Part 5 of 5: The Alchemist
The last market entry mistake is a trap that companies frequently fall into: this is the ‘illusion’ of being able to generate substantial new foreign income (attractive pricing and strong currency) based on only utilising home resources and costs (usually lower cost and weaker currency). This mistaken belief in the ability to create ‘gold’ from very little investment is surprisingly common and usually results in failure.
The Costs of Creating New Revenues
While the operational delivery costs of an outsourcing business model may be relevant for some business sectors, this is not true generally for the costs of new client acquisition (sales, business development, marketing and any physical presence required to achieve the sales and income goals). No matter what sales strategy you intend to use – licensing, agents, lead generation agencies, local sales reps, or partnerships – sales costs will mainly be incurred in the new territory and in that currency. These higher costs must be factored into your business plan.
Attempts to keep new business costs as low as possible by using current home resources are typically a false economy: worse, they will not succeed.
Sending someone from the home market to the new market every few months trying to get signed purchase order is a mistake and is neither advisable nor successful on many levels (see Part 4 in this series).
That person will have none of the local knowledge, expertise or connections required. Also, given they are rarely in the new market, changes in the marketplace, including competitor activities, pricing, regulations and buyer changes, will not be well monitored and you will not be able to react in time. You’ll just not be in tune with the market place and buyers, you’ll miss opportunities, and importantly, you are unlikely to be taken seriously.
Some kind of local sales representation and support in the new market will be your best bet for winning new and repeatable business. They know the local market very well and it is their expertise. Plus, consider that the more established and better quality sales support in the market will cost more: you get what you do – or don’t’ – pay for. Also, if on commission, the more you incentivise people, the more motivated they will be to sell your product or service versus those of your competitors. They will often also give you advice on how to adapt your product/service and communications to meet local market requirements and win sales.
Realistic Business Forecasts
In order to properly budget for profitable and sustainable international expansion, you must correctly factor in what resources are realistically required to generate long-term sales. The full costs of the business model – including client acquisition – must be part of the market entry equation which means that sales and marketing costs will usually be in the currency of the target market . Only when realistic costs are acknowledged and properly accounted for, can a sound financial investment decision be made.
Throughout history humankind has been tempted by the allure of Alchemy, turning something of less value into gold. No one has so far succeeded. We continue to see people trying.
Part 5 of ‘5 Typical Fails in International Expansion’ will be published next week.
For advice, planning and practical assistance with international expansion, contact email@example.com.