So many foreign markets, so little time

Designing effective international expansion strategy.

Economic slowdown in the U.S., media-hyped breakneck GDP growth of emerging markets, insatiable demand by the newly-minted global middle class consumer – these and other factors make international business expansion more compelling than ever.

However, these factors are often counter-weighed by such staples of international business as strain on national infrastructures, rampant corruption, political unrest, mind-numbing bureaucracy and protectionism.

So, how does corporate management weigh the pros and cons as they select priority markets for international expansion?  There are several crucial elements that must be part of an effective international strategy design, and there are evaluation tools available to manufacturers and their representatives wishing to export their wares, to direct investors seeking to set up foreign operations and for franchisors seeking to find the most attractive markets for international expansion.

Although the interests of the above-mentioned three groups diverge somewhat, several elements that make for an effective global expansion strategy remain constant:

·      Forecasted Market Growth

·      Rule of Law/IP protection and contract enforcement

·      Market Size

·      Political Stability/ Embargoes and restrictions

·      Current and projected income per capita

·      Availability of Financing

·      Availability of Political Risk Insurance

·      Corruption Factor

·      Education level

·      Inflation and Currency stability

·      Local and global competition

Each group looking to foreign markets also has its individual factors, which should be monitored closely.

For Exporters, these include, for example:  ease of and cost of importation; distance to market; availability of export credit insurance and presence of credible financially strong banks for exporter

For Direct Investors, factors include the ease (or lack thereof) of setting up and running a business in the chosen market, availability of qualified labor and/or distributors, ability to freely convert currency and lack of restrictions on land or property ownership.

For Franchisors, they must consider the ability to adapt their concept into the market with minimum conversion, the ability to find qualified franchisees, availability of favorable franchise legislation, ability to protect against copycats, contingent foreign resources necessary to create a viable recognizable brand and critical mass in the chosen market.

These considerations are, by no means, all-inclusive, yet they offer a good sampling of the ingredients that must go into the international strategy evaluation and design process.

How should an organization approach international market expansion?

Commit, screen, research, evaluate, cast for partners, re-commit, pull the trigger, train, monitor and learn.  Oh, did I mention commit?

Commit:  An organization’s commitment to international expansion is the second most important factor for success after selecting the right local partner.  Commitment needs to be total, from the management suite through the administrative pool and down to the shipping dock.  The organization’s ranks of legal, banking, insurance and accounting professionals must be augmented by international experts.

Screen:   There are about 180 countries worth looking at. Several screening tools exist to narrow down the choices for further research. World Bank publishes annual “Ease of Doing Business”® rankings on 183 nations, measuring a number of factors and then comparing each country relative to its peers.  Transparency International® rates 183 countries on the level of internal corruption.  Fluent In Foreign™ developed proprietary forward-looking FI3 indices™, which measure individual nations’ appeal for exporters, investors and franchisors.  These indices are named FI3e™, FI3i™ and FI3f™ respectively, and take into account projected GDP growth, income per capita, literacy rates, currency strength, corruption, availability of U.S. government financing and political risk insurance.

Simply choosing media-hyped markets such as BRIC countries may be a costly mistake. Despite their huge populations and the breakneck growth rates of these countries, market entry windows for many segments have likely disappeared or have become extremely competitive with potential rewards not justifying the effort and investment.

Research Once a list of potential markets has been identified, research each market in-depth using online tools from the U.S. Commercial Service, State Department, local investment promotion agencies and direct contact with the target country’s Commercial Attaches, representatives of the local Chamber of Commerce Chapter (AMCHAM), as well as any professional or personal contacts with experience in the prospective market.  During this phase you need to find out how fertile the prospective country is for your company’s product or service, what are the macro issues/risks/problems and the country’s current suitability for market entry.

Evaluate Once the screening and research phases are complete, senior managers and the folks charged with international business development should organize brief trade mission like visits to the top three to five markets identified during research.  The purpose of these missions is to explore the competitive landscape, understand realistic picture of what it takes to do business, establish contacts with government officials and key potential clients, cast search for potential country managers, distribution partners or franchisees.  A five to seven-day visit per country should provide sufficient basis for decision-making. U.S. Commercial Service or Fluent In Foreign can help organize such trade missions and set up appropriate meetings.

Re-Commit Once the decision is made to enter specific markets, the organization must indeed commit sufficient human and financial resources to make such market entry a success. A market entry plan should be drafted and local contacts and professionals deployed to identify potential local partners (managers, distributors, manufacturers or franchisers).  Regular trips to the target country should be undertaken every four to six weeks.  Hire local attorneys and other professionals. Start developing support infrastructure such as drivers, interpreters, lodging, etc. Such a support net is invaluable in emerging markets and is a necessity rather than a luxury.   Once partners and local professionals are identified and selected, involve them in the set-up process by delegating most of the local tasks to them, but do stay involved and monitor the process.  Explore putting Political Risk Insurance in place along with FCPA, and Patriot Act compliance policy.

Train: Once the basic set up of operations is complete, establish initial and ongoing training.  This is arguably the most important part of the market entry process. Training should be two-way. The personnel in the target country should undergo training on corporate values and culture, products, service, sales, FCPA, available financing for customers and safeguarding the corporate brand name.  The U.S. corporate personnel should be trained on the country’s culture, customs, business etiquette and interaction with personnel in that nation.  Training should be an ongoing exercise and viewed as an integral part of the foreign expansion.

Monitor:  Nothing ever goes smoothly in the process of taking a company’s operations abroad. Careful monitoring procedures should be established, supported by long-term commitment and buy-in of management at headquarters.  Management must be  willing  to read market signals, analyze them in real time and adjust tactics and sometimes amend the strategy.  Foreign markets, especially those in the Emerging or Frontier categories, often move much faster in certain aspects and painfully slower in many others. So it is important that headquarters management realizes different time cycles and adjusts performance expectations accordingly.

By breaking down the international expansion process into several clearly defined steps, a company can maximize its chances for success and avoid a costly mistake.

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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