“One of the
reasons all but the most well-financed entrepreneurs remain mostly local
phenomena is that part of the skill you need as an entrepreneur is
knowing your own turf and market. Assuming you can re-create it
elsewhere involves an amount of recklessness and grandiosity.”
This is what Michael Wolff wrote in his 2008 book about Rupert Murdoch, The Man Who Owns The News. The comment applies to any entrepreneur with the audacity and presumption to expand offshore.
Why would you do this? What is your driving force? Then, where do you
start such an expansion in a world of nearly seven billion people? When
should you try? How important is timing? What are blow-by-blow,
detailed steps you must take? And finally, who should you pick to help
you? I’m going to solve these puzzles with you by offering some
practical tips you can immediately apply to your own enterprise.
If you have expanded overseas already or aspire to, the commentators
have it right. You are more passionate than most, ambitious to the hilt
with a hint of arrogance, and with a larger-than-life ego masked
somewhat by a calculating temperament. If entrepreneurship generally is
an extreme sport, entrepreneurs who attempt overseas expansion are
adrenaline junkies of the most adventure-seeking, life-living kind.
There is danger at every turn. The latest venture is precarious yet
breathtaking. Your mantra is “yes, yes, yes, I know all the problems, but it can be done.”
Whatever the unusual personality traits which drive you to try
international expansion, you should do it for the right reasons. Money
and social cache are not good reasons. The right reasons are that you
have run out of local expansion opportunities and you want to see if you
can do it. In my view, horizontal integration overseas is a far harder
strategy than simply finding complementary businesses at home.
You’ve heard the gratuitous commentary: “China is the new frontier of opportunity” and “India is better because they speak English.”
Ignore this free advice. The world is littered with failed entries into
China. A New Yorker who lists successful Chinese companies on NASDAQ
recently told me that transactions are harder to find, that developing
deal-making trust with Chinese takes too long and now Chinese entrants
are forcing him to strike marginal deals in regional cities. India is
just as precarious. A Singaporean entrepreneur I know was completely
blindsided by systemic Indian corruption and that his overseas Indian
expense forecasts were inadequate for the realities.
Choose wisely and test. Examine a target market actively for two
years before entering. Examine does not mean aimless Google browsing.
Line up eight meetings a day in a foreign city and hop on a plane. Talk
to competitor customers, suppliers and run a few exploratory interviews
for staff. Ask a lot of questions. Take notes. Five days like this is a
week-long, eye-opening odyssey. You will learn infinitely more than
years of whiling away time on the net and listening to well-meant but
ill-informed advice.
You want this point emblazoned in your mind: local success does not
automatically translate to international success. Analyse, prepare and
test. Check the overseas competition. Once you’ve done an investigative
trip or four, execute an insurgency campaign. Employ contract staff to
work the same timezone as your target country. Produce and market from
your home-base. Inject yourself from afar and assess the results without
committing to costly overseas infrastructure. You will gain many
kernels of truth for a future harvest.
Blind will to expand overseas is insufficient, even dangerous. You
need to master the art of timing. Elements to consider are whether your
target market is enjoying boom times or labouring under recessionary
conditions. Avoid recessionary or unstable markets. This filter alone
eliminates so much of world’s spluttering economies at the moment.
Counter-intuitively, buoyant countries may have near full employment.
Tight labour markets are tough for foreign entrants in need of a new
team. Timing is not just about high-brow macroeconomics though. Do you
have enough capital to expand? Have you built a network of knowledgeable
locals on which you can rely? Are your overseas competitors doing well?
How do you expand overseas? Here are seven of the most critical points:
First, make yourself redundant! If your local business needs you to
perform daily tasks, you are not free on a full-time basis for your
overseas venture. Launching a business internationally is a 16 hour a
day commitment. You need to be rested, alert and obsessive about your
new venture. This is impossible if you have to be active in multiple
timezones.
Second, conduct due diligence on your estimated personal costs in
your chosen country of residence. Factor in differences in housing,
clothing, food, transport, medical, insurances and, if you have
children, schools.
Third, secure support from your spouse. Describe what you want, the
effort it will take, the impact on your daily lives together and the
possible rewards. If your partner says no or is reluctant, do not
proceed. Without emotional and domestic support, little in life is
possible. Though this applies to all type of domestic arrangements, I am
reminded of that old saying “Men may rule the world, but women rule
men!” Never underestimate the importance of a happy home-life, in
whichever country that may be.
Fourth, run the same due diligence exercise now on business expenses
in the target country. You need to closely examine prevailing salary
rates, employment regulations, termination procedures and employment
costs such as social security, health and pension funds. While the
countries in which I have experience share common themes on these
points, the differences in detail never cease to amaze. Use local
professionals to assist. Then scrutinise business location, office rent,
telephone, internet, stationery, banking ... the list is extensive.
Fifth, fail to examine your overseas competition at your peril. Be
thorough. Never underestimate the strength of incumbency. Take the
approach that you are trying to mount a charge against a hill-top
castle. Probe their period active, current capacity, their markets,
price, cost-leadership, customer loyalty. Then analyse the market for
unexploited niches.
Sixth, have the proper funding. Write a forecast profit and loss.
Then do a cash flow to reflect it. Whatever injection your cash flow
requires of you, double that figure. Here’s a 100% guarantee: your
P&L and cash flow will have overstated revenue and made inadequate
provision for expenses. You need to cover contingencies.
Seventh, systemise your business pre-launch. This is not just about
IT. Systemising your company relates to the human dimension including
your policies, procedures and training documentation covering how you
want various jobs performed. Systems can be physical such as furniture,
fixtures, electronic hardware, folders, stationery and kits. You need
templates and forms to standardise the way you do business. Don’t do
this on the run after launch. Then you need to concentrate on product,
marketing and customer service.
Who should come with you on the expansion journey? Well, the short
answer is, apart from you, no-one! I am a firm believer that you need
local talent not transplanted expats. Expats have to learn their new
environment. Locals often have decades of experience to bring to your
table. Let them educate you. Prepare for and consider the inevitable
cultural differences. These include language, hours, attitude to
authority, laws, family, religion, attitudes to time, deadlines,
follow-through, work ethic, ethnic cultural variations, conversational
nuances, silence and its different meanings, tolerance to intrusion of
personal matters in the workplace. Adjusting to these factors slows you
down and adaptation requires more effort than you can ever imagine. In
my view, cultural differences are best managed by employing local
talent, letting the differences seep into your new business culture and
you adapting.
Here is the bottom-line. Michael Wolff's description is correct.
Assuming you can re-create your business success overseas does involve
some degree of recklessness and grandiosity. With understanding and
careful planning, I believe international expansion can very easily be
the most rewarding professional activity of your life.
