There is no shortage of guidance and assistance to promote exports or imports or the setting up of companies, and everything else that one might need in order to take a business global. And yet, for many businesses, their plans for going global end in costly failure. Often the failure can be ascribed to the simple fact that while the managers understood that going global meant they would be operating in a different market, they failed to understand the impact this would have on their existing business model and how that model may need to be adjusted in a difficult market.
Same But Different
日本では四季があります(nihon dewa, shiki ga arimasu)
“Japan has four seasons”, is commonly used by Japanese people to explain, at least in part, the uniqueness of their culture.
This statement perfectly encapsulates the challenges inherent in managing a cross border business. On one hand, most countries have four seasons so in that respect Japan can be regarded as being the ‘same’ as most other locations. While on other hand, the statement says a lot about the perceived uniqueness of the Japanese experience such that Japan, at least in the minds of a Japanese customer or business partner, is ‘different’ from other countries.
Managing this same-but-different dynamic is at the heart of a successful international business plan. It isn’t always easy to identify the relative importance or consequence of the similarities or differences, as it will vary according to an enormous range of factors including culture, history, language, geography, level of development, to name just a few.
While some cultural norms are well known and understood it is remarkable how often sophisticated marketing campaigns and business expansion plans fail simply because the planners didn’t understand the target market. This failure is due to a mismatch in culture and expectation which is really just a failure to manage the same-but-different issue. Understanding the environment in which you intend to do business and the impact that environment will have on your business will go a long way to supporting your cross-border business success.
Cross Border Risk
Another way to describe the same-but-different issue is by reference to cross border risk. The risk presented by conducting business across borders is the gap, or mismatch, between your preferred business model and the local business environment. How you adjust your business model to accommodate the local business environment is important. If you get it wrong, you will fail for the simple reason that your business model will not be appropriate for that market.
Managing cross border risk is not easy and even the biggest companies can get it wrong. A good example is the disastrous acquisition of the Homebase brand in the United Kingdom by the Australian DIY giant, Bunnings. Successful cross border businesses are able to leverage the similarities between communities whilst managing the differences. This is not an easy thing to do, partly because it is not always easy to identify what aspects are advantageous and what aspects are detrimental to a business.
Every aspect of your business model needs to be assessed against how it will interact with the new local business environment. It is not simply a case of ensuring you comply with the local business practices. It may well be that being different gives you a competitive advantage because the local market is crying out for someone to come in and offer a different way of doing things. It is therefore vitally important to understand the local business environment and understand how that impacts your business model.
While every business environment will present its own unique profile of risk and opportunity, there are a number of aspects to any business model where the differences are likely to be most keenly felt. Set out below are areas that might benefit from closer scrutiny when developing a plan to start a cross border business:
It should go without saying that operating in a different country is likely to create language issues but businesses still get it wrong. You are unlikely to require the services of a formally qualified interpreter at your business meetings but you should at the very least have someone on your side of the table with a native-speaker’s level of expertise in the local language. Ideally, the person should also have a working knowledge of your industry or business.
Translations of your website and marketing materials are also important. If your business model involves connecting with local customers on a personal level then you will need to get your material properly translated by a qualified translator. For details on using translators and interpreters, check out our blog on using Translators and Interpreters.
Before launching a product into a new market there is potentially a raft of regulations and local customer preferences that will need to be applied to your product. Everything from packaging, manufacturing processes, sourcing requirements for components or ingredients; all the way through to simple client preferences, will need to be considered. Even where the new market shows a strong cultural, language and regulatory alignment with your existing market, it is possible to get very different customer reactions.
- LOCAL INFRASTRUCTURE
Your existing business model will be heavily informed by the infrastructure of your home market. Simple, every-day, things like power supply, internet speeds, quality of roads, education standards of the workforce, government efficiency, supply chain reliability, etc., all contribute to your existing business model. Understanding this is important when moving into a new jurisdiction as one or more of these factors may be different and you will need to account for this when developing your business plan.
Other potential infrastructure considerations include web domains, local office locations, and location of commercial centres and population centres. Staffing, labour costs, and employment laws should also be addressed.
- Corporate Structure
One of the benefits of being a multinational company is that your business is not constrained by your domestic circumstances. Being able to access international markets means that you can also access potentially lower production costs, more efficient supply chains, lower staffing costs and advantageous taxation regimes. Different and more advantageous corporate structures may also be available. Equally, it is also possible to inadvertently incur unnecessary increases in costs. It is therefore especially important to get good legal and tax advice when establishing a business in new markets.
As your business expands into new markets you may also find that your existing financial services provider is unable to provide you with the products and services you need. Shop around to find banks that can support your business in multiple jurisdictions to take advantage of cross border banking services.
When developing a plan to expand into a new market, geography is a bit like language; of course, the new market will be in a different location, but many people fail to appreciate what that mean at the practical level. Time zones and travel times will suddenly become a feature of your business model, as will different seasons and delivery times. These factors need to be taken into consideration when developing your international business plan as they will consume resources and potentially change your customer experience in ways you may not have been expecting.
- LEGAL & DOCUMENTATION
Different markets will invariably be subject to different laws and regulations, but possibly not in the ways you might expect. When deciding to offer products or services in a new jurisdiction it is important to get good legal advice on the local regulatory requirements relevant to your business. These may include anything from client data privacy, licensing, qualifications (yours and your clients’), to disclosure requirements and consumer protection standards. It is important to understand how your processes and documentation will need to change to ensure you are compliant with local laws, and that you are protected against unforeseen risks.
Language will also be important. In some jurisdictions, contracts need to be in the local language in order to be enforceable. You may find that contract negotiations generate contracts in your language and the local language and you will need to agree which version prevails in the event of any inconsistency. The law that will govern the contract and which courts will have jurisdiction in the event of a dispute will also be relevant. Good legal advice is vital to ensure your legal interests are protected.
In jurisdictions where corruption is endemic you may wish to consider changing the structure of your agreements to minimise the potential need to rely on local courts to enforce your contracts; up-front payment might be an option, for example, to reduce the potential exposure to your counter-party’s non-performance rather than relying on your contractual rights.
Entering into a new market naturally means you will have new customers. These new customers will almost certainly not behave in the same way as your existing customers. For reasons including culture, language, history, climate, laws, level of economic development, and for a hundred other reasons, they will approach your product in a way that is different to your existing customers. It is important to understand this and to take it into account when developing your business plan. Even where the culture, laws and languages are largely the same, the customer experience can be just different enough to make your existing business plan unworkable.
As we have seen in the previous points, taking your business into a new market can have a wide and unexpected impact on your existing business model. Accommodating these considerations in order to be successful can be expensive in terms of staff resources and capital. When deciding on moving into the international market it is important therefore, to understand how your business will change and the resources you are going to need to support that move. Obviously, the better you plan for your expansion the more efficient you can be.
Going global can be expensive, at least initially. Even the best planned and executed expansion can incur unforeseen costs and result in failure. Most governments recognise this and they also recognise the enormous financial benefits that come from developing export markets. For this reason, many governments make available various schemes and grants to help their citizens develop their export markets. Likewise, many governments also have services to help foreign businesses set up in their local markets. When developing a plan to take your business global, spending some time researching government assistance for import/export activities is often worthwhile.
Managing the same-but-different dynamic to avoid unnecessary cross border risk is a key to a successful expansion into a new market. The market will operate by an entirely new set of rules; some (possibly most) of these may match your existing markets but it is wrong to assume this will always be the case. Do your due diligence on the new market and then assess how your existing business might need to change in order to be competitive in the new market. Check out our blog on the basis of a sound international business plan to get an idea of the range of possible factors you will need to include in your planning.