Contributors: Andrea Flair Nathan and Lucy Kim, and Fouad Elsaadi,
This is the second part of the Go Global Blog. Read Part 1 here.
Startup Pathways into International Markets
Prior to proceeding with expanding internationally, you would need to find out which foreign markets are most suitable and attainable for your innovation. This will require plenty of research and there are numerous sources that can illustrate the market with the highest interest for your innovation.
Understanding the target audience is central to your business as knowing more about them increases the chance of hitting the sweet spot. A well-known and successful case study is Kit Kat, where the brand adapts to cultural characteristics of each country they sell to. For example, in Japan there are more than 200 Kit Kat flavours created to accommodate Japanese consumers who are fans of food experimentation. In turn, in America and Australia you can find king-size Kit Kats because they identified the inclination of those countries towards big things. Therefore, by narrowing down the market, more specific features can be discovered and identified as a potential market to penetrate.
But how can you do this?
Online surveys are a powerful UX research tool to obtain reliable feedback directly from consumers. Instead of the traditional expression of interest form that may be hard to distribute, conducting online surveys is an affordable way to save time, effort and gain market insight. Before launching a new product, an online questionnaire can help determine potential customer preferences which can improve the product and increase customer satisfaction. It can also be used to test product marketing strategies and measure their effectiveness. With modern online platforms, it is also possible to segment audiences on the basis of obtained results or create customisable surveys including polls for engagement, large online survey platforms include Survey Monkey, Type Form, Survey Gizmo and Google Survey.
Webtools are the easiest and most accessible method to collect market information, including past sales and trends. For example, if dealing with online based business, find out the internet penetration rate using Internet World Stats data. Find out each country's penetration rates and also raw counts of potential users. For digital companies, this will help determine how common it is for people to be on the internet in general and determine the market that is viable for you to expand to. Or if your business is in fintech and associated with credit cards, you can find out the percentage of credit card use in countries (source).
Find out more information and tools for collecting market information here.
After identifying the market with the highest interest in your product, below you’ll find the different ways you could access an international market and their pros and cons (source1, source2):
Partnerships
Advantages:
→ Reach your goals faster: Since you won’t be working alone, with the resources and reach of your local partner, goals and predetermined metrics could be achieved quicker.
→ Expand customer base: People are loyal to the brands they trust. Hence, if your business is able to fulfill consumer needs and execute it professionally, then the brand recognition of your partner will be extended to your company.
→ Avoid import/export controls: Depending on the partnership and the home nation of your company, regulations may be evaded or reduced when entering a new market.
→ Financial assistance: While paying attention to the fine prints, an alliance can include financial assistance which would be beneficial for startups. A partnership could help secure finances and access to the global market.
Disadvantages:
→ Conflict in ownership: When two or more companies work together, conflict can arise regarding rights over product, data, production, or trademarks.
→ Interpretation and delay: An ambiguous agreement can leave both ends of a partnership open to interpret and later cause problems when administration occurs. Communication should be clear and mandatory for efficient operation.
→ One-sided contribution: In a partnership, a company may take on more expenses than the others. This underlines the importance of rules and agreements that should be mutually beneficial to prevent one side taking more benefits.
Export
Advantages
→ Expand market: By going global and sending products or services overseas, it will lower your dependence on a single market.
Disadvantages
→ Loss of focus: It can be invigorating to meet and work hard to suit products for a new market, nonetheless, it should not mean forgetting about your home markets and existing customers.
→ Less control: Managing and operating overseas is unlikely to be as easy as it is in your home market. It involves managing more remote relationships and potentially result in the loss of some control to adapt to other countries’ regulations and laws.
Licensing
Advantages
→ Save money and time: For patent owners, the licensee will be responsible for costs of manufacturing, distribution, packaging, marketing and sales. This will mean funds for commercialising won't be needed (in most cases). Markets can also be more easily accessed depending on the deal and licensees where export taxes may be avoided or risks associated with international expansion can be reduced.
→ Generate revenue while keeping ownership: The licensee will pay for the right to hold the licence to your patent. This can be a one-off payment or involve continuous payments (i.e., royalties). However, these are only certain rights over patents as you still retain ownership of your intellectual property.
Disadvantages
→ Need to trust the licensee: As the patent owner, you would want your product to be successful, and this requires your licensee’s ability to effectively commercialise your solution, have solid strategies or execution of production and quality management to avoid damaging product reputation. It is necessary to conduct due diligence checks on any potential licensee to assess their suitability and track record.
→ Loss of control over innovation: Depending on the deal with the licensee, though you may retain ownership of the asset, there will be a partial/full loss over your innovation. You are potentially creating a competitor, so it can be worthwhile to put extra effort and determination to find the right licensee.
Sales Agent
Advantages
→ Save time and money: A sales agent acts on your behalf in the overseas market by introducing you to customers who you supply and invoice directly. This means you can avoid recruitment, training and payroll costs of using your own employees to enter an overseas market. And you will have acquired an agent that has solid relationships with potential buyers and the ability to identify and leverage opportunities.
→ More control: Using an overseas agent allows you to maintain more control over matters such as final price and brand image - compared with the other intermediary options such as distributors or licensees.
Disadvantages
→ Complicated trade-related logistics: Despite the agency having a significant influence on the market entry process, the actual plan and execution still falls on the shoulders of the business.
→ Lack of after-sales services: Since sales are completed through an intermediary, there is likely to be a difference in after-sales services compared to other businesses (e.g. product support, returns, warranty replacement).
Branch
Advantages
→ Opening up access to new markets: A local office will give you the chance to identify and leverage opportunities in your target market. This also gives you the flexibility to control operation, and expand if necessary,
→ Brand recognition: Customers are likely to be more loyal and have faith in a business locally based, This is particularly applicable if the business requires after-sales services.
→ Reduce risk: A local subsidiary or joint venture may be an option to consider to lower risk and limit liability if things go wrong. This will also provide the opportunity to “test the waters” by benefiting from learning local knowledge and gaining reputation before building a local office.
Disadvantages
→ Resources and managerial burdens: Opening an overseas operation will require greater resources, administrations and the burden to succeed. You will need to have a comprehensive understanding of the corporate, employment and tax law. You may need to rebrand the business to attract local attention or if the product name is considered inappropriate. Overall, the cost is high if business does not follow the plan and must carry on the risk alone without any alliance.
Conclusion
There is not an easy answer to the question “How do I take my startup overseas”. However, there are various options at your disposal, all of which should begin with thorough research of potential international markets. Every business is unique in a sense, so evaluate your options carefully to identify the means of expansion that offers you the right balance of cost, risk, control, operational depth, and room for growth.
Disclaimer: The information provided in this blog is strictly for educational purposes to explain why and when to go global in the startup context, and it does not constitute investment, accounting, financial, legal or tax advice. It has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.