Crossing the chasm of business internationalization
THE ACADEMY OF BUSINESS STRATEGY
BUSINESS INTERNATIONALIZATION BLOG
CROSSING THE CHASM OF BUSINESS INTERNATIONALIZATION
AUTHOR
Luis da Silva (CBS) MA BSc BA
A border is to internationalisation what the chasm is to a technology company growing up. While crossing that all important divide from a brilliant product or service idea to a mainstream offering is a must in terms of the commercial reality check for a technology product aiming to reach a large consumer market, crossing a border is optional. It’s a big difference. It means that the weight of the decision lies squarely on the shoulders of those who take it. It cannot be blamed on the market or the route to market. It is a conscious, planned and considered decision. Or should be.
Unlike a technology company whose product or service offering must now be broken in by a broad audience, taking a business beyond its initial geographic remit is not about broad acceptance but almost contrarily, about the acceptance by a key set of influential clients who can act as references in the new market. In this sense, internationalisation is about creating a new (and hopefully unique) offering for the chosen geographic market. It is about starting again, about defining and implementing a strong local offering as a first step, and only once that is accomplished, moving the offering into a broader mass offering in that market, in a second step.
To better emphasise the contrasting nature of the two situations, following are a few areas where breaking into a mass market and breaking into a foreign market might differ.
To penetrate a mainstream market means compulsorily seeking to increase transactional volume quickly. It is the fundamental measure of success. To go into new markets means aiming to build a platform on which to expand current business volumes. While an increase in business volume is ultimately still the objective, leverage is the short term aim. Almost like a catapult effect, while the elastic is being pulled back and the new markets established, growth can be slow. But when the catapult is launched (the new markets bedded in), the multiplication effect (and thus speed of business growth) is magnified times over. So while growth may not be the objective in itself, a growth strategy into new markets almost always sees a result several times that of simply moving into a mass market in one’s own territory;
To increase volume with less risk, staying at home is often best. In other words ramping up volume in a market where a product or service has already been initially tested or distributed, is much more sensible than adding the complexity of different countries or regions. If the market is large enough. This may be a consideration if, for example, there is limited resource, the end market is limited or time is of the essence in achieving revenue increases (for example, just prior to seeking a new round of finance or exit, or to close down a window of opportunity on local competitors). But to achieve long-term, sustainable growth, to generally spread overall risk and to create a platform for three digit growth in the top line, moving beyond borders is often the only way;
By its very nature, crossing the chasm implies a business in an early stage. It is not recommended that businesses tackle internationalisation until their service or product offering and procedures are reasonably well defined.
The complexity of internationalisation is its distinguishing feature while the implementation of scalability and scale is what it takes to cross that Rubicon. Scaling an operation implies being able to conduct the same process with at least the same (or better) efficiency at higher volumes. Cross-border growth implies varying the model in a new jurisdiction, with due concern for people, culture, language, regulation, distance, and many more factors. Internationalisation implies repeating previous success, from scratch;
The risks are different: crossing a chasm is life-or-death by implication. Either the product or service makes it, or the business idea dies. Going global means taking a mature business and loading it with new risk. So the risks are very large, especially because the business is in a much more advanced stage of development and so it has much more to lose. While it is not typically the life-or-death scenario which crossing the chasm most certainly implies, inability to cross a border with success can load the business with costs and failure, distract management and dilute results. This can be a risk greater than an idea dying in its infancy. It can mean the write-off of years or even decades of work.
To illustrate the above scenario, let me use an example of one of the businesses in which I worked. The Board took the decision to apply most of its IPO proceeds to buying into the US market. It is well known that this is a step that for most businesses which go direct, is expensive. Marketing, sales, salaries, and so many other aspects cost much more than in other countries. And the US is many regions, many states, many sectors. So in this case, even the tens of millions spent on acquiring businesses to gain a foothold, did not result because the size of those businesses, in a landscape as complex as that of the US, was irrelevant. When some of the Board members, seeing the inevitability of the decision, made suggestions about acquiring diverse businesses, with the potential of complementing the service offerings rather than simply repeating existing service lines which could be grown organically, the suggestions were ignored. The combination of the lack of differentiation and the little impact that the business was able to create, resulted in a huge financial drain on the global business as well as a significant distraction of the company’s senior management as it consumed much of its energy, some of which needed to be spent in other regions, into that market.
What these few, non-exhaustive points illustrate is that from a revenue perspective (cost and distribution, for example, are different matters), any business who cannot see its business volume increasing several times over due to internationalisation should seriously reconsider why it is attempting to undertake it in the first place . If a business is not mature, it should seek to conquer its own, or a single, market, first. When a business is ready to move, it should do so with due consideration to the ‘why’ and ‘where’. And it should realise that the possible risks, like the potential gains, can be significant. To assess the opportunities and risks, and to mitigate the risks and threats of internationalisation is one of the most specific and critical set of skills that an organisation will ever have to acquire. And it is the reason that many choose to work with experts to assist and guide them through this process.
ABOUT THE AUTHOR
Luis da Silva (CBS) MA BSc BA is an approved Certified Business Specialist (CBS) with the Academy of Business Strategy and his specialist subject is business internationalization. He has achieved an MA, and BA from UNISA and a BSc from the University of the Witwatersrand. He has been employed as a CEO and board member of a listed company with a turnover of €250 million and value of €1 billion and has experience within the Manufacturing, Electronics, Banking, Agribusiness, Travel/Airlines and real estate industries. His clients or employers have included Fractional Villas Inc, Invest CV Limited, BGR Ltd, API Undercliffe Ltd, DMS Lda, Emeritis, Quillion Ltd, Datanomic Ltd, E-business Partners, PLAUT and Andersen Consulting. He has geographical working experience in the USA, UK and Brazil. His language skills include English, Spanish and Portuguese. His service skills incorporate business management, business expansion or turnaround and people management. To contact Luis da Silva, please contact the Academy of Business Strategy by forwarding an email.
