Global Expansion Do's & Don'ts
We often work with small businesses that are looking for investment, in many cases because they want to expand globally. International expansion can often be tricky to execute successfully; it is certainly not for the faint of heart! The small business graveyard is littered with U.S. companies that expanded globally before they were ready.
However, where there is a clear opportunity and well-designed strategy, we have seen many small businesses create significant value in their global operations.
Global Expansion Challenges
Small businesses face three major challenges when going global:
1. Language, culture and regulations are often difficult barriers.
Small businesses often underestimate the resources and investment required to surmount those barriers. In-country personnel with the experience and skills to navigate these challenges are hard to find, and can be expensive to add to your team.
2. Leadership must invest significant time and energy.
Running a satellite operation in Brazil or China may take an order of magnitude more time and energy from a leadership team than running the same operation would take in Pittsburgh. Oftentimes a key leader must move overseas to manage the foreign operations. In a small business this may be a critical drain on U.S. talent.
3. Success factors may not translate globally.
At the end of the day, what works well in the U.S. may not work well overseas. For example, Europe population densities are significantly higher than in the U.S., which means space is at a premium and the populations are much more urbanized. As a result, big box stores, with a lot of shelf space and a myriad of SKUs, have been difficult to build in Europe. This greatly impairs the ability of niche SKU manufacturers to gain widespread distribution and build scale.
A small business global strategy must address these challenges upfront to have any chance at success.
Global Expansion Approaches
There are several routes to successful global expansion:
1. Leverage existing customer relationships.
If you are a valued supplier to a key customer with global operations, that customer may serve as a springboard to global expansion. You should explore whether the customer's needs are being well-served overseas, and if not, if they are willing to allow you to serve them in those markets. If your products and relationship with them are truly distinctive and add value, they may be willing to partner with you and bring you along the overseas learning curve. They may even be willing to invest alongside you and/or help minimize your risk with favorable contract terms.
2. Build on your existing intellectual property (IP).
Another source of global expansion success is some differentiated and protectable product, process or brand. Patent or trademark protection is best, as trade secrets are difficult to protect and brands can be copied. For this route, you might target jurisdictions with strong histories of protecting IP.
3. Link up with trusted local partners.
We have seen small businesses do well overseas when they have connected with local manufacturers or distributors they can trust. Aligning objectives, incentives and expectations, and creating transparency and visibility between both partners, is critical. Often, you can look to overseas customers to help make the connection between U.S. and local companies that can result in trusted partner relationships.
Global expansion can be a gamble, but we have seen each of these approaches greatly increase the odds of success.
Have you expanded globally? What did you learn along the way? Share your thoughts with us at firstname.lastname@example.org.
KARL STARK AND BILL STEWART | Columnist | Co-founders, Avondale
Karl Stark and Bill Stewart are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree.