Global Expansion

What Three Global Giants Teach Us About International Expansion

By September 15, 2020No Comments
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No two international markets are the same. That’s why there is no one-size-fits-all approach to global expansion–even for the world’s most prominent companies. From accounting for cultural differences and foreign regulations to understanding a country’s technological and workforce realities, companies need to take a market-specific approach to international growth.

In this post, we will review how three global giants–Netflix, Amazon, and Microsoft–adjusted their expansion strategies to meet the needs of new markets. And learn how maintaining a purposeful yet flexible approach to global expansion is critical for companies of every size.

Microsoft And The Power Of Adaptivity

With 45 years of history and a market capitalization value exceeding $1.5 trillion, Microsoft is one of the most prominent and profitable companies on the planet. The tech giant’s path to global domination, however, required flexibility and adaptability.

Microsoft started in the United States in 1975. By 1983, the software company expanded across Europe and into Japan. Five years later, after scaling into Malaysia, Singapore, and Indonesia, Microsoft’s international operations comprised nearly half its total sales.

Microsoft hit its first real roadblock when it entered China in 1992. The challenge? Its business model was not suited to the realities of the region. Because Microsoft did not account for cultural and regulatory differences in China, consumers perceived the company negatively.

In 1999, after seven years of poor financial returns in China, Microsoft tasked a senior executive with diagnosing its issues in the country. He identified three problems:

  • In a country that venerated age, Microsoft’s salespeople were too young.
  • Microsoft overemphasized the hard sell, which was culturally incompatible with Chinese values.
  • Microsoft’s relentless litigation aimed at curbing counterfeit software sales in China alienated customers and made the company an enemy of the government.

In a testament to the necessity of adaption, Microsoft made a series of adjustments that helped the company overcome its challenges in China.

First, Microsoft worked to improve its relationship with the Chinese government. Rather than wage endless legal battles in Chinese courts, Microsoft lowered its prices in the region to better compete with counterfeit software. At the same time, Microsoft gave the Chinese government the ability to add its own cryptography to Windows for sensitive applications, such as political offices or national defense.

Microsoft also made a concerted effort to improve its market perception. By abandoning its rampant anti-piracy efforts, Microsoft reversed its image as an enemy of the people. The company opened a major research center in Beijing, which became one of the most desirable places for Chinese computer scientists to work. Microsoft brought additional jobs to the region by making Shanghai a global customer e-mail response center. And the company worked closely with China’s education department to finance computer classrooms in rural areas.

Thanks to Microsoft’s efforts to overcome cultural differences, the Chinese government and consumers see Microsoft as an ally invested in China’s long-term success. In fact, 90% of China’s nearly 200 million PCs now feature Microsoft software. And the Chinese government requires its central, provincial, and local subsidiaries to use Microsoft’s legal software, rather than pirated versions.

Microsoft’s challenges in China underscore the fact that no international expansion is entirely seamless–even for major companies with large operating budgets. That’s why it’s critical to adjust expansion strategies to meet the needs of every individual market.

For Netflix, Expediency Meets Intention

While Microsoft’s global expansion spanned decades, Netflix became a household name in just seven years. Founded in August 1997, Netflix operated solely in the U.S. until 2010. By 2017, the streaming service successfully expanded into 190 countries. Despite the speed of the company’s expansion, Netflix’s success required growth strategies carefully tailored to international markets.

Netflix charted a deliberate course to global expansion from the start. The company first expanded into Canada, reasoning that the market’s similarities to the U.S. would enable a quick learning curve. Emboldened by its successful Canadian expansion, Netflix entered markets in Europe and Latin America. However, the company learned that these new markets present unique challenges, including:

  • International subscribers, whose first language is not English, prefer local-language programming.
  • Technology infrastructures differ across the globe, requiring Netflix to deliver streaming services over a wide range of internet speeds.
  • Foreign markets are dominated by incumbent streaming service providers, making it difficult for Netflix to earn market share.

To determine how to best meet the needs of these relatively distant markets, Netflix invested heavily in research, data, and analytics. Empowered by information, Netflix took a more educated approach to its third round of expansion—which spanned nearly 140 countries.

First, Netflix developed local programming to appeal to specific international markets. To maximize efficiency, Netflix ensured these programs appeal to markets outside their home country. Netflix also invested in increasing local language options for its interface, subtitles, and dubbing.

Netflix tailored its technology to meet the needs of international markets. To account for slow internet speeds in developing countries, Netflix invested in market-specific technology infrastructure. In certain African countries, for example, Netflix deployed dedicated servers simply for streaming content. The company also developed video compression technology to reduce data without diluting the viewing experience.

Additionally, Netflix’s research and analytics revealed that many users in developing countries consumed streaming content on mobile phones. As a result, the company invested in its mobile experience by optimizing streaming efficiency for cellular networks. Netflix also improved the mobile user experience by streamlining the mobile sign-up, credentials, and authentication process.

To unseat established streaming services in international markets, Netflix fostered relationships with smart TV providers. For example, when Vodafone launched its TV service in Ireland in 2016, Netflix paid to for a dedicated Netflix button to be featured on Vodafone remote controls. By doing so, Netflix increased its visibility in Ireland compared to well-known streaming services like Amazon Prime, Now TV, and Apple TV.

Because it customized its approach to meet the needs of individual countries, Netflix is now the world’s largest subscription streaming service, with roughly 183 million subscribers worldwide. Netflix’s challenges–and success–proves that companies can expand quickly, but not without carefully catering business models to international markets.

In India, Amazon Learned From Past Expansion Challenges

Amazon aspired to be a global behemoth since day one. And while it is now the largest and most valuable company in the world, it experienced growing pains while expanding internationally. The company’s challenges in China and success in India illustrate the necessity of agile and intentional expansion.

Like Microsoft, Amazon went through difficulties expanding into China. Unlike Microsoft, however, Amazon did not make the changes necessary to overcome these challenges. Amazon’s inflexibility in China, which it entered in 2004, included:

  • Price: Amazon failed to adjust its prices and delivery fees to compete with established online vendors like TaoBao and Alibaba.
  • Speed: Because Amazon did not restructure a delivery system that worked well in other countries, it lagged behind competitors who leveraged China’s vast, inexpensive labor pool.
  • Payment: Amazon did not redesign its payment system, which prioritized credit cards, to meet the needs of Chinese consumers, who more commonly used bank transfers and prepaid options.
  • User Experience: Amazon was unwilling to change the aesthetic of its website and mobile app to meet the needs of the Chinese market, which preferred a colorful, dense display.

Learning from these failures, Amazon took a more flexible approach to expansion into India–and achieved the success that proved elusive in China.

When Amazon moved into India in 2013, much of the country did not have internet access. Additionally, like in China, most Indian consumers did not use credit cards. This presented Amazon with a challenge: How could it earn market share in a country where most consumers made purchases with paper currency in brick-and-mortar stores?

To overcome, Amazon rolled out an India-specific strategy. First, the company developed the Amazon Chai Cart, which served free drinks to small business owners while touting the benefits of e-commerce. Through this program, Amazon reached more than 10,000 merchants in 31 cities. The company then rolled out Amazon Tatkal, which helped these merchants enroll as online vendors.

Finally, Amazon powered these small business owners with internet connectivity and trained them to help their customers find products on Amazon’s Indian website. These store owners became liaisons for Amazon’s online interface: they collected cash for Amazon, received a handling fee, and served as a distribution center for customers. Through this program, Amazon leveraged India’s economic infrastructure to reach consumers who did not otherwise fit into its business model.

By expanding into India when the country was in its internet infancy, Amazon enabled itself to ride the wave of e-commerce that soon followed. Amazon now has a 32% market share in India (close to the 41% market share it holds in the U.S.), and analysts predict its e-commerce in the country will rise to $86B by 2024.

More importantly, Amazon’s success in India shows that the company learned from its failures in China–and further proves the necessity of remaining flexible when expanding into new markets.

Learning From The Giants: How To Optimize Global Expansion

As shown by three of the most powerful companies on Earth, going global requires a nuanced, country-specific approach. That’s why companies must customize their international expansion approaches to meet the specificities of the markets they are expanding into.

While global powerhouses like Microsoft, Netflix, and Amazon have the revenue to absorb financial setbacks in new markets, emerging global companies must be especially purposeful about their international growth. Velocity Global can help. With experience helping companies successfully expand into more than 185 countries across the world, Velocity Global has the expertise to help your company approach global expansion with clarity and confidence. Reach out today to find out how.