There are many reasons for businesses wanting to expand internationally. We’ve seen several successes, but probably more failures on how to go about this. We’ve decided to put a series of articles together that will cover various aspects of how to take your business international, based on own experiences and the successes, failures and unfulfilled potential we’ve seen.
This will be the first article in a series of articles covering global expansion and it will cover:
- is the product ready for export
- does the price work for export
- don’t just ship an order because someone asks for it.
Product is still king
This also applies internationally. Before you do anything else, you should consider which product or which group of your products are most likely to succeed in the new market. Like when the product was launched in the home market, you need to make sure that there is a market for it, in the new market. This basically means: who is the consumer that will be using the product? You need to understand this.
You’ll also need to understand what the competitive landscape looks like and offers in the new target market. Are the players the same as in your home market with the same type of products? Are there strong local players with products that have been loved and accepted for years? Are there new and upcoming highly localized products that are gaining foothold in the market?
For these reasons you also need to understand if adaptations to the product is needed for it to be relevant. Some examples of adaptation considerations: is the style right, is the colour right, will you need to use different materials, is the fit and the sizing right, are the certifications right, is the labelling right, etc. etc.
Here’s a clear example of how one brand has adapted the style, the colouring and the packaging of the product for a different market.
Adapting a product for new markets may be a relatively quick process or it may be time consuming and take months and months to get the product just right. And this process takes time and it may change the cost of the product too if more costly materials are needed, if a different production process need to be applied or if the product should be produced in a different location.
Even if product adaptation is needed it is by no means impossible to expand into new markets, it is just something to be aware of and something to go about in an organized way.
How to check for adaptation needs – the practical approach
- Internet research – what type of products are available in your target market, functionality, styles, colours etc.
- Talk to people that you trust or trade councils etc. in your target market.
- Market visit – nothing beats boots on the ground. Be there, breathe the atmosphere, observe the locals and the settings they use your product in. See what competitors are doing and compare that to your home market. Even do your own market research, ask people in the street what they think of your product.
- Visiting the market gives you a great change to do a practical retail check as well, proving very useful insights in relation to location potential. You sit on a bench outside your preferred locations and look for: how many people walk in the store, how many comes out with a bag in their hand and how big the bag is. Now you have some of the key ingredients to success: traffic, hit rate and basket size.
Show me the money…
It may sound obvious, but the ability to make money on bringing a product to a new market must be there for all involved parties. Again, it starts with the consumer and competition and what the consumer has to pay for similar products for in the new market. If you want to succeed you need to be competitive, unless you have a unique product and positioning. This will determine the Recommended Retail Price (RRP).
- The retailer needs to make a reasonable margin to want to carry the product and give up selling other products.
- The importing entity that needs to make money. They need to cover importation costs, duties, storage costs of the product.
- At times, foreign exchange rates can be a big component as an increased cost base too. Say the importer buys in USD, which in recent years has appreciated, the importer’s local margin then gets squeezed because he can’t increase the RRP and still be competitive.
- The producer of the product or the brand needs to make enough margin to make it worthwhile, especially, if adaptation costs are incurred to make the product relevant for the new market.
- AND importantly, if each link in the value chain does not make a decent and sufficient profit, they are simply not going to put in the effort that is required to make the product a success. So, a pricing model that leaves sufficient profit in each link of the chain is needed. What is sufficient is then up to negotiation, sometimes there’s an ability to be more or less greedy, but win-win’s are usually the best approach.
Getting the pricing right – The overview
There’s only one first time
Taking your business international is a big step. In some ways it is almost similar to starting the business all over again. However, we find that in many cases going international is not being treated with that perspective. Quite often, someone phones up a company or meet them at a fair, an order is put together and you’re in business. Months or years later companies find that the market potential has not been achieved, there’s a mess to clear up or brand reputation that is ruined. What started out as a nice sales increase has turned into a major problem. However, it doesn’t have to be this way. International business can be good solid and exciting business.
Like everything else, finding the right partner(s) for your product in a foreign country takes time. In fact, we see this point as so important that we will dedicate the last article in the series just to this topic alone. So don’t just pick the first and the best one that approaches you.
The point of all of this is that you only get one chance of launching your product in a new market once. So you want to get it right the first time. Of course, you don’t need to have all the answers, being 80% there is good enough to start charging out of the blocks, but you do need to do some level of homework.
“Results are gained by exploiting opportunities, not by solving problems.”
Quote: Drucker.
I hope this has given some basic and practical aspects of what to be aware of when expanding internationally. The next article will cover your internal readiness for international expansion and will include a checklist for assessing overall expansion readiness.
Read part 2 – I talk about your organization and internal resources!
/Morten
Don’t hesitate to contact me if you have comments or questions – or need help with your international expansion
+44 7720 890760
Email: morten@rezolto.com