GLOBAL GROWTH EXPERTS

Winning GloballyA Playbook for International Expansion Teams

Chapter 1

Stay Local or Go Global?

By Larry Harding

Winning Globally A Playbook for International Expansion Teams

With the comfort of strong domestic markets, it’s been easy for businesses in the US and Western Europe to focus on their home markets, and without intending to, perpetuate long-held global stereotypes. Call it the Rip Van Winkel syndrome, but while businesses in the west have been more provincial than necessary, the world has changed — in many surprising ways: • AccordingtotheEconomist,fourofthefastestgrowingeconomies

in 2014 will be in Africa: Sierra Leone (#2), Libya (#4), Eritrea (#9) and Zambia (#10). The world’s fastest growing? Not China, but Mongolia at +15.3%.

• Whatarethetoptwocountriesforinnovation?AccordingtoBloomberg, it’s not the US (#3) or Japan (#4), but South Korea (#1) and Sweden (#2).

• Whoisthemostentrepreneurial?NationMasterstatisticsshowthetop three countries are Cyprus, New Zealand and Iceland. Where does the US rank in new businesses per 1,000 adults? Number 32.

• TheSundayTimesofLondon’s“RichList”reportsmorebillionairesinMoscow (48) than in New York (43). The only city with more? London, with 72.

• PwCsaysthatChinaispoisedtopasstheUSinluxurycarssalesby2015.

• BasedonWorldBankrankings,it’seasiertodobusinessinLithuania(#17) than Germany (#21), in Malaysia (#6) than in Japan (#27), and in Georgia (#8) than the UK (#10). The world’s most business-friendly? Not the US (#4), but Singapore.

Rapidly growing economies, innovation, new businesses and new wealth, lower barriers to trade — these all speak to opportunities for yourbusinessoverseas.Inthisseries,“WinningGlobally”we’llofferyoupractical advice to help you plan for international expansion. First up —determining if now is the right time for your company to go global.

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Chapter 1

Stay Local or Go Global?Eight Indicators the Time May be Right for International Expansion

Every week you hear about organizations like yours that have taken the plunge and expanded overseas. But your investors, board and advisors may be giving you conflicting advice — some may be pushing for aggressive international expansion, while others are cautioning you to stick closer to home. How do you know, then, when it really is the right time to go global?

While every business or non-profit will face its own unique challenges, you’ll know the time is right to seriously consider international expansion, if several of these indicators are positive for you:

1. You have strong, consistent demand domestically for your goods or services. Over the last 15 years, the world and its markets have significantly flattened. If there is a good, strong market for what you deliver in your home market, it is highly likely that there is a similar desire in most overseas markets, especially the ones that most closely resemble your own in the niche that you serve.

2. Domestic demand is robust, but international demand may be growing even faster. Strong home market growth may mask the potential of other markets. A 2014 report by Deloitte says 5-year demand for pharmaceuticals will grow by more than 25% worldwide, but more than double in China and India. Bain & Company says luxury sales should grow 5-6% globally, but by as much as 25% in Southeast Asian countries. While data on your own industry will be critical to evaluating market potential, GDP growth rates by country can be a good early indicator of overseas expansion promise. Overall, Advanced Economies are expected to grow by 2.1% in 2014, while Emerging Markets and Developing Countries are expected to grow by 5.4%. US +2.8%, Eurozone +1.2%, Japan +0.9%, China +7.6%, India + 5.5%, Mexico +4.2%, Brazil +2.6%, Russia +1.5%.

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3. Domestic business is slow or stagnant (but be careful with this one!). There are any number of reasons why your domestic business may be slow or stagnant. Many of them may be a warning sign that you need to shore up what you’re doing domestically, let alone think about expanding internationally. However, often your global opportunities may be more favorable. Forexample,yousufferunderaweakeconomy,yourmarketisnearingsaturation,orlocalregulationsstymygrowth.Theseconditionsmaybequitedifferentinothercountries.

• The economies of China (+7.6%), India (+5.5%) and Mexico (+4.2%) are all expected to run significantly ahead of the global average in 2014 (+3.6%).

• While industries like Personal Care and Packaged Goods are nearing saturation in developed countries, they’re still on the upswing in emerging markets.

• Medical device manufacturers find the UK a much easier environment for work than the US. If domestic outlook is weak, it is worth researching whether there’s a chance that the opportunity is still strong in other parts of the world.

“TheeconomiesofChina(+7.6%),India(+5.5%) and Mexico (+4.2%) are all expected to run significantly ahead of the global averagein2014(+3.6%).”

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4. You may have a product advantage in other countries. With products made and marketed around the globe, it’s easy to think that competition is relatively uniform from country to country. While this might be the case for mature industries such as packaged goods and beverages, it’s not true for industries characterized by rapid innovation or experiential/image-based marketing. Take for example the Technology and Life Science fields, where innovators, once proven in their home market, may have a strong product advantage that can be quickly exported to other developed countries, where demand will support higher pricing. After an initial phase of international expansion, with production at greater scale driving down costs, successful expansion to emerging markets can follow. Or consider experiential/image-based industries, where country of origin is an advantage, such as entertainment and luxury goods. In these fields international expansion is often warranted long before domestic saturation is achieved. The global demand for US-based entertainment continues unabated and Asian markets have an insatiable thirst for European luxury brands. The Economist predicts that Asian share of world luxury good sales will grow from 30% today to more than 50% by 2024. If you’re an innovator in a rapidly changing industry, your product development teams should have a good handle on international competition. Questions to ask them include:

• Doesourproducthaveaclearadvantageoverforeigncompetitors’offerings? If so, we may have a window of opportunity to enter their markets and gain leadership.

• Are there any up-and-coming competitors in other countries that concern us? If so, we should move quickly before they become entrenched.

• Are there any issues (regulatory, testing, and cultural) with our product in other countries? If so, we may need to deal with these before considering expansion into those countries.

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5. Competitors are moving into other markets. A simple but powerful indicator of your international expansion potential is the actions of your competitors. While strong players aren’t driven by the actions of their competitors, they’re not averse to learning from them. What drives their timing might not drive yours, but their success is a good indicator of market potential and receptivity. It’s not a guarantee, but if it works for them, there’s a good chance international expansion will work for you. Moving quickly may help to blunt a competitor’s first mover advantage in new markets as well. Questions to ask your sales and marketing team:

• Haveanyofourcompetitorsopenedofficesoverseas?

• How long have they been in operation?

• Arethoseofficesgrowing?Aretheystaffingup?Aretheyadvertisinglocally?

• Are they expanding the number of countries they operate in?

6. You already have international customers. Through the internet, every business and non-profit has an international presence, and unless you’ve restricted sales to your home country, there’s a strong chance you’ve acquired some international customers. But the presence of international customers alone isn’t enough to justify expansion; look for concentration, growth, and potential.

• It’s quite common for marketers to acquire a sprinkling of customers around the world through web exposure,butunlesstherearelargeconcentrationsinafewcountriesoroneregion,anewofficemay be premature.

• If sales are expanding rapidly in one country or region — significantly faster than your home country — setting up local operations there to market and sell could be a good investment.

• The tipping point may occur when growth rates indicate sales in one new country or region, without a local presence, reaching the level of at least one sales person’s normal account load within the nextyear.Incrementalsalesgeneratedbyprofessionalsalesstaffonthegroundcouldjustifythecostofopeningandstaffinganinternationaloffice.

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7. You have global clients you need to service face-to-face. While sales, sourcing and manufacturing are the most common reasons companies open overseas operations, customer service is a strong contender. If you have a significant base of customers outside your home market, either from the internet or channel partners, ask your sales and customer service teamsthesequestions,andyou’llhaveagoodideaifinternationalserviceofficeswillbeagoodinvestment:

• Is our best service done face-to-face?

• Dowehavelargecustomerswithofficesoverseaswhorequireface-to-faceservice?

• Does service require extensive time on the ground in other markets? Do travel costs equal or exceed staffcostsforinternationalservice?

• Could we lose any large accounts if our service response were slow or sporadic?

• Could we expand business if we provided for-fee service in international markets to our customers?

• Couldwegainmorecustomersifweofferedon-the-groundserviceininternationalmarkets?

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8. You have a window of opportunity that could close soon. If you market innovative products in rapidly changing industries, you understand how short windows of opportunity can be. Success in your first market will spawn a host of local competitors — often within months of your launch — eventually cutting into your sales and eroding margins. Rather than waste precious sales and marketing resources in a battle for share, it may be more advantageous to move on to new countries where competition is low and margins still high. Going global in a new industry, or with a disruptive technology in a mature industry, can be a leap of faith — you may not have positive demand data, or the presence of similar competitors to justify your move. You can mitigate risk by looking for countries with similar, favorable conditions present in your home country at launch. Like many organizations we work with, your answer to many of these indicators will undoubtedly be yes. In a survey we conducted with CFO magazine, we found more than 2/3 of small and mid-sized businesses polled were already working overseas, or were seriously considering international expansion this year. If you have several positive indicators, we suggest (if you haven’t already done so) you form a small team representing Finance, HR, Tax and Operations who can do research on market conditions, work through the issues of when, where and how, and then build a business case for international expansion.

Want to accelerate the process?

Consider Radius for help in overseas planning and execution. Radius helps businesses move into new markets, manage overseas operations or outsource entire global accountingandadministrationfunctions.Weofferintegratedinternationalaccounting,finance, banking, tax, HR, legal and compliance services, as well as a cloud-based software platform that allows you to manage all of your global operations from the desktop.

If you’d like to learn more about Radius, visit our website at www.radiusworldwide.com. To schedule a phone or in-person meeting, please call +1 888 881 6576.

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About the Author

Larry Harding knows a lot about what it takes for successful international expansion. He spent 15 years as a global financial executive. He helped grow a telecomm start-up into a multi-million dollar company through global expansion. He founded and ran High Street Partners, a US-based firm that helped businesses expand and operate overseas. This year, High Street Partners merged with Nair & Company to form Radius, one of the world’s leading international business software and services companies, with over 500 clients around the globe. As Vice Chairman of Radius, Larry consults with dozens of companies and non-profits each year, helping them to know when, where, and how to expand their businesses internationally. Larry’s peers recognize his expertise: in 2013, he was awarded the Ernst & Young Entrepreneur Of The Year® award in the Maryland Region; he is a past recipient of the Maryland World Trade Center Institute’s annual International Business Leadership Award.

Contact Larry at larry.harding@radiusww.com