Does your company have a global strategy? Are you sure? Many companies we encounter claim to have a global strategy, but what they really have is a foreign opportunity.
As we have mentioned in the past, many companies develop an ad-hoc global strategy in response to an opportunity in a foreign market. However, more often than not, those are the companies that are forced to exit that market before the opportunity comes to fruition, or spend excessive amounts of money to essentially learn-on-the-fly.
In our experience, the companies that are the most successful with their global expansions, plan ahead and they plan well. What we offer here are five questions that can help you plan effectively and lay the foundation for a sustainable global strategy.
1) Why are you thinking about global expansion and global strategy?
This may seem like a fairly parochial question, but go ahead and ask yourself. The answer might not come as easily as you think. There are many reasons to expand globally. A desire to increase revenue, a hedge against domestic economic conditions, gaining market share, etc. All of these reasons have a degree of validity to them, but the important point is very clear about what your motivation is because each motivation presents its own path and set of obstacles.
So start by asking “why”. Don’t move forward until you can clearly articulate specific motivations and business goals of your situation.
2) Where should you go?
This is where the strategy “rubber” starts to meet the opportunity “road.” Do you need to have a preexisting opportunity to go to a foreign market? Maybe. If you have an opportunity in a foreign market, doesn’t that automatically justify entering that market? Maybe.
The answers to those rhetorical questions are not intended to be cagey, but as many experts have correctly pointed out for years choosing a foreign market depends on your company’s resources, objectives, product or service competitiveness, and many other factors.
Our suggestion? Start with familiarity. The number of truly wide-open markets in the world is steadily decreasing, so start with the countries where you may have some familiarity. Look to members of your staff and your own experiences to determine these “familiar” markets and start with those. Internal familiarity is more cost-effective and reliable than any outside resource.
3) What financial considerations should you be looking at?
A comprehensive list of answers to this question would fill up more space than we have room for in this article. So instead of coming up with a laundry list of considerations, we’ll simply highlight a few that often go over-looked from an employment perspective.
First, what is the average cost-of-living in a country?
More than likely, you’re going to need on-the-ground resources in a foreign market and of course, cost-of-living is going to directly affect the cost of those resources. Many companies are shocked to find out how high salaries need to be in some countries because of the cost-of-living. Plan for this and take advantage of lower income levels where you can.
Second, what are the employer contributions in a country?
If you’re a company who planned for foreign salaries, did you also plan for employer contributions? For those of you who don’t know, employer contributions refer to the percentage of an employee’s gross salary that the employer must contribute to a foreign country’s social programs. In many countries, that percentage can be well above 50%. Did you plan for that?
Third, how much would it cost to wind-up a foreign market?
Of course, we hope that you’re successful in whatever market you choose to enter, but while we’re planning, let’s talk about what it would cost to leave a market. Depending on the country and how you entered that country, wind-up costs can be as much as 4X the set-up costs. That is not a typo. We’ve routinely seen companies take their lumps in a foreign market, eventually decide to stop the bleeding and leave that market, and realize that they’re going to have to pay thousands more just to get out the door.
The key here is flexibility; don’t invest more than you absolutely have to. Plus, try to enter a market in a manner that allows you hit the eject button without emptying the coffers. This is where FSaaS excels; providing compliance and risk management while having a light footprint with minimal investment.
4) Do you have friends in your target market or who know your target market?
By friends, we’re not talking about your golfing buddies. We’re talking about people you can turn to in-country or resources who know about that country. Do you know these people? If the answer is no, let’s talk about a different market.
When entering a foreign market, according to Forbes it’s important to seek advice and ask for assistance. There’s no pride in a global strategy and acknowledging that “you don’t know what you don’t know” will pay dividends in the long-term.
5) How do you execute?
This is the potentially multi-million dollar question. Use your answers to the other four questions to determine your entry point and mode of entry. Pay particular attention to financial and employment resources. Don’t just rush headlong into setting up entity right away until you understand the level of commitment that entails. Instead, explore all of your options and try to enter with a light footprint until you know the terrain. And last, but certainly not least, pay attention to regulatory and cultural issues. Those issues have a funny way of creating an incredible amount of “soft costs” that are hard to quantify during the planning stage, but nevertheless, can dramatically affect cash flow.
If you’re ready to start planning your global strategy or executing the plan you have contact our Global Consulting group.