By Stephen Bibby, Senior Lecturer and Expert Speaker for the Help to Grow Programme
The FT [1] recently reported that trade between Germany, Europe’s biggest economy and the UK had contracted due in part to more complex and expensive trade conditions, the UK dropping to 13th as a source of imports behind Spain, Switzerland and Austria.
Companies already involved in European trade are indeed reporting more uncertainty and higher costs.
This is putting off those thinking about exporting to Europe, but it is a mistake to postpone decisions indefinitely calling for a more strategic consideration of expansion plans whether by organic, mergers and acquisition or strategic alliance.
In truth, consolidating existing markets closer to home is sensible and indeed strategically essential, but internationalization brings with it bigger markets and greater opportunities.
Unknown Markets
However, a deep dive into unknown markets is risky and foolish – as noted by Richard Branson as well as Carwyn Jones, business hates uncertainty. Good business is about managing risks and minimizing uncertainty.
The Harvard Business Review [2] reported, based on a survey of 20,000 businesses, that it took 10 years to reach a return of 1% on investment given to internationalizing and that only 40% of companies who do so return more than 3%.
The unexpected regulatory, political and cultural difficulties make international expansion more complicated than staying local.
The choice of growth strategy is therefore essential. Recent consultancy work on internationalization delivered as part of the Help to Grow Management scheme showed the importance of learning from others experience where an existing exporter treated the US as a single market only to find Federalism meant selecting a state is as important as selecting the continent.
As Pope said, fools rush in where the angels fear to tread (later becoming the wise fear to tread).
3 Steps to Success
1) Research
The first step in international strategic expansion is to research thoroughly the potential markets.
The UK government funded Help to Grow Management Programme at Cardiff Met highlighted the case of a company that expanded rapidly and as the CEO highlighted, did everything wrong by opening offices in China and India based on spurious advice from network contacts.
Although rash, the move did unlock a wealth of experience and opportunity not hitherto available but at unnecessary cost.
2) Resources
The second lesson is to ensure your business model can accommodate the flex required of your limited resources, which include assets, finances and human resources.
Assets available will need to be expanded and refreshed to take on new supply chains, logistics and IT for example, as well as new offices or agents overseas.
Finances will be tested as it can be expensive to support additional activities in domestic and potential overseas locations as well as funding the pre-requisite capacity building and research.
Human resources will be stretched as existing staff are diverted to new processes, new staff are hired who have familiarity with the potential new markets and so forth.
3) Strategy
The third lesson is to integrate overseas growth aspirations into business strategy.
As the business strategist Jay Barney said back in 2007, strategic management is about how a firm is going to gain competitive advantage in its marketplace derived from theory and its dynamic capabilities.
Expansion and growth whether by staying local or going global should never involve hubris divorcing business strategy from careful consideration of resources and capabilities and hence lasting competitive advantage.
[1] Financial Times 5th May 2020 ‘UK-German trade falls sharply since Brexit Vote, data show’
[2] Stadler C, Mayer M, Hautz J (June 2015) ‘Few Companies Actually Succeed at Going Global Harvard Business Review’
Next Help to Grow Course Starts September 2022 – Funded Places Are Still Available