Entrepreneurial growth companies are becoming increasingly international in scope, with operations, customers and partners situated around the world. According to the HSBC 2010 International Business Survey, nearly 72% of executives at midsize American businesses plan to increase their overseas sales targets in 2010—an all-time high, up from 56% in 2009. Of executives polled, 56% say their overseas sales are growing faster than their domestic sales.1 While global markets offer attractive opportunities, entrepreneurs must develop an effective strategy before they tackle new geographies, either organically or through acquisition.
Here are seven critical steps to consider as you plan your company’s international expansion.
1. Decide if you are ready…and if the time is right
Companies can take on the challenges of international expansion earlier than they did in previous decades. Common means of payment, the growing convergence of markets and the Internet have made it easier than ever. Still, expansion can be a distraction for your management team, as it often siphons resources that are needed elsewhere. How do you know when your company is ready?
First, your company should have a sound, established business in one geographic market, and should be profitable enough to finance expansion. Beyond that, the right time really depends on the company. Businesses with limited home markets will look to expand before those with robust domestic markets.
For example, portfolio company SafeBoot Holdings, a Netherlands-based computer security company, found that it needed to sell to the U.S. security software market due to its size. Early in its development, SafeBoot moved its chief executive officer to the United States, and later recruited a board member with decades of experience in the national intelligence community who could help the company understand the U.S. government market. SafeBoot also identified a third-party partner in Japan, another major target market. The U.S. and Japanese markets became strong for SafeBoot, which since has been acquired by McAfee.
2. Develop your top priorities…and stay focused on them
Begin by looking at global demand for your product or service: Where have sales been strong? Where are most of the buyers located? Which markets are most competitive? Which offer the best terms? You also should consider factors that are unique to your company: Do you have a relationship with a key client or vendor in another market? Are any of your employees fluent in another language or familiar with another country’s local customs?
3. Send your best people…and find locally based talent
Your people bring invaluable experience and in-depth understanding of your company’s culture, products and services. Locally based hires, by contrast, know the language, understand specific market conditions and have contacts on the ground. The trick is to balance your local team with these two types of employees.
We worked with Luxembourg-based Multifonds (IGEFI Group), for example, as it built a software development organization in Bangalore, India. The company initially sent one executive to set up an office and hire a local team. This executive was so successful that the three original programmers he recruited still manage the day-to-day operations of a team which has grown to 200 people. While the original executive still travels back and forth to India, he now serves as a supervisor rather than as a hands-on manager.
4. Seek out accounting advice…and legal expertise
Local accounting and legal professionals can help you navigate regulations and requirements. These experts also can help you set up your company, register with appropriate authorities and comply with local regulations. Generally, you will not need in-house legal expertise, but you should designate someone within your organization to work with these professionals.
5. Stay true to your global vision…but adapt to local conditions
One of the real challenges of international growth is finding a balance between your company’s culture and business model and the requirements of local markets. Companies that succeed internationally typically adhere to their overall strategy and goals, but are ready to adapt their tactics to local markets.
For example, portfolio company Snap Fitness, a Minnesota-based franchisor of compact, 24/7 fitness centers in North America, pursued international growth opportunities and established operations in Mexico, Canada, India, Australia and New Zealand. Snap Fitness established itself as an industry leader in the U.S. by offering flexible, month-to-month membership plans on a “pay as you go” basis, with approximately 90% of members paying via automatic debit. But when the company expanded into India, it learned that most customers prefer to pre-pay their memberships 6-12 months in advance. In addition, it found that customers in India often prefer to use cash instead of debit or credit cards. By modifying its marketing, accounting, and cash management functions, Snap Fitness was able to quickly build its membership base and establish its brand. Today, Snap Fitness has become one of the fastest growing fitness chains in India.
6. Execute a web-based strategy…but use local markets for sourcing
While the Internet makes it easier to reach customers in multiple countries, executing a global web-based strategy may be more complicated than you think. Even if sales are web based, companies often will need to source products in local markets and physically distribute them across borders.
7. Be patient…give your strategy time to unfold
Companies often go through an extended period of investing in international expansion without seeing immediate returns. During this phase, you must ask the hard questions about your strategy: Have you chosen the right markets? Do you have the right people in place? Most important, do not panic. Growing globally is not an overnight process—building an established presence can take years of sustained effort.
For midsize companies, the international markets offer enormous growth opportunities, as well as significant challenges. You can easily become stretched too thin, underestimate the cost of international expansion or overlook key differences between countries or regions. The key is to develop international strategies that balance the unique business strengths of your company with the specific requirements of local markets. That’s the smart way to grow internationally.
1HSBC International Business Survey, June 2010
A version of this article originally appeared on Inc.com in September 2008.