Principles for continuous Market Expansion

8/8/2019 Principles for continuous Market Expansion

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GO AND GROW- set the course for international expansion

Intercultural competence and regional market knowledgeare keys to success in the internationalisation of yourbusiness.

KOM PRENI is at your service. Our core mission is support ingyou to grow your business in new markets efficiently.

How do we do this?By quickly establ ishing efficient affi liates "on-site around theworld" . Our Services can help you to compensate a lack of"domestic" market knowledge.

Our Mission2


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CON TROLLED INTERNATIONAL EXPANSION

- t he KOM PRENI M odel

Direct investm ent in foreign countries cont inues to rise andwill soon reach over a t rillion dollars per annum, according toUnited Nations forecasts. But the performance of firmsoutside their domestic borders is decidedly mixed. Some firmsachieve huge prof it gains while others seem to accumulatemounting losses. M any firms struggle for long periods tomake their foreign ventures a success. Many of them fail.

Why is one company so successful while another one, incomparable circumstances, fails big?

Numerous studies prove: Successful companies follow clearand consistent patterns in their expansion over tim e. They stayin cont rol of t he process of internationalisation. They follow aset of basic princip les that cause their expansion to unfold in aconsistent pattern.

International expanding companies should build on thecompany's existing knowledge base, give first priority toexpansion via greenfield investm ent - second to acquisition orcooperation, avoid home-grown mental inert ia, and matchthe pace of their expansion with their capacity to assimilate.

We designed the KOMPRENI M odel for Continuous Expansionto support you to "glocalise" your business in fo reigncountries and markets adapted to your business model, yourproducts and your compet it ive advantages. The KOMPRENIModel renders this possible in a structured and well-provenway.

3The KOMPRENI MODEL for Continuous Expansion


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Why do f irm s need to expand by means of a consistentpattern, rather than through ind ividual, ad-hoc ventures?

Research proves that companies that sequent ially entercountries with increasing cultural distance outperformcompanies that take large leaps into the unknown. A strange,foreign count ry requires a firm to adop t m any new skills anddevelop add it ional knowledge. These new skills and add it ionalknowledge can be obtained and fully exploited only if a firmexpands systematically. Each step must fo llow log ically from theprevious one. If t reated in isolation, a firm will not be able to

grasp the new experiences presented by a foreign venture and,as a consequence, will not be able to manage it.

Does th is mean t hat a firm needs to plan ahead it s entire pathof in ternational expansion?

Certainly not . The dynamics of the international arena require afirm to be flexible in responding to opportunit ies and threatswhen and wherever they emerge. Instead, what a firm needs to

do, when assessing its (next) fo reign venture, is just to follow anum ber of basic rules.

These principles, that serve as "footholds" forinternational market expansion, will restrain aninternationalising firm from overburdening itscapacity to adopt, and will cause an expansion path tounfold in a consistent and coherent manner.

The KOMPRENI MODEL for Continuous Expansion4


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5The KOMPRENI MODEL for Continuous Expansion


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Principle 1 - Build on t he com pany's existing knowledgebase and select the count ry where your strongestcompetit ive advantage can best be applied.

Identify your compamy's strongest competitive advantageand select the count ry where this can best be app lied. Thishelps to overcom e the liability of foreignness and to succeed

in the market.

A company's best bet is usually in its core business. Onlyafter gett ing t o know how to operate in its core business inthe new countr y with all of its idiosyncrasies, should a firmstart t o expand in to foreign markets. Moreover, acompany's best opportunit y usually lies in a count ry that isculturally similar to its home market. It is here that it scompetitive advantage is most likely to catch on.

Check if the new "framework" of the strange count rysupports your "home-grown" competitive advantage withour Quick Assessment .

Try to m inimize everything that is new about a venture, ontop of t he unfamiliar circumstances created by the fact thatthe venture is taking place in a strange count ry.

Enhance your existing knowledge base with our marketknowledge. You can use our Workshops to developstrategies and get "domestic" market insights.

Principle 1 - The Competitive Advantage6


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Principle 2 - M ake greenfield investm ent the first opt ion,acquisition or cooperation t he second .

There are three reasons why a company should first considerthe feasibility of greenfield rather than acquisition whenexpanding into a new foreign market.

First, a greenfield investm ent forces you to exactly define whatis likely to give you your compet it ive advantage. Second, acompetitive advantage is often much more diff icult to exploitthrough an acquisition or cooperation. Third, numerous stud iesprove: Over 60 % of joint ventures and over 70 % ofinternational mergers failed because of cultural differences inorganisational culture.

Acquisition is a daunting operation to t ransfer competit iveadvantages to a strange, foreign market. Integrat ing anacquired organisation is always a com plicated and lengthyprocess even in a dom estic context one that is mostlyunderestimated. Trying to integrate an establ ished companyfrom an unfamiliar culture in such a way that it can be infusedwith the (superior) technology and work methods of an alien,acquiring firm is far more so: integration problems will grow

exponent ially. If mere expansion and explo itation of existingcompetencies is what you have in mind, you are much bett er offwith our Managed Services. We suppor t you to quickly establ ishan affiliate on-site.

Building up a new affiliate stim ulates a firm to define what t heprecise basis of its compet it ive advantage is, and forces it totranslate and t ransfer it to the foreign sett ing. Yet, doing so willalso clarify what it is the firm should not transfer to thesubsidiary. As a result , it becomes clear what the local affiliateneeds to do to adapt to local circumstances.

7Principle 2 - The First Option: Greenfield investment


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When should a firm acquire?

An acquisition can be very useful, but only if done because ithas something to offer that the expanding f irm cannotfeasibly develop by it self.

A foreign company should not be acquired to change it intothe spit ting image of the acquiring firm by installing all sor tsof home-grown methods and rout ines. Then you are better-off with greenfield.

It should be acquired precisely because of its own, currentcapabili ties: The marketing knowledge to reach specific localcustomers, the human resource skills necessary to attract andmanage a local workforce, or the connections with localgovernment, suppliers, and institutions.

Thus, an acquisition in a strange count ry should never bedone out of superiority, but solely from a mindset to learnfrom the acquire.

The dif ferent subsidiaries may learn from each other what

their specific sett ing has inspired them to do best. Certainstrengths, developed in a local sett ing inspired by specificcircumstances, may prove to be fert ile soil for thedevelopment of innovative ideas and competencies.

Our Quick Assessment "Cultural Due Diligence" is useful inthe run-up of an acquisit ion. It g ives you a basis forevaluating the success chances previous to the transactionand a helpful suppor t during im plementation.

8 Principle 2 - Second Option: Acquisition


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M ARKET KNOWLEDGE IS THE M OST

IM PORTANT AREA WHERE FIRMS SHOULDCAREFULLY BUILD ON THEIR AVAILABLECAPABILITIES.

Often, expanding companies try to compensate alack of market knowledge through Partnering -and this is another risky area.

Often, when firms want to set foot in a foreignmarket, they decide to do it through a jointventure.

They figure: "We have the knowledge about theproduct and the business, but lack the skills tooperate in this count ry. They have the knowledgeabout t he local market, but could use some keenproduction skills". And fo rces are joined in a

cooperation.

Partnerships seldom work. Partnering is a skill initself. Partnering is never easy. But partnering witha firm from a strange foreign culture isparticularly intricate.

You can use our Managed Services on-site tocompensate a lack of "domestic" marketknowledge instead.

9Principle 2 - Third Option: Partnering and Cooperation


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Principle 3 - "The Success Trap" - Avo id hom e-g rownmental inert ia

The ways things are organized and m anaged in the hom ecount ry is the result of years of experience, and have broughtthe firm success and prosperity.

Often the firm is trying to apply beliefs and practices from itshome count ry in a strange foreign sett ing.

The old home-grown m odels simp ly may not work in the newsituation. Incentive schemes from one count ry may not workin another, due to cultural dif ferences; supplier schedules maynot be workable in a country with a different infrastructure;and marketing campaigns may not appeal to people from adifferent culture.

What is more, tr ying harder will just makes th ings worse.

A different countr y means a different context, and in a

different context one should do t hings differently.If the established m odels do not result in the same positiveperform ance as back home which is far from unlikely thefirm should not respond by trying harder, by taking contro l,and becoming stricter than ever. Its response should be toquestion and investigate what aspects of the old way ofdoing things can and should be preserved and which onesshould be altered and adapted to the local circumstances.

KOMPRENI's Quick Assessments can give you clarity .

Principle 3 - The "Isaac-Principle"10


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Principle 4 - Adopt and integrate carefully, but quickly,then move on to the next venturekeep a cont inuouspace of expansion .

The final principle when expanding abroad is tocarefully assimilate t he subsidiary and, hence, notexpand faster than you are able to assimilate.

A profit able mult inational firm is a diverse yet coherentsystem, which consists of d ifferent, interactingelements. This is som ething you have to build one stepat a t ime. Focus your efforts on a reasonably-sizedventure, assimilate it, and then move on, without losingmomentum.

11Principle 4 - Continuous Improvement and Expansion


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How much can you do?

Select a count ry, penetrate it through a greenfield or anacquisit ion (dependent on local circumstances and theavailability of high-quality candidates), and subsequent lyinvest in its organic growth.

When your company has established a strong footho ld inthe foreign market, move on to the next one. Don t stop.Upheld your pace. Be focussed and patience.

Entering a new market takes effort and t ime. Theorganisation needs to invest in it , in terms of managerialattention and finance. Simultaneously expanding into alarge number of count ries scatt ers these effo rts, whichcauses the subsidiaries to lack critical mass for too long.The same applies if one enters a count ry in very dif ferentlines of business at the same time. There is just so m uch anorganisation and its management t eam can grasp andaccomplish. An organisation cannot integrate largenum bers of new elements and keep up its perform ance. Ithas to be able to assimilate them one by one.

Integration is necessary.

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KOM PRENI IS AT YOUR SERVICE

- to reduce your risks and to increasethe pace of your expansion.


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Principles for continuous Market Expansion