Should you expand internationally?
There are a little over 325 million people in the US, compared to 1.2 billion across all developed countries*, and 7.3 billion people globally. It’s no wonder that international is often top of mind for companies hoping to accelerate or unlock growth for their business.
“Mass urbanization is transforming emerging markets. By 2025, emerging markets will be home to over three-times the urban dwellers as the developed world. By 2050, it will be close to five-times.” — The Case for Emerging Market Investments, Franklin Templeton Investments 2018
The question isn’t should you or shouldn’t you expand—but why, when, where, and how. Expanding and winning in new markets is complex, and many startups fail. Even big brands have seen some epic international failures. International expansion strategy really depends a lot on the context of your current business, customers, and maturity. This is as much a question of “Are you ready?” as it is “Is there a strong business case for this?”.
Global implications
I’ve been catching up with a lot of different tech companies of all sizes about international strategy, and only two things are certain:
- No one feels like they have this “right”
- There is absolutely no “one size fits all” strategy or structure
Let’s face it. Expanding internationally, even to one additional market, adds complexity to your business. Just like creating a portfolio of products to maintain, international expansion creates a portfolio of businesses or markets to maintain. For example, we localized the product in French, German, Japanese, and Spanish last year. As we continue to build out additional product features, help center pages, email campaigns, performance marketing adds, etc. we know need to always be thinking beyond the primary US design and launch but also layer in localized feature updates, translated pages and campaigns, etc.
Expanding international doesn’t look like a one-time event, but a change in how you operate as a business going forward.
Balancing opportunity with complexity
While the framework for this balance is simple, opportunity size and complexity of operations for new markets looks different from company to company. Understanding what these dimensions truly encompass at your organization and business stage is important to making thoughtful decisions about whether you are ready to expand, and where to start.
Opportunity
Most companies know to start with the opportunity when building out the business case for international. Sizing the opportunity answers the question: how much value can we unlock by expanding to this market? You can look at that through the total size of the addressable population within each market (At Slack, we think about total knowledge workers). But, important to remember with opportunity sizing in new markets is layering in market price sensitivity considerations, especially if your international expansion goals include emerging markets.
“Pricing is often an afterthought, even among multinational corporations, in emerging markets. Moreover, the time-tested pricing methods that companies use in their home markets simply don’t work abroad. Executives discover, to their surprise, that consumers in emerging markets view products and services — and their value — differently from consumers in developed markets. What’s more, spending power, willingness to pay, consumer segments, and the marketing, distribution, and selling of products and services also differ in emerging markets.” — A Pricing Playbook for Emerging Markets, BCG 2017
These local go-to-market considerations (e.g. willingness to pay, distribution and selling differences, etc.) are, in fact, the pivot point between opportunity and differentiation required.
Market research is a critical component of deeply understanding these considerations. At the broadest level, there are sources of broad market trends and data points that can be helpful in narrowing and prioritizing markets to deep dive into. We looked across a mix of sources including: Education First English Proficiency Index, WorldBank data, and various industry global spend reports from Gartner, IDC, etc.
Complexity: Differentiation required
Relative to the opportunity sizing, assessing the added complexity that new markets bring to how you operate is often more difficult. Complexity really means the differentiation needed in your product, go-to-market, or operations to really unlock or “win” in-market. These are harder to quantify, and require multiple perspectives from very different fields of expertise. And yes, it is not enough to just think about one of those dimensions.
Example: Launching in Japan
When we were first considering options for successfully launching in Japan, we had to do a significant amount of research to not only understand what needed to change in-product (localizing in Japanese, and adding payment in JPY currency), but also what go-to-market and operations requirements were for our ability to drive success in-market in the long term. This included understanding where US companies failed and succeeded within Japan, and where we needed to invest for long term success.“In general, a company that fails to expand in the Japan market is one that does not have a bicultural country manager. Whether it’s a country manager in Japan for a US company or vice versa, it’s better to have a person who understands both countries’ culture and business.” — What companies get wrong when entering the Japan market
We did in fact hire a Japan country manager who drives a lot of the strategy and direction for our efforts in-market.
The various ways that differentiation is required to succeed depends on your target consumer, your business model, and your product. A deep understanding of those dimensions, and how that translates (or doesn’t) helps define the degree of complexity you need to add to your current business. That can look like a mix / combination of the following:
- Product differentiation — Includes localized language, currency, payment and payment options (e.g. most markets outside of the US are significantly less comfortable with credit card payments). Also can include additional critical features e.g. offline mode for low internet connectivity regions, or a “lite” mode for populations with older phones or technology with less memory.
- Go-to-market differentiation — Includes positioning, pricing, channels or acquisition methods. Remember, how people buy and sell in emerging markets can often be incredibly different than what we are used to in the US. In-market user research can be invaluable here in deeply understanding cultural differences.
- Operations differentiation —Arguably an area I have the least amount of knowledge. This includes considerations for tax/legal considerations. But also, if you’re opening up an office for a physical in-market presence, you’ll also need to plan for workplace management, hiring/recruiting, logistics and process of staying connected to the US business etc.
The farther away from your core, the harder it will become to maintain across the business. Not impossible, just more difficult. For markets with a significant growth opportunity, that tradeoff can be worth it.
Continue to operate a global business
An international launch is only just the beginning.
Arguably the most important, but often neglected, part of international expansion is ensuring that the whole company continues to operate and think globally-first, after your international launch.
Neglected? How?
If you’re anything like us, a fast-moving high-growth company, you probably kicked off your international expansion work with a tiger team**. You explored the options, built the business case, and created a launch plan. Getting international “done” is probably a high priority for the company this year, and that means you have the greenlight to mobilize cross-functional teams across the company to get this launch right. You’ve thought about the website landing page, the PR and comms around the launch, and the release of new features. Great!
You launch. You get a ton of buzz. You have effectively completed the international initiative. But what comes next? Often the company moves onto the next of initiatives, and international then falls to the 4th or 5th consideration on each executives list of priorities. Important, but no longer top 3.
That has the potential to turn a high growth opportunity into unfulfilled potential.
As the company now thinks about the next year’s initiatives—from new marketing campaigns, to new product features—who is responsible for not just driving the overall initiative, but ensuring that the “international lens” is now added to every single new project as needed?
That’s the crucial part about international as a decision to operate globally. You could argue that it now becomes every single leader’s job to consider the international implications of their work. You can designate a senior executive to lead and drive international as a continued priority. Either way, the international launch is only just the beginning. Understanding what running an international business requires and continuing to build out the muscle and foundations for the company to continue to scale and move quickly despite the additional layers of complexity, is what will ultimately drive international expansion success or failure.
Are you ready for international expansion?
The considerations above really vary for different companies, products, and stage of business maturity. And, as we’ve learned, there isn’t a right or wrong answer here. International is complex. It will add another dimension to your business.
Ready or not really depends on your willingness to juggle these considerations and iterate on these various components as you learn what works and what doesn’t for your business and your markets.
*Developed countries defined here as the 49 countries with HDI (Human development index) above 0.8
**Slack now has over 55% of our users outside of the US, in more than 100 different countries. Last year we launched in Japanese, French, German, Spanish, and a host of new currencies. International strategy has been a collaboration across not just various members of strategy, but product, program management, marketing, bizops, user research, and customer experience.
