(Practical Solutions to Difficult Problems) Show 13 Season 5 Wrap up -Jeremy Gray

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Taking your company’s products or services overseas is an exciting prospect, the potential for a larger customer base, the opportunity to enter faster growing markets, maybe less mature markets where you can ride the tide of expansion. There is also a certain cache in being an international business but with opportunity comes challenge. The international journey can be treacherous with unexpected set backs that need to be overcome. 

Even before you embark on the adventure you must assess whether your company is ready to operate overseas. And are you personally suited to doing business abroad?

The first question to ask is whether you have the financial reserves required to support your overseas business during its start-up phase. This will cost more than you expect and take longer than you plan.

Having assured yourself that you have the financial resources to expand overseas it is time to look at your people. Do you have the right folks on your team with the skills and maybe more importantly the attitude to take your company into new lands? Do they have international experience if yes then you are off to a good start. Do they take foreign holidays? Are they eager for new experiences?

When assessing whether you have the money to fund your international expansion plans build in plenty of cushion. During the financial review also consider how secure your business is in your home market. How sensitive are you to a downturn in business? You do not want to have to abandon your expansion because there is a slowdown back home.

Having assured yourself that you have the financial resources to expand overseas it is time to look at your people. Do you have the right folks on your team with the skills and maybe more importantly the attitude to take your company into new lands? Do they have international experience if yes then you are off to a good start. Do they take foreign holidays? Are they eager for new experiences?

Hult International business school has identified seven skills needed to be a successful international entrepreneur:

•    Cross-cultural communication skills
•    Excellent networking abilities
•    Collaboration
•    Interpersonal influence
•    Adaptive thinking
•    Emotional intelligence
•    Resilience

Another question to ask yourself, can you let go? You will not be able to manage your home business and develop your overseas business at the same level of involvement as you had in the past. You will either need to trust your home employees to manage the details of your business while you focus on global expansion, or you are going to need to trust someone in your target market to manage your entry.

Having decided you are ready to expand internationally, how do you decide where to target? Which country or countries is the best fit for your business?

One criterion I feel is important and one that is often overlooked when folks prepare lists of what to consider is proximity. There is a huge difference operating in a country that is a two hour plane ride away to one that is 24 hours away.

This has implications regarding the quality of the staff required in the country. If you can be at a customer, the next day to manage any issues that arise you may be able to use sales reps in country with you acting as the sales manager. A balance between proximity and potential should be part of your considerations when selecting your target market.

Another criterion not often discussed is Market Receptiveness, how receptive are the consumers in the target country to products from your home country?

My next selection criteria may surprise you, the entrepreneur the focused business man but I believe it is important. Do you like the country where you hope to operate?

Understanding the true desire or demand of your product or service is key before you enter a new market. Some products or services seem to be universal. Anywhere you go in the world today you will see people on their mobile phones, many of which are smartphones.

in terms of assessing demand it is Research, Research, Research. Research can be hard work but there is no substitute for it.  

But before you do your research; do your research. Take the time to find out what resources are available without charge. Many governments provide a wide range of support services to companies thinking about expanding overseas.

Gateway service companies will help you set up your company in your target countries, help with work permits etc. To attract clients, they publish articles about the countries they operate in. These can be great sources of information.

You are now ready to start assessing the potential demand for your product or service in your target country or countries.

GDP per capita can be a guide and again this information is available free of charge.

Customs data could be another source of information. Not every country provides the level of detail that the United States provides but it is worth checking out. I was once trying to understand how my competition seemed to be able to regularly outprice me in an ASEAN market and by accessing that country's customs data I was able to find who they were buying their imported raw materials from, how much they were buying and what price they were paying.  Invaluable information again available for free.

you need to understand more about your potential customers, and their buying decisions. Ask questions such as:

•    Who is the customer?
•    What does the customer want to buy?
•    When does the customer want to buy?
•    Where/How does the customer buy?
•    How does the customer pay?
•    What price is the customer willing to pay?

You also need to learn more about the market you are entering:

Asking questions to learn more:
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•    What is the market size?
•    Is the market growing or contracting? How quickly?
•    How many potential customers are there?
•    What barriers to entry exist?
•    What is the bargaining power of suppliers?
•    What is the intensity of the competition?
•    Is there a threat of new entrants or an established player entering your market?

Competitive analysis is a process where you identify major competitors and take the time to understand their sales and marketing strategies. And therefore how you will compete against them.

How will you compete: On price? On benefits, On convenience? Or something else?

Jeremy’s rule - People only buy for three reasons:

You save them money.
You save them time.
You make them feel good.

Identifying competitors is relatively easy these days thanks to the internet. Exercise care in your search terms. Search your products, search your industry, use How To searches. A legal firm might search how to find a good lawyer. Ceramic adhesive manufacturers could search how to fix a broken plate.

Focus on Direct Competitors. If there are many competitors use the 80/20 rule to identify which are most important to your business.

In foreign countries it may be harder to find information. Use your judgement to balance time spent versus benefit of the information.

Understand your competitors pricing strategies. Do they allow you to be profitable?

Is the market low-cost low service? Or high-cost high service? Is it a mixture of both or does one model dominate?

Go it alone or with a partner?

For marketing your products or services there are three common approaches:

Set up your own in country sales organization.
Use an agent.
Use a distributor.

What is the difference between a distributor and an agent? Put simply, a distributor is your customer, an agent finds customers for you. A distributor should have the capability to buy, store, market, and as the name implies the ability to distribute your product to the end user. An agent has none of this infrastructure, an agent finds customers who want to buy your product, the customer places an order directly on your company and the agent gets paid a commission on the sale.

Setting up your sales team:

Advantages
Gives you better insight into the marketplace.
Helps you identify opportunities.
Can focus on the long term - distributors and agents may take a short term view.
Increased credibility with customers - shows commitment to the country.
No need to share profits with agents or distributors.
Disadvantages
You have to do everything yourself
Hiring staff requires a good knowledge of labour law and practices in the target country.

Will likely be considered a Permanent Entity making you liable for taxes and statutory filings

An alternative to your own in-country sales team or a distributor or an agent is to use your home based sales staff as international sales representatives. Not my favourite approach, part time effort equals part time results. There may be tax implications for your staff depending on how long they stay in the country.

The use of mergers and acquisitions (M&A) to accelerate growth is a well-established business strategy and offers a company the potential to enter new markets, access top talent and reduce costs.  By merging with or acquiring another firm, a business can often achieve these goals more quickly and easily than with a solo expansion.  These are not automatic outcomes however, and sometimes an M&A deal will not deliver as expected or can bring more complexity than anticipated.

To improve your chances of success there are three fundamentals you must focus on:

Is the target company a good fit in terms of size, industry and culture?
Getting the valuation right
Planning and implementing a solid integration strategy.
Of these the first and third are most important. If you overpay it will not wreck the deal, but selecting the wrong target and a poorly prepared and/or poorly implemented integration plan will put the future success of your deal in jeopardy.

When considering the size of the company for an overseas deal I would focus on the number of employees and your ability to communicate with them. You need to be sure your message can reach each and every employee. And do not forget there may be a language barrier.

As you are entering a new market you should stay close to the industry you know. Do not add to the complications by entering a new business sector. If the company has some business in a market that is unfamiliar to you but is in an adjacent market that is acceptable.

For the purposes of overseas expansion, it is most important to focus on culture. The country’s culture, the business culture in the marketplace and finally the target company’s own culture.

If you like the country you are entering and respect the culture you are off to a good start. You will win your new employees' trust more rapidly. In Asia trust has to be earned and can take time.

Conduct your due diligence or DD. Both formal and informal.

Formal DD is where you hire lawyers and accounting firms to conduct research to ensure the accounts accurately reflect the status of the business, that the company operates within compliance with laws and regulations of the country etc. This is expensive but do hire quality companies who are knowledgeable with the ins and outs of doing business in the country to do this work.

Prepare a solid integration plan. And do not neglect the fact that your employees may be finding themselves running an international business of the first time in their careers.

Plan the integration but do not rush it. Your objective in the first few weeks or months is to keep the business running, No more and no less, Safety is an exception. A merger or acquisition is a distraction to employees and when people get distracted accidents happen. If there are safety risks fix them at once.

Sales are key to revenue and profit. However, you will only gain repeat customers if you effectively deliver a product and ensure that users can receive the item or service in the way they want. This is done by using a distribution strategy  that aligns with your customer’s needs.
Distribution challenges may be different in an overseas market from your home country. 

It is easy to make mistakes when entering new markets. Even major multinational companies can fall foul of language and cultural differences. 

When it comes to distribution strategy your objective should be to meet a simple criteria. To deliver the right product to the right place and the right time at the right price.

Getting your distribution strategy right is essential to customer retention. Your customers will not be happy if they cannot get the product they want, where they want it when they want it. Failing to meet these needs may result in your customer trying an alternative and possibly finding it fits their needs better.

An initial question you need to ask, is am I going to distribute nationally? Or just in targeted regional markets?

If you are planning a regional roll out, take the time to learn where your potential customers are. Are there regional industry clusters that make sense? You can find out most of the information you need with  a few hours of internet research. So take the time to get it right, confirm your research results with local experts.

There are so many considerations in choosing a location for your business that finding the perfect site is probably impossible, but by carefully  assessing the options you can find the ideal site for you. This is something you need to get right the first time. Moving is expensive and disruptive and should be avoided.

Your ideal site is the one that minimizes the cost to serve your customers. There are many factors to considered and many are conflicting. Trade offs will be necessary.

Government regulations may limit your choices. Certain industries such as the chemical industry may be restricted to certain locations such as industrial parks where such operations are permitted.

Being close to your customers is important. Where are they located? Are they spread across the country? or in regional pockets? If widely scattered there are software programs that can calculate the center of gravity of your customer base. At this stage you will not have a clear picture of where your customers will be but using the research you did in assessing potential demand for your product will help. A map with potential customers marked up can provide a useful visual representation of the customer heat map for your business.

Customers are the output for your business, but if you are making products you will need raw materials. Minimizing inbound costs needs to be factored in. Shipping costs need to be understood. How are costs charged? By volume? By weight? By distance? How are materials classified? Are some considered hazardous? Such materials usually have higher freight costs.

If importing materials, evaluate potential ports of entry. Consider frequency of sailings, port charges, speed of customs clearance, potential for port congestion, ease of access. In some countries, inland ports may be your best option.

Building a plant is a significant investment whether green field or using an existing building. It is a long term investment. The initial investment will not be recoverable in the short term. If you go greenfield you will have the land and buildings that you can sell. But you will be extremely lucky if you can sell the plant for more than scrap value. If you have rented a building there will be clean up costs and make good costs.

A tip: in many Asian countries many demolition contractors will pay you to demolish your plant.

The options that may be open to you will be:

•    Supply products from your home country
•    Find a toll manufacturer in your target country 
•    Lease an existing building where you can install your plant
•    Find a developer who will build to suit
•    Go the green field route, buy a piece of land and build a plant to your design.

Understand restrictions on foreign ownership 

Economics will play a large part in your decision making process but there are soft factors:

•    Customer’s perception of your commitment to the country (security of supply and switching costs)
•    Employee’s belief in security of employment. More likely to attract people looking for a career.
•    Government support Financial and non-financial
•    Your personal view and risk profile.

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You can contact me via the following links:
mailto:jeremy@business-in-asia.org
Or schedule time via Calendly:
https://calendly.com/3-continents-consulting
My websites include:
https://business-in-asia.org/
https://thedentistscfo.com/
My LinkedIn URL
https://www.linkedin.com/in/jeremy-gray1

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