There are at least 7 basic reasons for global growth.
1) The market for your service or product is too limited, or specialized and there are not enough customers in your home city, province even country.
2) The local market is saturated, hyper-competitive or monopolized.
3) Your social service or technology is needed elsewhere in countries with few resources, and it makes a real difference in the lives or business operations of others.
4) You have extra capacity, and have a product or service that can be duplicated, licensed, manufactured and exported.
5) Your company can benefit from a joint venture with another firm and learn from each other to gain from synergies by collaborating.
6) Other markets provide better growth opportunities, market acceptance or partners to help drive your global growth. Winning in foreign markets validates you locally.
7) Your firm’s brand and goodwill can be franchised, sold or distributed in other countries.
Remember, growing globally does not now necessarily mean you should become huge, monolithic, and clumsy. Agility, speed and innovation are critical today to surviving over the long term. You should grow carefully, and quickly.
Technology Helps, A Lot
Technology makes it easier and faster to grow today. With quick office rentals and shared office space, you can set up a UK or Asian sales office and use technology to handle meetings, demonstrations, sales, service and customer care with little investment.
Which Markets Should You Consider?
Traditional markets from a Canadian perspective are the US, Europe and now recently Asia because of increased per capita GDP and growth of personal incomes. But, other markets exist: eastern European countries and south Asian countries have grown rapidly and can afford Canadian product exports and services. Some factors to consider are:
· The nature of your product, service
· The competition in that country, and product substitutes
· The market size in dollars, or unit volume
· Language, culture and customs
· The labour market, distribution channels and infrastructure (including internet)
· Political risks, crime and growth opportunities
· Weather and transportation
· Barriers to market entry, including requirements for government involvement
Fortunately, a lot of country data can be found online on Wikipedia and in university databases and libraries (online resources).
Ways to Expand: License, Franchise, Export, Joint Ventures (JVs), Mergers and Acquisitions (M&A), or Foreign Direct Investment (FDI)
There are different ways to expand quickly: You can license your brand, white-label you products, and export or franchise. Licensing, franchising, and exporting require less capital and decrease your monthly costs compared to direct foreign investment, but also gives you less control over product or service quality.
Entertainment and apparel brands often license their name for products. McDonalds, Tim Horton’s and Subway are great examples of franchises that quickly provide business owners with marketing, administrative and operational systems. Startup capital requirements range from $150,000 to $2 million per franchise location and personal cash liquidity. Smaller franchises exist in a variety of services like haircutting, salons, maid services, cleaning, and driver training. Franchises are an ideal expansion vehicle because you work with tested business systems professionals (franchisors) who provide support in location selection, market research and marketing.
International franchising requires additional knowledge of local, regional and country-laws. It’s a good idea to start with a franchise lawyer and do your own due diligence and research.
There are slower, more steady ways by getting help from foreign countries and governments. These are joint ventures, partnerships and direct foreign investment.
Joint ventures (JV) are ideal with two partners are equal in strength. However, statistics show that despite good intentions, about 50% of all joint ventures fail (including JVs between major large multinational firms) because of misunderstanding, communication, cheating, and unexpected events. Your JV agreement should be well-written for dispute resolution, ownership and consequences of failure—which party gets to keep the technology, patent or trade secrets in the event things go sour? What are the costs of a breakup? Who is prohibited from competing and for how long?
In some countries, like China, or India, a JV is a requirement to market entry because these countries want to learn from foreign partners (not just be sold products and services).
Mergers and acquisitions (M&As) are more difficult. M&A is faster than organic growth in markets. M&As for the acquiring firm allow you to quickly gain clients, inherit relationships, gain access to distribution channels, technology and simultaneously you can derive synergy from two firms. You can eliminate redundancies in systems like administration, sales, marketing, human resources, IT or operations, particularly if one firm has excess capacity. Due dilligence is required by the acquiring firm to validate sales, operations, and firm value of the firm being acquired.
Facebook, for example, wanted to buy Snapchat for $3 billion, and later acquired WhatsApp for $19 billion primarily to bolster is user-base. As a revenue strategy, once their clients are loyal to Facebook, they can begin monetizing their new users-base either through fees or advertising. These figures are the amounts Facebook values their new customers will be worth based on existing calculations (advertising revenues).
A lot of benefits can be gained, from a JV, merger or acquisition that works: speed, knowledge, expertise, co-option and complementary skills.
Last foreign direct investment (FDI) is best for well-researched and in countries where you want a lot of control in your labour, manufacturing, service and marketing. You can maintain your brand image and hire local managers who speak the language, know the customs, metaphors, likes and dislikes, preferences and nuances of the culture.
There are a few ways to finance a small business for international growth: export development grants and loans. The Business Development Bank of Canada (BDC) and small business market expansion loans in the US and Canada with help from local, state, provincial and national trade missions. Many provinces also have arts councils and development grants, subsidies or tax breaks for interns, students and training programs.
And of course crowd-funding sites like Kickstarter and Indigogo provide crowdsourced funds. Venture capitalists, and angel investor networks like AngelList (www.angel.co) provide yet another opportunity for financing.
Start-up accelerators include Waterloo’s Communitech, Toronto’s MaRS, Vancouver’s GrowLab, and LaunchAcademy, Calgary’s AcceleratorYYC, StartupEdmonton, MBTechaccelerator, FounderFuel Montreal, and Europe’s Seedcamp are examples of technology accelerators and incubators.
Start-ups incubators are attempting to replace technical colleges and universities by accelerating start-up growth through its system of collaboration and learning. Multinational firms like Siemens, Sony, Google, and Microsoft invest in technology start-ups that have shown traction (customers, innovation, revenues).
Managing Risk When Going Globally
It is often said that 1 in 10 start-ups fail. Some research our of Silicon Valley conducted by Communitech showed that the primary cause of failure is attributable to the product’s technology or performance (65% probability of failure). Investors must hedge against this by investing in a portfolio of startups with the hope that 1 will turn into a Facebook, AirBnB, or Uber. Therefore, you must know objectively, what risks your business faces, not only from your perspective, but from your investor’s perspective.
You want to plan against financial, sales, marketing and relationships risks systematically to help ease fears of your investors, especially if you are growing globally from the onset. Know your market (country’s) laws. Do you have copyright and patents in place?
Again, legal risks, JV relationships and cheating, technology change and economics are significant risks. Fortunately much of these risks can be researched, evaluated, and mitigated either through planning and business insurance, but not always.
A government endorsing a JV or direct investment may later on, have a change of heart and seize all foreign owned assets. Political unrest, such as that between China and Japan may destabilize Japanese interests in China. Small businesses now have the capability, technology and support to grow nationally, internationally and globally at the speed that is right for them.
Al Leong is formerly a contributor to TechVibes and the Next 36. If you found this article useful, “like” or “recommend” it.