#85 When start-ups start-up internationally
Throughout the years, I have consulted to a number of start-up companies and I have also taught a series of courses on international business that included an applied international business development project. Over time, I started to notice that most start-up companies experience the same types of challenges in international markets, and usually they are very different from those of established companies.
First, many start-ups operate in narrow niche markets that often don’t exist in their home countries, so that going international is not an option, but a built-in necessity. As early internationalizers, however, they often are still in the process of developing their technologies, products, or services. As we have learned from Igor Ansoff more than 50 years ago, it’s probably not the best thing to be in a place where new product meets new markets. Start-ups therefore must make sure that they are ready before they approach markets, especially international markets where enough will go wrong even without failing value propositions.
Second, much of the start-ups’ resources go into research and development. This doesn’t only divert resources away from much needed business development activities, but it also breeds a certain mindset that values scientists and engineers more than marketers and business developers. This often creates market myopia.
Third, when selecting international markets, start-ups with potential in multiple industries or distribution channels are often faced with the difficult decision between industry-focus (or channel-focus) and country focus. It’s hard to give good advice on this, but it’s probably the question if you’d rather know everything about one thing or a little bit about everything. While the industry focus will help start-ups to build valuable industry-specific knowledge, to establish network relationships, and to get word of mouth going, it will also mean that a lot of business development time will be spent on planes, traveling between countries. And each time, new country-specific environments will have to be dealt with. Under the country-focus, on the other hand, they only need to learn about a new, strange land with strange people once, and they’ll probably penetrate the market deep into the last, dark corners. But then again, boundaries between industries may often be more difficult to bridge than the borders between countries, and resources may be wasted learning about new industries and squeezing the last bit out of those industries that are only a distraction.
Fourth, different countries react differently to technological innovations. Some embrace them, others fear them, so why don’t start-ups avoid the latter and enter the former? Well, the innovation-ready countries are often already crowded with competitors and if they’re not, they will be. Too bad that the ones that your competition shies away, too, are exactly the ones that are skeptical of everything new. Foreign start-ups are of course hit by the double whammy – they are strangers offering strange new things. Fifth and finally, the types of innovations that start-ups create often require significant education of customers. Business developers, sales reps, or distributors (particularly when they are paid commissions and when they are thousands of miles away) are not really interested in spending years educating the market, especially not for free. They want to close that sale today so that the commission shows up in their accounts tomorrow. So, start-ups, don’t leave the creation of the pull to sales, have a good strategy around this.
I’m sure that there are things to be added to this list, so this is to be continued…
Tags: ansoff, market selection, start-up
December 31st, 2012 at 12:26 pm
Sixth, when making business in a foreign country local partners become very important in my point of view. It is hard enough to set up a business in your home country, but to break into new market is much more complex. In this case it is very important to have local partners which are deeply enrooted in the country. These partners can be sales reps, counsellors, HR consulter and so forth. The type and the number of these partners, depends on the branch of the start up. These partners can give advice in case of cultural barriers, buying habits or technical, health and safety regulations.
Seventh, is more a suggestion. Only go international when you are successful in your homeland. As in the most things it is important to have a strong basement. Therefore Michael Porter’s Value Chain can be act as a checklist. Firm infrastructure, human resource management, technology development, procurement, logistics (inbound and outbound), operations, marketing & sales and service should be proper handled in the home country. Or the other way around, there should not occur any crucial problems in these fields.
January 6th, 2013 at 4:38 pm
Generally speaking, today’s globalization makes it easier to enter new markets and therefore it is important or sometimes even necessary to expand a start-up to international markets. It can pose significant challenges for entrepreneurs, but it also offers benefits.
As mentioned in the first comment partners are essential needs to become successful, especially if the new market has a more distinct cultural position than the home country.
My suggestion for eight is that start-ups need to decide about relocation. It is imperative for the CEO of a start-up to search for a suitable place to establish the company in the new country. To be able to communicate with the partners and customers directly relocation has to be considered. If deciding against it, you might get in trouble. If people from the potential market are hired for the new office they might be suspicious of your company and even of your success. Therefore it is important that somebody of the home country is present to manage the new staff. Particularly in developing countries people have to be trained and guided about the processes and vision of the company.
Nine, it is essential for start-ups to have a well-defined business model. Are they going to act global, local or glocal? The question is if you are selling the same products in the new market you are selling in your home country or if you are going to adapt it to the recent market needs. Therefore research has to be considered. If possible the best way would be to act glocal. Glocalization means that a product or service is developed and distributed globally, but is also fashioned to accommodate the consumer in a local market. This means that the product or service may be tailored to conform to local laws, customs or consumer preferences.
January 7th, 2013 at 5:10 pm
Many important facts are already mentioned but one of the most crucial facts is missing, the pricing strategy. It is an important instrument in the home market but when a company gets international it becomes a key factor.
First of all as in every professional strategy a target has to be defined. Is it a non-profit target like market share or a profit target like Return on Investment. But before setting to enthusiastic targets some points have to be considered as they influence the decision making process.
First of all there are the Cultural aspects which are highly influencing the consumer behaviour. How much money are the costumers of the different countries willing to spent. Where is the perfect market-skimming price? Also within Hofstede’s dimension you can find some important information’s. For example when the dimension, Masculinity versus femininity, is very high the consumers prefer luxury goods. Furthermore countries with a high UAI like Japan search for purity, cleanliness, they either buy new products then used and they are worried about new technologies.
Secondly the economic environments like the Competitors, the costumers or your suppliers. Gray markets will come up if the transporting costs are lower than the difference between the price of the target market and any second market.
Exchange rates are ever changing and the price can be fixed either on the home country currency or on the host country currency. If the price is fixed in the host country it means that the seller is confronted with the gains or losses.
Finally the political situation will influence the final price through Taxes, Costumes, Quotas and Licenses.
Leaving this important points behind can lead to a lack of competitiveness or at worst also to a total failure of the entrepreneurial activity in the host country.