Expanding Your Business Worldwide: Is it worth it?
By Dr. Michael Stoica | Washburn University
The literature is flooded with papers describing the challenges companies face when going abroad: working in different time zones can be frustrating, cultural differences difficult to overcome, problems with logistics, the need for in-depth and costly research (very costly for small and medium- sized businesses), high risk of failure (even higher for small businesses). Below are some of the challenges that are frequently present in literature or consulting and advising settings:
Physical distance and time zone differences.
Cultural dimensions and unknowns: language, values, norms.
Tariffs and export/import fees.
Human resources and local talent management.
Supply chain management and risk of labor exploitation.
Choosing the right country: there are so many options, where to start?
Slower pace: the business world is moving slower, at times much slower, than in the USA.
Local competition that might be favored (subsidized) by the government.
However, there are many more success stories than failures when discussing the topic of doing business in international settings. U.S. businesses are particularly successful when expanding overseas. The U.S. market is very competitive, and American companies that do well in their local market are strong competitors and, in general, well positioned to do business abroad. Brands such as Coke, McDonald’s and Apple conquered the world. I recently noticed Hill’s Pet Nutrition products in many veterinarian stores in Paraguay and Brazil. They are testing global packaging in Europe and South America.
Doing business internationally is now being regarded by an increasing number of small and medium-sized businesses as an attainable goal. Technological advances such as Internet e-commerce or m-commerce have provided new opportunities that make exporting or other business involvement overseas at least doable or viable options. Having a presence in more than one country ensures a firm isn’t reliant on the health of just one country’s economy for its success.
HOW TO BEGIN Gather knowledge and experience so you can decide if you should expand overseas:
Travel. The company leadership should encourage and even motivate employees to travel abroad. Every avenue of information gathering should be explored: conferences, trade shows, even vacations. Employees should travel and observe with an entrepreneurial mindset. Be curious and look for business ideas. Learn how others are doing business. This is how Starbucks’ success started.
Make friends overseas. Every travel experience or contact with someone overseas should result in new friends. These new friends might be an excellent resource for information and ideas.
Read. Secondary research (at least in the beginning) will be very helpful in figuring out if and where it makes sense to expand beyond the local market.
Present the idea to as many as possible. Once a particular international opportunity is detected, the business should challenge its employees and/or any stakeholder to give their opinions on the idea. Some might have additional ideas and/or some (even if different) international experience.
Test the market. At the minimum, try some Internet sales and explore foreign customer behavior.
Start sooner rather than later. It is best to start doing business overseas before outgrowing the local market. It provides growth opportunity, allows for diversification, and helps to better manage risk.
STANDARDIZATION VS. ADAPTATION
When expanding the business abroad, the “battle” between standardization and adaptation becomes critically important. At times, standardization is the right answer. After the fall of the Berlin wall and the political changes in Central and Eastern Europe, Coca Cola decided to enter those new markets. The company chose not only to offer exactly the same product that was sold in the U.S., but also to use the same ads—in English. Nothing was translated into the local languages. The success was remarkable. Before this market entry, Pepsi was the dominant seller of soft drinks. In just a few months, Coke managed to outsell Pepsi by three to one and gained up to 80 percent of market share in all of the former socialist countries. Pepsi had been present in all of the local markets since 1974 and were perceived as part of the “old system.” Coca Cola’s entrance into the market with its messaging in English implied that “finally the Americans are here.”
Examples from Brazil show how American businesses have adapted to the local market. Brazilians are emotional people and they want a strong and close relationship with their favorite brands. They want “lovemarks.”
The Brazilian coffee customer is sophisticated and demanding. The locals say that selling coffee in Brazil is like selling sand in the Sahara. However, Starbucks managed to win a market segment that was very competitive. The Brazilian’s way of drinking coffee fits well into Starbucks’ milk and cream based product line. The company localized their traditional cappuccino with a “doce de leite” (traditional Brazilian cream made out of milk and sugar) addition.
Brazilians are warm people and their loyalty to companies that are warm and friendly is remarkable. Starbucks addressed this by hiring and training the friendliest staff from all of the large coffee shop chains in Brazil.
In the last couple of years, Coca-Cola has launched a series of back-to-back campaigns to promote the Sprite brand in Brazil. Market research showed that Brazilians spend more time than Americans or Europeans on social media (see figure), so that is where Coca Cola targeted its messaging. The campaigns used videos in conjunction with ads on both Facebook and YouTube to support both online and offline marketing activities. The campaign then integrated that messaging with indoor and outdoor displays, live events, point-of-sale viewing and merchandising. Of the 14 million Sprite Facebook fans worldwide, Sprite’s Brazilian Facebook fans now number more than 2.5 million, the second largest group after U.S. fans.
Rio de Janeiro-based agency WMcCann released a shared content campaign, modifying the cans of Sprite into blank screens. They challenged people to create new artistic designs that would appear on the cans. More than 250,000 artistic designs were submitted, and four of these were chosen and sold all over the country. For Brazilians, that was a “lovemark,” a proof that Sprite is warm and friendly. Sales of Sprite increased substantially.
IN SUMMARY Expanding internationally is one of the most complex business strategies. Different businesses and sectors will have specific rules, which will frequently be determined by the scope of activities, availability of skilled personnel and resources (both financial and non-financial) and actual market conditions. However, while there may be a considerable number of rules and regulations, fortunately there are also a wide range of solutions that can be tailored to the individual company that chooses to expand overseas.
Support and intervention from advisers and organizations familiar with local legislation will often be a critical factor in the success of any expanding overseas plan. There are also possible repercussions of the foreign expansion on domestic activities: reallocation of resources, changes in the philosophyof the decision-making process, changes in the way local markets are served, etc.