Monday, October 24, 2011

3 Lessons from those that Failed - Global Expansion

I was asked to give a presentation to owners of American companies who were contemplating a global expansion growth strategy that would take them outside the United States. I decided to share with them some of the lessons I gleaned when working with foreign companies who were struggling to be successful here in America. After all, as someone once said, "Learning from your mistakes is smart, … learning from the mistakes of others is wise".

Here are my top three lessons from those who failed:

1) Exporting or Global Expansion Should be Part of an Overall Strategic Plan and Not Simply Done on a Whim

"Why did you choose to go global? Why now?" When asked these questions I was surprised that most owners did not have an answer other than to say “it was time”; that they succeeded sufficiently in their own country and now it was “time” to take on America. In some cases they came to America on the heel of or at the urging of their biggest customer – another foreign company - who also decided “it was time”.

I would then ask some more basic questions such as how well did you understand your relative strengths and weakness and the opportunities and threats associated with this marketplace before coming here? What did you identify as the top barriers (regulatory, legal, financial) to entry? What plan did you put in place to overcome these barriers? Who are you targeting first for new sales? What is the competition and how did you intend to compel customers to buy your product or service over that competition? Not surprisingly the vast majority who were struggling here in the U.S. did not have answers for these basic questions.

Growing a business in your own country is hard enough. Improve your chances of success abroad by taking the time to study the market you are about to enter. As you build your strategy get an outsider's perspective (preferably a native of the country you are thinking about entering) to make certain you are being brutally honest about assessing your companies strengths as they pertain to this new market. Bottom line - have a well vetted, LOCALIZED, and documented strategy before you launch your undertaking.

2) Don't export more than you must.

Remember, when globally expanding into a new country success will be determined by how well your product or service sells. If it is a product you will be making the case for why or how your product is better than the competitors - price, quality, and/or capability. On the other hand if it is a service you will be emphasizing your unique process and why it is better than the competitors. This is what you are exporting.

Here is what you should NOT be exporting - your country flag, your people, your brochure (see example (above) from German company - sometimes "englishizing" is just not enough), you sales approach, or even your website. The only exception is if any of these elements can improve your chances for opening a door, making a sell or closing a deal.

For example, if you are a German company selling precision machinery in America I can see where emphasizing the German aspect could be a competitive advantage. The same would hold true for France and wines. But if you are a Chinese company selling faucets or even solar panels here in America there is very little the Chinese element brings to the sale. Careful thought and scrutiny must be given before you choose to export these latter aspects (people,website, etc..) of your company because there are very few circumstances where the flagrant broadcast of the country of origin for the product or service actually contributes to the sell. On the contrary, here in America it may cause an unwanted distraction at best or negate any chance of a sell at worse.

3) Beware of ego driven, cash sucking business decisions.

More often than not the reason most companies don't succeed here in America is because they run out of the cash they set aside for this venture. You will note that I didn't say they didn't set aside enough money, because most do. Where they fail is the choices they make, particularly in the first 12 months, on what, where, and how they spend their money.

Elaborate office space, signage, furniture, leased vehicles and homes all for the purpose of "making a good impression" is one sure way to burn through a lot of cash before you find your first customer. Flailing around trying to find a sales strategy and message that works in this market is another way to consume a great deal of cash and time (one in the same). Localizing your sells and business strategy for the American market versus trying replicate the strategy you used at home is one way to prevent this. Putting tight controls on cash by delaying the elaborate office expenses until after you have had time to understand the local market and your true needs is another prudent course.

America is a magnet for globally expanding international businesses. Our large population, high medium income, high GDP, transparent legal system and common language makes it very attractive. But succeeding in America requires you to first understand how we make buying decisions - it is different in subtle ways from the rest of the world. And, like every country, you must guard against the vultures who will prey upon your naïveté. A well crafted localized strategy, a script for your business in America, will help significantly.