Group Quarterly: July 2005
Articles
Milestone POV: Jeremy Brown on International Expansion
Symantec, Autodesk, Microsoft, HP, Oracle, Dell, Apple, IBM, SAP -- What do these and many other companies have in common? Well, lots of things of course, but something that stands out in terms of growth and size? They all have very strong international businesses; in fact all of them have significantly more revenue coming from their combined international operations than from their domestic markets.
Rapidly growing, early-stage companies have to focus on domestic markets initially to build credibility with reference customers. To be a dominant force in future years, however, those same companies must also have a plan for international business development, which should be taking shape as early as possible. To name (and shame) those that failed to take advantage of their domestic leadership to become serious global companies would be self serving, but we all know who they are. For the large majority of companies it is not whether to expand, but when and how.
The “when” question is really split into two parts; when to start planning and when to implement. On the first, my own view is that it is never too early to start planning. Building an international plan into everything that the company does from the outset can only pay dividends in the future. If the management team is committed to being a global company from inception, it permeates through the entire organization and ensures that all key stakeholders are considering the international implications of any decisions they make. For example, particularly in software, there is the ever present decision about language support and double-byte enablement. Having a strategy on this, and other uniquely international issues, from an early stage (even if the decision is not to do anything about it immediately) is a vital part of building for success.
Although there are many other issues to consider, product development, of course, organization, finance, legal for example, implementation is usually associated with sales and marketing execution. Getting the timing right on sales and marketing is as important as doing it at all. Go too early and you spread yourself too thin. Go too late and you find that your early adopter clients have been gobbled up by your competition, you enter on a “me too” ticket and all the initial publicity juice that can be generated by bringing a new proposition to a new market has already been sucked dry by others.
But you know you’re not one of those companies, right ? You’re a forward thinking, risk-taking, dynamic organization that has international market development firmly on the agenda. You have management meetings where phrases like “global company”, “international focus”, “worldwide support” are present in the discussions. You’re on the right track …
Hands up, anyone who has been associated with a company whose first big international initiative was to buy the plane tickets? Thought so. I received an e-mail from a company in Japan. They say they’ve got a client for our software. Let’s get our business development guy to fly out and sign them up. And while he’s there he can sign up some other SI’s - that’ll get us going. Oh, and we should send him to Europe as well, that’s gong to be an important market for us. There’s that guy, what’s his name, that did such a good job with the resellers with his previous company, we should try to get him on board and then we’ll have a foothold in the market. Full marks for enthusiasm.
Of course, I’ve exaggerated the situation, but so often companies suddenly decide that it is time to do something internationally and then it’s headless chickens. International business should be the lion’s share of the company’s income at some time in the future. No one would treat their domestic business in a cavalier fashion, so why do it with the biggest long term market opportunity?
Before jumping on the plane, hold back, and do some serious planning and research. There is no sensible alternative to this step, and it is infinitely more expensive to correct mistakes than it is to spend the money on formulating the right approach in the first place. So what should you be asking yourself?
The first and foremost question often gets missed in the rush to do what seems to be obvious; why do you want or need to address international markets at all, and is this the right time? This seems to fly in the face of the contention that to be a successful player you need to have an international strategy, but there are some propositions which were only ever meant to address domestic markets, and the international strategy in this situation might actually be to very deliberately not have one. This is fairly unusual in the technology area, but it is important to have a clear set of answers to these sorts of questions:
- What are the overall goals of our various stakeholders, and does international market penetration feature as a requirement in those plans?
- What are the individual international market dynamics and requirements?
- What is our competition doing and why?
- Is international market entry a defensive play or a leadership position?
- What are the costs involved, and how do they compare with doing more of the same in domestic markets?
Get whatever help you can from experts either internally or externally to answer these questions. The company needs to be able to articulate the reason for international business development to the stakeholders, and to commit the resources necessary to make it a success.
So you’ve decided international business expansion is a strategic goal, and through a considered research and planning phase you’ve identified the key markets at least in terms of the suitability of the proposition and size of market opportunity. Hope you’re not on the plane yet. What are you going to do in each territory? It isn’t obvious because every market has its own idiosyncrasies:
- Language
- Culture
- Business methods
- Finance and tax implications
- Hiring policies
These are just a few. Make sure that you know what the business landscape looks like for each of the target markets before engaging. The consequences of “ready, fire, aim” are always costly.
Again, the answers to some of these questions, along with considerations about resources that can be employed, will to a large extent determine the type of business model used in each market. You can be certain that there is no “one size fits all”. Maybe:
- a wholly owned subsidiary or
- a set of contracted distributors and/or resellers or
- a joint venture with an exclusive partner.
Of course there are others, and it may well be a combination of several.
My own experiences in managing international expansion have been right across the board. On several occasions, for example, we felt it was necessary to be in complete control of market development; it was appropriate, though somewhat more expensive in the short term, to establish a subsidiary in the target country and to hire sales and support staff to provide in-country representation. On a separate occasion, it was quicker and less expensive to establish a presence through an exclusive agent; the market was much smaller, the risks associated with market failure were lower, the opportunity to acquire the business at a later stage was built into the plan from the outset.
Whatever you do, don’t get on the plane without knowing everything you can about the target market. Assume that you actually don’t know anything. Spend money to find out. It’ll turn out to be the best investment you could have made. By the time you get to the territory you will largely know who it is that you want to partner with and how you want to partner with them to make a success of the venture.
At last you’re on the plane. The company has gone through a thoughtful process of deciding to address international markets. It has gotten board level approval to commit resources to the initiative. Target entry markets have been chosen. Business models are understood. Potential partners have been identified. Enthusiasm is high. It’s a beautiful day. Can’t fail.
Jeremy Brown, Partner - Jeremy has been involved in all aspects of growing technology-based businesses across three continents for over 25 years. Having held senior management roles with venture-backed organizations including Alphablox and Symantec and worked with multiple start-ups, Jeremy has in-depth experience in most functional disciplines of technology start-ups and has led initiatives in Australia, Japan, UK, Scandinavia, France, Germany and the USA.
Jeremy holds a BSc in Management Science and an MSc in Operational Research and Computer Simulation from Warwick University, UK.
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