Entrepreneurial growth companies are becoming increasingly international in scope, with operations, customers, and partners situated around the world. According to a survey done last year by The Economist Intelligence Unit, nearly one-third of midsize American companies seeking growth expect to do so by expanding geographically. Of these companies, more than half plan to expand beyond the U.S. borders to Asia, Europe, and Latin America.
Yet, while global markets offer attractive opportunities, entrepreneurs must develop an effective strategy before they tackle new geographies, either organically or by acquisition. Lloyd Shefsky, professor of entrepreneurship and co-director of Kellogg School of Management's Center for Family Enterprises at Northwestern University, agrees. "You can't be an exuberant, passionate entrepreneur without discipline. You have to balance the artistic with the sensibility of business. And that's not easy."
Throughout my own career, I have worked with dozens of companies as they address the issues surrounding international expansion. Here are seven critical steps to consider as you plan your company's international expansion.
#1: Decide if you are ready'¦and if the time is right
Without a doubt, companies today can take on the challenges of international expansion earlier than they did in previous decades. A common currency across Europe, the growing convergence of markets, and the Internet have made it easier than ever. Still, expansion can be a distraction for your management team, as it often siphons resources that are needed elsewhere. How do you know when your company is ready?
First, your company generally should have a sound, established business in one geographic market, and should be profitable enough to finance expansion. Beyond that, the right time really depends on the company. Businesses with limited home markets will look to expand before those with robust domestic markets.
For example, SafeBoot Holdings BV, a Netherlands-based computer security company, found that it needed to sell to the U.S. market almost immediately, simply because of the size of the security software market there. SafeBoot moved its chief executive officer to the United States early in its development and later recruited a board member with decades of experience in the national intelligence community who could help the company understand the U.S. government market. Also, SafeBoot identified a third-party partner in Japan, another large target market.
#2: Develop your top priorities'¦and stay focused on them
Begin by looking at global demand for your product or service: Where have sales been strong? Where are most of the buyers? Which markets are most competitive? Which ones offer the best terms? You also may need to consider factors that are unique to your company: Do you have a relationship with a key client or vendor in another market? Are any of your employees who come from another country fluent in its language or familiar with its local customs?
#3: Send your best people'¦and find locally based talent
Your people bring invaluable experience and in-depth understanding of your company, its culture, and its products and services. Locally based hires, by contrast, know the language, understand specific market conditions, and have contacts on the ground. The trick is to balance your local team with these two types of employees.
We worked with Luxembourg-based IGEFI Group SÃ rl, for example, as it built a software development organization in Bangalore, India. The company initially sent one executive to set up an office and hire a local team. This executive was so successful that the three programmers he recruited still handle most of the day-to-day operations. While the original executive still travels back and forth to India, he now serves as a supervisor rather than as a hands-on manager.
#4: Seek out accounting advice'¦and legal expertise
Local accounting and legal professionals can help you navigate regulations and requirements. These experts also can help you set up your company, register with appropriate authorities, and comply with local regulations. Generally, you will not need in-house legal expertise, but you should designate someone within your organization to work with these professionals.
#5: Stay true to your vision'¦but adapt to local conditions
One of the real challenges of international growth is finding a balance between your company's culture and business model and the requirements of local markets. Companies that succeed internationally typically keep their overall strategy and goals constant, yet strategically adapt their tactics to local markets.
#6: Execute a global web-based strategy'¦but use local markets for sourcing
While the Internet makes it easier to reach customers in multiple countries, executing a global web-based strategy may be more complicated than you think. Even if sales are web based, for instance, companies often will need to source products in local markets and physically distribute them across borders.
#7: Be patient'¦give your strategy time to unfold
Companies often go through an extended period when they are spending money on international expansion and not seeing an immediate return. During this phase, you must ask the hard questions about your company's strategy: Have you chosen the right markets? Do you have the right people in place? Most important, do not panic. Growing globally is not an overnight process—building an established presence can take years of sustained effort.
For midsize companies, the international markets offer enormous growth opportunities, as well as significant challenges. You can easily become stretched too thin, underestimate the cost of international expansion, or overlook key differences between countries or regions. The key is to develop international strategies that balance the unique business strengths of your company with the specific requirements of local markets. That's the smart way to grow internationally.