Following my opinion piece, “7 Questions You Need to Ask Before Expanding a Business to Emerging Markets,” targeted at small to medium sized companies, I have been asked to expand on the individual 7 questions.
The first question: “How does geographic expansion fit with our long term strategy?”
This is a basic question and the answer is not necessarily specific to emerging markets, but general for all geographies.
Usually a decision to expand into a new country results from a strategic review but can also come from a perceived opportunity, identified by sales, marketing, technical service, R&D or management.
If a new opportunity presents itself, say a key customer announces an investment in a new manufacturing plant in Vietnam, the first step management should take is to pull out the strategic plan and see how this new opportunity would fit within the current plan, or if the new situation warrants an update to the plan. If the opportunity does not fit within the plan, or if it is not important enough to take priority over other opportunities identified in the plan, then clearly it should be rejected. If however by not taking action, it could affect the relationship with a key customer, or if the opportunity is better than the current plan, or fits within that plan, then take the time to review the plan in light of the new information.
Any business or strategic plan, should not be static, but flexible so that it can be updated as new information comes in, or the business environment changes, as it inevitably will. To paraphrase William H. Seward: “The circumstances of the business world are so variable that an irrevocable strategic plan is synonymous with a foolish one.”
The main purpose of a strategic plan is to define where you can win, what success looks like and then ensure the best resources are allocated towards achieving that win. Often this means leaving behind other avenues of business that are less likely to generate success. To define where to win, it is necesary to define:
• markets, in terms of industry segments;
• products and
• geographies to focus on.
When researching these areas, the answers to one of these questions will certainly affect the answers to the others. So, for example, you may have a special advantage over the competition in skin care active ingredients, due to years of hiring the best people, investing in focused R&D and developing partnerships with key customers.
This assumes, therefore, that in preparing the plan, time was taken to understand what the company does well, what the company doesn't do well and where there is need for improvement.
It also assumes that current activities have been examined, core businesses identified and the best opportunities evaluated. For example, if the primary business is vegetable oils that are sold into skin care, look at:
• other grades of oils,
• producing natural derivatives, from the oils, like butters,
• looking at the discarded parts of the vegetables used to make the oils to see if we can make extracts, derivatives or scrubs,
• selling the oils for lipstick and color cosmetics,
• if we are very successful in Japan or Mexico, how about Korea or Brazil?
If skin care is the selected market, then slice and dice the customers to see if the best target is small, large or medium sized; global or local; requirer heavy technical service or not, etc. Clearly, however, the best customers will be those who specialize in skin care and treatments. Look at the fastest growing segments within skin care, where your technology fits best, and that also determines the key products. In addition look at which geographies have the largest skin care markets, which are growing quickest, which have the trends that you have anticipated in product development, and where there is a concentration of customers that fit your ideal customer profile. Be sure that the market is active in terms of consumer product launches within the chosen category.
By now, you have identified a key market segment, the key customers and the key products for those customers, identified a country where you are currently not active, quantified the opportunity and found it significant and growing fast in your key market segment. So, should you buy an economy class ticket and send a sales person on a 14-hour flight? Well, not just yet, there are still a few other questions that must be answered before you can make a good business decision.
Does Geographic Expansion Fit Your Long-Term Strategy?
Chris Humberstone reviews the checklist that must be completed in order to grow successfully beyond your borders.
By Chris Humberstone, Humberstone International
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