By Chris Humberstone
Humberstone International Inc.
A decision to explore expansion to new geographies can come from many sources, including an internal idea, a customer requirement for local inventory, envy of a competitor's triumph, or from a strategic review.
Getting a business started in a new culture and strange business environment and usually in a different language, can seem just too much for many small- and medium-sized businesses. The home market offers plenty of opportunities and expanding is a risk. So is it worth it?
Well, despite the usual hiccups, emerging markets are growing faster than developed markets, and the local and foreign companies who are successful get accelerated growth.
Also the local companies in emerging markets are getting stronger and looking abroad for even further growth, so competition in the developed markets is going to heat up.
The companies who are developing products with “frugal innovation” also have the advantage of understanding how to reengineer or develop a product for a lower priced market with as good or better benefits, and as these products hit the market in developed countries will your business be able to keep up?
So should you expand to new countries? Here are 7 questions you should ask to see what is needed to prepare and to be able to take advantage of emerging market opportunities:
1. How does geographic expansion fit with our long-term strategy?
2. Do we have the right people, are we generating sufficient resources and are we willing to invest in a geographic expansion?
3. Do we understand the opportunities, the key market trends, the customer's requirements and desires, the barriers to entry and the legal environment in each market we are considering, and do we know which market has the best fit with our cultural, language and market knowledge?
4. When we have expanded before to a new market or new country, where were we more successful and why, and where were we less successful and why?
5. What is the best model for us to meet the needs of our customers locally, short term and long term? Have we considered all the options? Should we handle major customers directly, or use agents or distributors, or establish a new branch or joint venture, or grow through a local acquisition, etc.?
6. If we have chosen a geography, have we quantified the opportunity and do we know which customers, markets and products we should target?
7. How do we measure success? Are our plans and goals realistic and what action should we take if we don’t meet those goals?
Clearly there is crossover between these questions and they cannot be answered in isolation from each other. Neither can they be fully answered until the basic long term strategy work is complete.
This list is not meant to be an exhaustive list of all the questions you need to answer or things you need to know, but a general idea of the preparatory work that should be done to avoid the most common mistakes and quick failure.
Once a decision has been made to explore geographic expansion, the country chosen should offer the best chance of success. Perhaps it is a market that an employee or group of employees knows well, or a major customer has asked for your company to be present and will purchase a minimum quantity locally, or perhaps a business partner is expanding there. It could also be that this is the market that has the greatest potential to buy a currently successful product or line of products. In every case a deep understanding of the market is essential before the final decision is taken.
Additionally a long-term business plan to quantify the opportunity, determine needed resources, review the competitive landscape and identify costs and critical factors for success is highly recommended. Many small and medium companies are focused on building their business and taking care of their customers and haven’t yet taken the step to prepare a strategic plan. For these companies, the best advice is to start small. Get a team of the best people together and build a simple three year plan. Then every year the plan should be refined and improved.
There are various reasons for companies to fail in developing markets. One common example of failure is when a company continues to invest in marketing, training, travel and samples etc., but the results are simply stagnant or never meet expectations. Sometimes it is because they failed to understand what would be needed to be successful from the beginning and when they started to run into difficulties, they developed responses based on their misunderstanding, or perhaps worse, on how business is done at home. This can lead to mistakes upon mistakes and unplanned investment in an already failing strategy. Sometimes the wrong distributor or manager was chosen, and if it is not understood how the error was made, the same error can be repeated.
There are risks in expanding to emerging markets, and there are risks to standing still and not investing, but for those with an open mind and who are willing to understand and plan, the rewards can be very lucrative and very well worth the effort.
About the Author
Chris Humberstone is president of Humberstone International Inc., a company that specializes in helping personal care ingredient businesses maneuver the intricacies of global challenges.
“Working in senior executive positions for a number of personal care ingredients firms, I witnessed many of the frustrations and growing pains companies have transitioning from a national or regional company to one that acts on a global scale.
Experience has taught me that navigating and winning internationally is not just a matter of following the same tried and true business strategy and game plan. There is almost always a steep learning curve, and numerous - and potentially costly - cultural obstacles that need to be identified and addressed in order to succeed.
After 30+ years of managing global business on three continents for others, Humberstone International was created in 2008 to offer hands-on assistance, expertise and market knowledge to those companies that want better international capabilities, connections and opportunities.
We work with specialty chemicals - mostly personal care ingredient manufacturers and distributors - and to date have successfully helped many of our friends expand their presence throughout Latin America, Europe, the US, Asia and the Pacific Rim.”
Chris is a member of the Society of Cosmetic Chemists and the American Chemical Society.Currently residing with his wife in South Florida, he has lived in London and Manchester in England, New Jersey and Los Angeles in the US, as well as Sao Paulo in Brazil and México City DF, in Latin America. He speaks fluent Spanish and Portuguese and has a working knowledge of both French and German.
More info: www.humberstoneinc.com