Market Research

7 Tips for successfully expanding offshore

“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.

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