With today’s technology, it is not that difficult for a business to expand internationally. Through modern transportation, technology and, of course, the Internet, any business can sell its products or services anywhere in the world.
However, while it may be easy to do, it’s difficult to do well.
“Businesses need to understand the markets they are considering,” says Gonzalo Freixes, associate dean, Professional MBA Programs at the UCLA Anderson School of Management. “The foreign regulatory environment is very different in other countries than it is here. For example, labor laws are extremely different in most other countries than they are in the U.S.”
Companies also should research the logistics of doing business in that country, from supply chain distribution issues to the best marketing options, to financial reporting structures.
Smart Business spoke with Freixes about what companies should know about global business.
How can a business determine where it should expand?
If you are going to go global, you have to determine where it makes the most sense to go. To determine that, you have to do some actual feet-on-the-ground, field market research in that country. Go to the country, talk to people in that industry, talk to customers, suppliers, distributors. If you get a chance, talk to your potential competitors, because today’s competitor may be tomorrow’s strategic partner.
That preliminary field research is very important to determining what the marketplace is like. Is there a demand for the product or service you are selling? Is it a crowded competitive space? Is there a niche market you could enter as a way into the country? It also helps you get an idea of the regulatory framework to find out how difficult it is to do business in that country, in terms of setting up an entity there.
To do business in some Middle Eastern countries, you have to have a local partner in that country. That local partner must own a certain percent of your business; otherwise you won’t be allowed to do business there.
Most importantly, identify that there is a market there, and what your delivery strategy or mechanism will be for getting your product or service there.
Where should businesses start with their research?
Don’t rely entirely on the Internet. The Internet and written research in the public domain about a particular country or market is helpful in establishing a foundation of what to expect, but there is no substitute for actually picking up the phone or, more importantly, meeting people face to face. In so many other cultures, and in some degree our own, personal relationships and interactions are the biggest drivers toward being able to do business successfully.
In other words, get on the phone and get on a plane and go talk to people. Don’t be afraid to cold call. If you have people you know in that country, whether it is fellow alumni, former business colleagues, friends or classmates, leverage those contacts to help you learn about the country and the culture.
After identifying a market for expansion, what should a business’s next steps be?
Devise your strategy. Explore the various options. Do you want to go there directly and set up a subsidiary of some sort? That tends to be expensive. Do you want to partner with a reseller or agent? You need to talk to them to see what kind of deal you can set up or find a reputable local company to be your strategic partner in a joint venture.
Those are the three different models. You need to investigate in-country to determine which of the three would be most helpful. Local business experts will be able to give you pros and cons for each.
How can businesses avoid cultural faux pas?
There are major differences in both the business culture and the general culture of other countries, especially in terms of how business relationships are viewed. For example, in some cultures if you go to lunch or dinner with another business person, you don’t talk about business. Eating is the time to get to know each other. You talk about business when you get back to the office.
In some cultures, it is impolite to say ‘no.’ They have other ways of saying no without being impolite. You can find out some of the basics on the Internet. Most American consulates around the world have a commercial attaché. The foreign consulates can be a great source of information. Meet with the attaché and have them guide you on the do’s and don’ts of doing business in that culture.
In certain cultures, how you deal with a man or woman would be different. Do you shake hands or not?
What other advice would you give a company considering international expansion?
Do you homework on whether that is the best place to do business. A lot of people make the mistake of setting up shop somewhere because they hear it is a good market, but don’t find out first if their product is viable in that marketplace.
We do a lot of projects at UCLA Anderson where our students do the reverse — they advise foreign companies who are trying to enter the U.S. for the first time. One small company had developed technology that scans a passport and incorporates it into the system of hotels or casinos in Europe. However, they found out that in the U.S. no one has to present their passport when entering a hotel or casino. So what is a huge need in Europe doesn’t exist in the U.S. You have to make sure you are offering something of value that can be monetized.
Gonzalo Freixes is associate dean, Professional MBA Programs at the UCLA Anderson School of Management. Reach him at firstname.lastname@example.org or (310) 794-6640.