I meet a lot of executives from all over the world and they ask me a lot of questions about expanding their business globally. Perhaps frustratingly so, my answer often starts with —“It depends”.
Let me explain.
No country, culture, or community is the same. So, when an executive asks what will be the return on investment in country X, the answer for country Y may be completely different due to differing tax structures, laws, and regulations. IKEA, for example, started in Sweden but is headquartered in the Netherlands due in large part to tax considerations. Another question execs often ask is about which markets make sense. Well, Walmart thought Germany made sense. It is a large country with a robust economy and strong legal and regulatory environment. But it was a bust because Walmart did not take the time to learn about the country, follow on others’ successful tactics, and adapt a plan as needed.
The problem with these high level, general questions about where and how to expand across borders is that they don’t delve deep enough to give you a clear picture of the market. That doesn’t mean that you shouldn’t ask high level questions. The trick is to ask the questions a little differently. For example, better questions to ask would be:
What’s a reasonable level of risk and reward for us?
Companies have different tolerances for risk. They have different expectations of reasonable ROI. For most expansions, you should expect ROI to increase as you do businesses successfully in a new country.
What kinds of markets make sense for us?
What are the characteristics of markets where we’re more likely to be successful? Analyze your company by looking at your strengths, weaknesses, and experience. Then, consider your strategy and look for markets where you’re more likely to succeed.
So, before thinking about going global, here’s a homework assignment.
Analyze your own company. Highlight your strengths and weaknesses. Analyze your tolerance for risk and your expectation of reasonable reward. This takes a while to do if you do it formally, but you can probably make some rough-cut judgements in a meeting or two with knowledgeable people. Whatever judgements you come up with will be preliminary. As you do your research, you will loop back and modify them, but they’re a good place to start.
Next, make a list of the countries where you may want to expand. Then you can start doing some background research.
Make an appointment with yourself that for 15 minutes every day during the next month you’ll scan international news, go to websites, read the Wall Street Journal, the Financial Times and the Economist. Look for stories about the countries on your list. Scan for stories about companies from your home country who do business in the countries you’re considering. Find out more about them. Take notes.
Even better, have several executives at your company do the same thing. Then compare notes once a week. By the end of the month, you will have developed an intuitive sense of how things are in the countries you’re researching.
Remember, you’re not looking for generic great opportunities. You’re hunting for clues about what global expansion makes sense for your company and your strategy.