Blog

Following up on the previous post where we discussed the 5Cs for successful global expansion, in this post, we will quickly highlight common pitfalls during expansion, before diving deep into the 5Cs.

Common pitfalls:

1. Overconfidence – in own perception and not investing resources into actual understanding of the landscape
2. Insufficient Investment – Mistaking shallow/superficial understanding for ‘good enough’
3. Hands-off – when partnering with local channel partners

1. Overconfidence: The Perils of Assumption

One of the most dangerous pitfalls is overconfidence. Assuming familiarity with a new market, based on superficial similarities or anecdotal evidence, can lead to costly mistakes. This can lead companies to assume they understand the target market when they actually have a superficial understanding based on stereotypes and limited data. It’s crucial to resist the temptation of making hasty generalizations and instead invest in thorough market research.

In fact, markets that look familiar enough tend to be the least analyzed, resulting in the failures mentioned above. When entering a country that we cognitively define as different, we naturally assume we do not know and have to find out more about. 

The irony is that businesses readily acknowledge the uniqueness of different departments within their organization, yet fail to apply the same logic when evaluating foreign markets. If only we can flip this around…

Remember: Even seemingly familiar markets can harbor hidden complexities. By conducting rigorous analysis and embracing a humble approach, you can avoid costly missteps.

2. Insufficient Investment: The Price of Cutting Corners

Understanding a new market goes beyond simply reading about it or acknowledging differences, then assuming your ‘superior’ business/product/culture can win them over! A lot of companies think that they can change users’ behavior and bulldoze their way over, usually in the name of scale or standardization. Guess what, a lot of them have failed doing just that. 

Companies must invest the resources necessary to gain a deep understanding of the target market, including:

• Identifying the target users and stakeholders and their specific needs.
• Analyzing the differences between the home and the target market.
• Developing a product experience tailored to the target markets, NOT what is the easiest for YOU.

Needless to say, do not assume that you know. Do proper diligence to understand the context better. Once you have a better understanding, ask if you are willing to invest the resources necessary to win in the market.  It is essential to recognize that adapting to a new market usually requires 2-3x the initially planned resources. Superficial efforts, such as sending executives on brief visits or implementing existing work practices without localization, are likely to fail.

Remember: Habits die hard. To succeed in any expansion, be committed to investing sufficient resources to understand the target markets and building the right team to deliver a tailored proposition.

3. Hands-off with Local Partners: The Risk of Misalignment

While partnering with local distributors or franchisees can expedite market entry, a hands-off approach can lead to unforeseen problems and outweigh the benefits. Finding the right partner who aligns with the company’s goals and values is crucial for a sustainable win-win relationship, but easier said than done. 

After all, the key considerations of operating without a direct presence in the market (e.g. different cultures & business environments, lack of talents…) would still be the operating circumstances for your local partners. If it’s difficult for you to change your organization to work in a certain way, please remember that your local partner is unlikely to change their ways of working to align with yours.

Successful partnerships require clear communication, understanding, and a mindset of humility. Best Practices include:

• Shared Vision: Clearly articulate your long-term goals and expectations for the partnership.
• Regular Communication: Establish regular communication channels to address concerns, share updates, and make timely decisions.
• Cultural Sensitivity: Be mindful of cultural differences and adapt your communication style accordingly.

Remember: A hands-off approach can lead to significant challenges. Effective partnerships require active engagement, clear communication, and mutual trust.

What can we do about this?

This requires a very important mindset shift – humility. It’s critical to recognize that users do not think about your offering as much/highly as you would like. Hence they will not bother relearning/changing their behavior, JUST to include you in their lives. Users in your home country might be on auto-pilot and not consciously thinking about using your product. In a new country, they are not thinking about your product AT ALL. Hence, you want to make adoption as seamless as possible, not make them do something different. Habits die really hard, no matter how small or subtle they seem to be.

This is not to say that global expansion is to be avoided. Rather, a firm has to be conscientious and thoughtful in approaching global expansion. There are enough circumstances where how things work in your home market is a good enough approximation of other countries. Hence, it’s worth reframing market expansion from a series of binary ‘Should I expand into country X?’ to ‘What adjustments do we need to make and in what order do we enter these countries?’ This involves identifying markets that require minimal adjustments and gradually expanding into more challenging markets as the organization gains experience.

By recognizing and addressing these common pitfalls, you can increase your chances of successful global expansion. In future posts, we will delve deeper into specific strategies and tactics to help you overcome these challenges.

Do you have any specific questions about global expansion or want to discuss a particular market?

Many organizations, driven by the allure of continuous growth, turn their sights to global expansion. The promise of untapped markets and accelerated growth can be irresistible. While this strategy can yield significant rewards, it’s crucial to approach it with a clear-eyed understanding of the challenges involved.

However, not all expansions are created equal. History is replete with cautionary tales of even the most formidable companies stumbling in their international ventures.

Are these companies global?

Most people would agree that they are global companies with a substantial portion of their revenue coming from outside the US.

However, even they have faced setbacks in their international ventures.

Which of the following is more similar to the US?

Most people would have picked Sydney, way over Beijing.

I would have gone with Tokyo, but I have an international audience arguing that Shanghai is not too different. Story for another time…

 Walmart & Starbucks were both successful in China (as different from the US as it gets), until the broader market landscape changed. Some of the countries that they had to retreat from would be surprise, surprise…

• Walmart – Germany (exited after 9 years) & Japan (12 years), Korea (7 years)
• Starbucks – Australia (7 years) & Israel (2 years)

These are countries that one would stereotype as friendly, not hostile to the US culture. So what could have gone wrong here?

What could have gone wrong?

Let’s put us in their shoes – We succeeded in most of our expansions, some of which are very different from our home country (US). The discussions would probably be along these lines:

• We made it in country X/Y/Z, and 
  • Germany/Australia – similar to the US, developed country with high income, drive a lot…
  • Japan/Korea/Israel – high affinity to the US, love US brands…
• So, we should be good there too. Let’s go

One common pitfall is the assumption that a successful formula in one market can be seamlessly replicated elsewhere. This oversimplification often neglects the nuances of local consumer preferences, regulatory environments, and competitive landscapes.

Vitamin Cs for a healthy global business

To navigate the intricacies of global expansion, it’s essential to consider these five critical factors:

1. Consumers/Users:
   • Understand their specific needs and preferences.
   • Determine why they differ from the home market.
   • Tailor your offerings to their ideal experience.
2. Category:
   • Analyze market segments and sizes for your product or service.
   • Identify key stakeholders, such as suppliers and go-to-market partners.
3. Country:
   • Familiarize yourself with local regulations and policies.
   • Assess the potential impact of political and economic factors.
4. Competition:
   • Evaluate direct and indirect competitors.
   • Understand existing alternatives and their market positions.
5. Capabilities:
   • Identify core competencies required for success in foreign markets (Not just what you do brilliantly at home)
   • Assess the need for additional resources and expertise.

Instead of asking “Should I expand into country X?”, companies should ask “What adjustments do we need to make to enter these countries?”

In the subsequent posts, I will dive deeper into the 5 drivers above and discuss the conscious effort we have to exert to overcome these biases.

Please reach out to me if you would like to discuss more about this.