7 key strategy considerations for expanding into new markets using the Internet
One of the many benefits the Internet has unlocked is the ability to expand into new markets. The lack of palpable borders means customers around the world shop across countries and continents without so much as noticing where their latest purchase will be shipped from.
E-commerce giants realised several years ago that accelerating growth meant increasing the focus on their international operations. They started offering tailored experiences to customers around the world, carefully studying the so-called ‘BRIC’ markets, and developing local operations where it made sense. Today, Amazon has dedicated sites in 9 countries, including Japan, and smaller players often consider international operations from the onset.
But what is a blessing can become a curse and international expansion needs to be planned and thought through carefully. Offering products or services across multiple countries is undoubtedly a great opportunity for growth, however, going too far, too quickly has led many brands to turn round and withdraw from markets they had penetrated a few years earlier.
Recent examples include Yahoo!, who exited South Korea after 15 years in the market, as part of an effort to streamline its operations.
If you are thinking of venturing into new international territories, here are 7 high level areas you should consider
Seven strategy considerations for new market penetration
- 1. Determine which markets to enter
An obvious one, right? However, possibilities are near endless when it comes to entering new markets in today’s digital era and it is easy to get sidetracked and diluted.
- Do your homework and consider which markets are most suitable for your brand. Think medium to long term to limit the risk of having to pull out in a few years time.
- Spend time looking at your business’ trends: which markets are your sales predominantly coming from, at what growth rate, what is the average spend, and any other data point you have at hand to help inform your decision.
- Evaluate each contender looking at future growth opportunities, barriers to entry, competitive environment, internet and mobile penetration, etc.
- Consider how these markets fit in with your overall strategy. Will they require much adaptation to your offering and future product development? If so, are you geared up to cater for these incremental needs?
Remember that economies of scale are often a key to success, at least initially.
- 2. Gain knowledge of local laws and regulations
Don’t underestimate the impact local laws and regulations can have on your expansion plans, and certainly don’t assume that what applies in one country will apply equally in any other.
Local laws and regulations are likely to differ, often significantly from the rules you are familiar with. Entering China as an e-tailer for example will require a fairly lengthy process, starting with obtaining a business license which could take up to a year.
Enlist the help of a specialist if needed, and make sure you thoroughly understand the implications local laws could have on your business including legal and tax exposure, incremental costs, process changes and any paperwork that will need to be filed. Yes, this may be tedious and unglamorous, but it is fundamental to your future success.
- 3. Make payment super easy
If you are selling any goods or services, investigate carefully which payment options are most popular in the markets you are targeting. Think beyond PayPal and debit/credit card as they might not be the only or even most suitable payment options in some markets.
Take Germany for example, where it is common for e-tailers to offer payment on invoice or by bank transfer. Offering inadequate payment methods is a sure way to instantly limit your addressable market.
- 4. Evaluate the logistics
Depending on the nature of your business, you might need to import, produce, store, or despatch goods from a local centre. Assess your options, can these operations be performed from your existing factory/distribution centre? Could they be outsourced to an experienced local partner? Which would be the most efficient and cost-effective way to operate? What are alternatives and their inherent risks? Needless to say, this is a critical aspect of your expansion plan with potentially major cost and legal implications so spend time conducting thorough due diligence.
- 5. Decide on your localisation model
Localising your website can take different shapes. From entering English-speaking markets with a clone of your existing site (with a local ‘.xx’ extension) to offering a fully customised website in the local language with a product range that has been specifically tailored to local tastes.
Evaluate these options and anything in between before determining the right approach for your brand. Also consider market clusters which you might be able to serve through a shared website. Inevitably, this will be about reaching a fine balance between local relevance and cost efficiency.
ASOS for example currently offers 6 local sites in addition to the UK, most of which have an identical or very similar layout and interface to that presented in the UK (see ASOS France below left and ASOS UK below right). Whilst the editorial content might vary between sites to offer a more local flavour, the backbones and look and feel remain consistent which helps consolidate the brand equity. Consistency typically helps keep site maintenance and development costs down with a ‘one size fits almost all’ solution.
- 6. Define a local structure
The type of structure your brand will require in these new markets will depend greatly on your business model, your localisation and logistics choices and your aspirations. Typically it is advisable to start small and grow organically.
If your goods are being produced, stored and dispatched from your existing production centre, and if your website is maintained by a team based in your Headquarters, chances are your physical local presence will be minimal (possibly a Sales Rep or BD manager and a local-language editor). If on the other hand most of your operations require a physical presence in-country you might need to consider setting up a production/distribution structure locally.
Consider which areas might lend themselves well to partnering with a local player. This often facilitates market entry, allows for a lighter local structure, and helps you benefit from invaluable local knowledge.
Every structural definition has its advantages. Once again consider cost, efficiency, processes, local laws, tax implications, etc. before making a decision.
- 7. Understand cultural nuances and customs
Although this has evolved tremendously over time, there is still a tendency to believe that what’s ‘good enough for the initial market will be good enough for any other’. Think again!.
Too often, companies overlook this step and misjudge the importance of understanding the fundamental dynamics of new markets they are about to enter. This is an absolute must-do to ensure your brand offering resonates best with local customers, and to avoid any costly faux-pas.
There are certain expected behaviours when you visit foreign countries and these transpose into their own set of expectations in the online world. If possible spend time in-country to experience the local cultural references, customs and festivals first-hand. This will help you piece together a picture of your local customers’ culture, behaviours and expectations, the type of customer service they are used to and how they generally interact with brands. These will be important considerations to define your overall proposition, from product offering, to website look and feel, and editorial tone of voice.
These high-level steps should help you address some of the key aspects to consider when entering new markets. Each will require time and dedication, and will unveil its own set of challenges. As always, remember that the devil is in the detail!