Get (really) prepared to expand your online business internationally

At some points, it crosses every CEO’s mind to sell to audiences outside of the company’s initial market.

Once an online business is well established and considered as solid in the domestic market, it makes sense to start looking at potential expansion outside the country’s borders as a growth opportunity. If you are a US based company, you might be interested in reaching the 95% of people who live outside the United States’ borders. If you are a European based company, you can be attracted by the US and China, the largest consumer markets in the world.

But there are risks attached to expanding beyond home market and many examples of failures, from Target withdrawing from Canada and liquidating 133 stores, to Walmart losing US $1 billion in Germany, Groupon or eBay in China or Veepee in the US.

International business is not just an expansion of the domestic operations…

Markets vary significantly throughout the world. It is crucial to run some research, collect data, perform careful analysis. Not only narrow down the geographic markets where to expand but also have expectations about the revenue to be generated, to better adjust the product, marketing & advertising efforts and financial investments required to expand.

I recommend using 4 different methods, together or separately, to identify the markets that have the highest potential for you, in your industry, given your competitive situation. This is relevant to all roles involved in expanding internationally, such as Head, Director or VP of International Expansion, International Markets, or International Growth.

Two of the proposed methods, the PESTL and the Addressable market matrix will support your decision to enter one or more markets.

Two of them, the Onsite Metrics and Digital Buyers penetration should help getting a sense of the incremental revenue you could expect from the markets you will choose to enter.

If you run all 4 methodologies, you should have a solid base for your market exploration and prioritization work.

PESTLE matrix

Originally created by BCG, this is the most common matrix used to rank international market potential according to macro-environmental factors. PESTLE is an acronym that stands for Political, Economic, Social, Technological, and Legal.

Let’s review the criterias: Political considers political stability, Economic looks at exchange rate fluctuation or taxes and consumer spending, Social takes into account Employment, household incomes, Technological examines hardware market share, internet penetration/speed, mobile penetration, Legal is about trade restrictions, legal requirements.

You can adapt and complete the matrix with additional factors that are specific to your industry. For example, add demographics, a dimension from Geert Hofstede work on cultural dimensions, or competition/market saturation. And of course Language, with an English proficiency index. All of the factors can be weighted with higher or lower score, depending on the known impact on market success of each criteria of the matrix.

Data can be accessed through many sources, from widely available Government statistics to industry associations, Trade publications or published market research reports.

PESTL Score = Weighted P * Weighted E * Weighted S * Weighted T * Weighted L * Weighted xxx * Weighted yyy

Total Addressable Market

The approach taken with the Total Addressable Market (TAM) outlines the most promising markets, based on the size and wealth of those markets.

In order to perform this analysis, you will need to access market data, provided by statistics or research institutions, such as Statista, eMarketer or Euromonitor.

The data to be collected is your Ecommerce Segment Value (how much your segment is worth) and the forecasted growth over the next 3 to 5 years (the projected value of this segment).

Note that you will have to measure how much you own each product or service category and apply a percentage to the market value of that category (example: if you sell fashion accessories, such as scarves and gloves, you probably own around 20% of the clothing accessories market). This will provide you with your Addressable Market.

The exercise will then consist in combining the Average Revenue Per User (ARPU) by market and the growth of the segment to focus the efforts on those markets with highest potential. The ARPU is the result of dividing the Addressable Market value by the number of Internet users in your market.

ARPU = Ecommerce Segment Value X Segment Shares / Internet Users

Onsite metrics

In this case, you can leverage on the traffic, conversion rate (CVR) and Average Order Value (AOV) your core market gets on average throughout the year. Apply a conversion rate increase you should experience post-localisation(closer to the performance you already see in your core market) to your current traffic volume and the forecasted traffic growth over the next few years from additional local marketing initiatives, assuming the AOV would not move from localisation efforts. This would yield to an estimated revenue in new markets.

Expected Revenue = Forecasted Traffic X New CVR X AOV

Digital buyers projections

Forecasters expect over 2 billion online shoppers in 2020 worldwide. Your business is capturing a percentage of this population. You can value the revenue you already generate in your core market by dividing that revenue by the number of digital buyers in your country. You can also track back how you’ve improved your market share over the years by capturing the evolution of the revenue by Digital buyers over the years.

In order to estimate the revenue in the new market, you would then apply the growth of Revenue by Digital Buyers over a period of 3 to 5 years, from a value which is likely to be close to zero to what you got after 3 to 5 years in your home country.

Projected Revenue = Revenue by Digital Buyers in Historic market (after year x) * Number Digital Buyers in Targeted Market

A successful approach

At Redbubble, we’ve explored a set of new markets which organically generated interest from both parts of the marketplace ecosystem, independent artists and customers. Through the above analysis, relying on a series on metrics relevant to our business, the opportunities across Europe were confirmed, given each market size and wealth. This led to our first efforts to localise in Europe and the success it has ever had since then.