By Mona Pearl
June 7, 2010
Companies are discovering one antidote for shrinking domestic markets - international expansion. It’s a fact; international expansion offers unparalleled opportunity for growth, increased sales, diversified markets and increased profit. However, many businesses quickly learn that the process is a virtual minefield with unexpected twists, turns and unseen complications at each step along the way.
Growth Models - Looking Into the Future
In response to a rapidly changing global marketplace, U.S businesses must craft flexible business models that leverage the strengths from each global marketplace. For instance, some U.S. business may consider returning certain functions, like high-tech manufacturing, back to the U.S. in order to stay competitive. Then, collaborate with global partners on new ways of outsourcing, generating future innovations and product upgrades. Through this paradigm shift in mindset and strategy, businesses will create and foster a sustainable competitive edge.
After a “go-no go” decision has been reached regarding any one market, the next step is to consider how to enter that new market. In other words, what business model will generate the greatest success and move the organization towards achieving its goals today and in the future?
No one business model is inherently right or wrong. Yet, when presented with a set of facts unique to one business and one global market, it becomes remarkably clear which business model will deliver the desired results. Likewise, it is equally clear which business model will only lead to trouble. Traditional business models like import/export, outsourcing, franchising, licensing and joint ventures are still excellent options for today’s economy; however, their ability to maximize the potential of certain markets may no longer be possible. After all, it’s a new world order with new players and a new playbook that necessitates new tools like emerging business models such as innovation, collaboration and mergers and acquisitions (M&A).
Unlike traditional business models, these emerging models are not mutually exclusive. It’s a matter of blending different aspects of each model to customize an approach that meets the unique circumstances of the overall corporate strategy and prospective market.
While collaboration provides an effective buffer against exposure and risk, it should never be chosen out of fear. All business is risky, and global business is inherently more risky due to a lack of experience, cultural differences and unfamiliar political structures. Still, with the right investigative work, risk can be identified, and constantly calculated, assessed and measured against the potential benefits.
When collaborating with others, it is important to seek the right foreign partners. In international business, more so than U.S. domestic markets, good relationships that are built on trust and honor are essential. Be sure to check your potential partner’s financial status, influence and reputation in the local business community as well as the partner’s access to resources and experience in bringing your product to the home market. In smaller countries, also look into the partner’s political influence since politics and business are often intertwined. In any case, remember to proceed with caution and weigh the pros and cons carefully before entering into a foreign partnership.
Discovering how to deliver innovation to the global scene requires great insight into a specific market, its culture, the business environment and the competition. Necessity can be the mother of innovation, and it comes in many forms: meeting a need through product modification, creating a need through expert marketing of a global brand, or solving market problems.
Companies choose M&A for a variety of strategic reasons: to obtain new technology, new brands, complimentary products, access to experienced management, or to remove a competitor or potential competitor.
Pursuing expansion and growth in the global market through M&A, requires a whole new realm of due diligence and risk assessment, and that’s proving to be a significant obstacle for most U.S. businesses. Acquiring or merging with a foreign company is much more than a business deal based primarily on the numbers. In fact, the numbers are generally known well in advance and rarely become deal-breakers. Rather, the critical issues in the due diligence phase - which even includes some aspects of valuation - are strategic and cultural in nature. Success in this area necessitates dealing effectively with differences in corporate cultures, maintaining employee, stakeholder and customer loyalty in a foreign company, and gaining a workable understanding of that company’s human and business values.
It Is All In The Execution!
Innovative, collaborative and forward-thinking competitive strategies are the key to success in the future. Don’t settle for the same old cookie-cutter plan that your competitors are already utilizing - it will only skims rewards off the top. Take the initiative to thoroughly evaluate potential markets, get to know the local people, and design a custom business model that will maximize the opportunities of those markets and deliver on your globalization goals. Make a commitment and formulate your model for success.
Mona Pearl is the founder and COO of BeyondAStrategy, Inc. She has experience in international strategic development and global entrepreneurship, helping companies design and execute their global strategies. She can be reached at [email protected].