7 common mistakes when entering international markets
By Moritz Kaffsack
A business sets its eyes on international expansion. Building on success in the home market, a great business model, a strong brand and a loyal customer base, it’s ready to venture abroad, grasp new opportunities and acquire new customers.
But once in the market, the venture stalls. The opportunity is there but the complexity of replicating success in an entirely different environment is proving to be difficult. The company starts burning money, fails to build the right relationships, flops with consumers, or in the worst case becomes the target of opposition and activism.
During 15 years in Asia I’ve seen this happen not just to SMEs and startups, equally to big established multinationals, even Fortune 500 companies. No matter the size of the company, the complexity of a new market frequently causes businesses to stumble, sometimes fail.
Often there are too many unknown factors and the team is not prepared for the new and unpredictable environment. Market entries are difficult to plan, no two are the same. But it helps to look at what frequently goes wrong. Here are the 7 most common mistakes I’ve seen:
1. Getting consumer codes wrong
Indian consumers buying a German luxury car are most likely not driving it themselves. They’re buying it to be driven by a chauffeur. Vietnamese consumers buying premium whisky are most likely not drinking it themselves. They’re buying it as a gift to a friend of business partner, a gesture meant to strengthen the relationship. In many categories in new markets the consumer motivation is radically different and requires a complete rethink of sales, distribution and marketing strategy.
2. Treating it like a replica of your current business
It’s more like a start-up, with new customers, new competitors and an entirely different talent landscape. Some companies find they need to change their business model in a new market. Some companies find they need to switch from a subscription model to pay-as-you-go or from online payment to cash-on-delivery. Some change their positioning entirely: While in Europe Evian is an affordable premium brand, in India it’s a hyperluxury product with the price to match.
3. Underestimating the power of a different system
In most western democracies, businesses need to focus on a number of more or less connected relationships. In markets like China, Vietnam, the UAE, a single stakeholder is more important than all others combined. When a communist party or a monarchy set the vision for a country, all players in the market fall in line – ministries, regulators, businesses, NGOs, the media, consumers. Like all of them, foreign companies entering the market need to find their place and deliver value in the context of the national narrative. Those who get it right will have doors open for them: regulatory approval is easier to come by, partners want to do business with them, employees want to work for them and the media are writing about them.
4. Focusing only on the customer
This is how to get it wrong in a tightly connected ecosystem that is bound by a national narrative. While these are often thriving consumer markets, the customer or consumer isn’t king. While consumers may be thrilled to adopt the latest fintech or ridesharing innovation, if it doesn’t fit to the plan for the country or is coming up against key players that are entrenched in the national narrative, the company will likely be hobbled or even shut out. The takeaway: Just offering a strong product or service won’t secure a place in the market. Looking beyond the customer at the ecosystem is where businesses secure their license to operate.
5. Hiring the kind of people that would work well in your home market
Local expertise is key to success. But just like managers tend to hire people like them, businesses tend to hire the kind of talent that fits their home market approach. An aggressive, numbers-driven US CEO may be inclined to hire an aggressive, numbers-driven local CEO in Thailand. Good fit for the company, bad fit for the market.
6. Thinking your global brand will carry you
Chances are you’re unknown and the local market doesn’t attach any meaning to you as a company and brand. Sitting at the headquarters of a big multinational company, this can be especially easy to forget.
7. Thinking you can do it alone
In complex new markets, businesses need allies: Individuals and institutions in government, non-government sector and the private sector, who support their entry and expansion. Some businesses solve this by finding a local joint venture partner. But even if a joint venture is not an option, investing in building partnerships and allies will speed up the path to success.