A successful expansion into a foreign market starts with a solid expansion plan. International markets represent enormous possibilities for companies looking to expand but without proper planning, any foray into a new market won’t bear the fruit it should.
In this blog entry, we will cover the basics of expansion planning, as well as share our insights on how this process is best conducted.
The Market
Knowing the market you are targeting is the first essential step in planning a foray in a new market. Having a grasp of the local culture is essential as it may be a compatibility indicator with the type of services or products you are planning to market. There may be differences in the way business is conducted locally, or in local laws and customs that might influence your decision to target that market or not. Having your management travel to the target country to take the pulse of the market is highly recommended, as there is only so much you can learn from afar.
You will also need to assess the size of the market and clearly identify your competition, if any. Do you have a clear timeline? Will your services or products fill a need or will you be fighting tooth and nail for an unavailable market share?
While you may be a leader in your own market, the local business ecosystem of the target country may not be suited for you to deploy all your resources. Remember that when you arrive, you’ll be competing against companies (local and international) who are already established in the target market and who know a lot about the local consumers’ profile.
Another question to answer is: will you be starting from scratch or does your brand already have some traction in the new market? Depending on your response, you will have to adapt your branding and maybe even your products or services. Doing so after the expansion is underway will prove disastrous for branding and name recognition in the target market and this underlines the importance of planning ahead. Remember Target’s venture into Canada or Home Depot in China? They are prime examples of failed expansion planning: they didn’t grasp the needs and trends of the markets, they failed to adapt their business culture to that of their target country and they flip-flopped on branding. The result? Target currently has zero store in Canada and Home Depot pulled out of China completely after 6 years.
Without planning, you won’t know what the parameters of the target market are and you will essentially be going in blind, hoping the tried-and-true formula from back home catches on in foreign land. Conducting plenty of market research and devising an adapted, comprehensive expansion plan will allow you to avoid wasting your time targeting a market that isn’t compatible with your company.
Financing
Being highly motivated and prepared to enter a new market is one thing; having the financial resources do to support it is another. Establishing a presence in a market takes time and substantial investment. Most companies fail because of a lack of sufficient funding due to improper financial planning and budgeting.
Money is essential to the success of all new ventures. In the context of an international expansion, the expanding company must ensure it has sufficient cash flow to sustain its activities in the Target country for a minimum of three years. In this calculation, companies should refrain from relying on projected revenues emanating from the new market, as they most likely will not be sufficient to cover operating costs, in addition to factoring in any possible contingencies.
When considering all the financial resources available for the expansion, companies should keep in mind that there are public programs, set forth by governments, to allow, aid and facilitate international business expansion. While you will definitely want to look into any possible programs offered by your own government, a good expansion planning may allow you to petition for benefits offered by programs setup in the target country. Depending on your expansion structure, you may be able to take steps to have your new foreign subsidiary be recognized as a local company of the target country, opening up possibilities of local government assistance. Could your US division be recognized as a US company? Most likely, but only if you planned accordingly and respected all the steps to be recognized as such.
The aforementioned aid can be given in the form of grants, low interest financing and other various types of support giving you a better chance of success. Local governments may also offer incentives to certain foreign businesses seeking to establish themselves in their country.
Mode of entry
There are many ways of entering a new market, each representing different costs and levels of risk. Starting from scratch definitely isn’t the only option. You may want to buy your way into a new market by acquiring a company or go into partnership with a local existing business that already holds a share of the market.
Licensing and franchising are also two very popular means of getting into a new market with far less risk and investment from the expanding company’s own resources, as a substantial part of the burden is transferred onto the local licensee or franchisee. A properly distributed license or franchise also provides the possibility of much faster and deep expansion and market share.
The mode of entry you chose will inevitably influence how the expansion is conducted. This is why including it must be included in the expansion plan from the get go. Thorough planning will allow the expanding company to choose the mode of entry most appropriate to its plans.
Taking the example of Target Canada once more, we can see how improper planning can lead to choosing the wrong mode of entry. Target chose to acquire the leases from Zellers stores, a failed Canadian retail company who was liquidating its assets at the time. While on paper it may seem like a fine acquisition – Zellers had locations across Canada – it turned out to be a disaster because it failed to account for the reasons of Zellers’ failure, which it turns out included its stores placement. As for Home Depot in China, the company failed to recognise among other things that the Chinese clientele did not have an appetite for do it yourself (DIY) projects and the stores did not appeal to women who play the deciding role when it comes to home matters such as remodelling.
Legal
One other crucial aspect that is often misjudged is the importance of knowing the legal and regulatory systems in the territory you plan to expand in. Is your product or service regulated? Do you need specific certifications? You might be all juiced up and ready to go and immediately hit a wall because you don’t conform to all the necessary legal requirements. Also another aspect that must be factored in is the efficiency or lack thereof with the bureaucratic system in the target country. Dealing with bureaucracy can be excruciatingly nerve racking, frustrating and can cause costly unforeseen delays. Having the support of local counsel, representatives or consultants can be a lifesaver when dealing with legal requirements and local governments.
The Team
When seeking a new market, you will want to have the right team on the ground. You want your experienced and trusted managers and/or executives with a deep knowledge of your business on the ground to manage the expansion. That is why a solid expansion plan starts with an equally solid immigration and corporate mobility business plan. This planning is essential as well as a necessary part of conducting international business, unfortunately it is often forgotten or considered unimportant until you are faced with the consequences. Strategic planning is crucial because it ensures your key employees, those essential to the success of your expanding Company, are where you need them to be, whether it’s in the U.S., Canada or any other international market. Devising your immigration and corporate mobility business plan gives you all the pertinent information you need to efficiently expand your business in the targeted country. With a properly prepared business immigration and corporate mobility plan, you will have a complete snapshot of how you can utilize your workforce to ensure the success of the expansion. You will know how many key staff you can send over to the target country, in what capacity and for how long. This will allow you to export your company’s culture into the target market and, in turn, ensure the success of the expansion.
It also allows your Company to align its expansion plans with the requirements of U.S, Canadian or foreign immigration authorities, preventing delays or denials when your Company is ready to make its move. To be admissible for business visas, not only must your Company qualify but so do your key employees. The centerpiece of qualifying companies and their key employees for immigration purposes is to have a robust, well documented dossier. The idea is to make sure that you’re able to communicate to the immigration authorities what your plan is and why the people you’re bringing over are essential to the success of said plan. This explanation, combined with the demonstration that your company has the financial means to make its vision a reality, will go a long way to getting your demand authorized.
Decision Time
Building an international business is not a simple endeavour and the pitfalls can be plenty. Planning is key. You can never have too much information, but you must be able to process it clearly in order to be able to make the right decisions and insure that your journey will be as exciting and fulfilling as the destination. Bon voyage!