The Global Growth Code: Succeeding Abroad by Excelling at Home
In this ever-globalizing world, international markets are squarely next on the hit list for business expansion. Surely, the core business and home market will always be a foundational element in growth strategies, but many executives are inevitably drawn into considering going beyond home turf. What does it take to win at international expansion?
This question was the subject of recently conducted research on the regional growth patterns of thousands of companies.
Why Look Abroad?
The attraction of foreign markets is unmistakable. Half of all corporate growth came from foreign markets between 2010 and 2019. Yet the dynamics do vary greatly by region. Companies headquartered in regions like Eastern Asia and Europe frequently leverage foreign markets to supplement slow growth at home, whereas companies in more rapidly growing regions like Latin America and North America rely less on foreign markets for growth.
Whatever the geographies, companies should go global only when they are on top of their game in their home market. “Beat local” is double-edged: first, an exportable competitive advantage that can secure market leadership at home; second, the ability to win profitable market share against established competitors in the target region. Failing a transferable advantage, there is a risk of head-on competition with the locals who would know better how to handle the market’s subtlety.
Winning at Home First
Research underscores the idea that one must win at home first to win globally. Companies where the home markets were posting strong growth-an indication of a transferable competitive advantage-also realized significantly higher TSR than their peers. In fact, such companies realized an additional 2.6 percentage points of annual TSR, while companies that struggled at home realized only 1.3 percentage points, which was not sufficient to offset their weaker local performance.
Four Archetypes of International Growth
Once a company is comfortable in its exportable advantage, it must determine how to internationalize. Companies fit into one or more of the following four archetypes:
- Business Model Pioneers: this company expands an international distinct business formula, extending success from their original market.
- Global Commodities Players: these are firms competitively positioned on the cost curve, expanding to capture raw materials, and deploy operation efficiencies to earn higher global market share.
- Product Innovators: firms with genuinely unique products expand offering products to world markets but perhaps adapt for local markets. Common approach of software-based firms which using scalable technologies to reach global markets. Product innovation investment ongoing as required to maintain advantage.
- Brand Builders: typically consumer goods and apparel companies, brand builders leverage the global resonance of their products. They exploit emerging markets where consumers are becoming more brand conscious and financially able to buy premium products.
The Role of M&A in Global Expansion
Acquiring a local player is usually the starting point for entering a new market for most companies. In all, success comes from an M&A strategy with clear views on how acquisitions support the growth plan and the well-defined search criteria with boundaries on size, sector, and geography. Whether organic or inorganic growth, mapping how a company’s advantage will translate to value creation is an important next step.
Adaptation and Localization
International expansion usually involves product or service adaptation to prevailing local tastes, and consideration of likely incumbent responses. Enterprises must combine subsidiaries’ local-market insight with parents’ input.
For instance, a Middle Eastern conglomerate of real estate and retail diversified its business into 17 countries in the Middle East and North Africa. The company took the time to understand the different competitive landscapes and customer preferences of each country, even as regional similarities were present. It could develop better resource allocation and footholds in new markets by combining local market experts with functional specialists from the parent company.
Managing International Market Risks
Going international is not without its risks. Firms must consider country-specific risks like inflation, fluctuating currencies, and political instability. The ability to understand the target market and adapt the growth strategy to the emerging environment is crucial in mitigating such risks.
Building a Foundation for Success
The key to successful international expansion lies in objectively assessing whether a company has a true source of distinctiveness. This entails answering a serious question: does the company have a competitive advantage to export, one that will be able to beat local players in a country market? If the answers are affirmative, then develop intimate knowledge of the target market, adapt the offering to meet the local needs, and make sure that capabilities required to execute and manage the expansion strategy are available.
Final Thoughts
Going global is an attractive proposition, but it is not without challenges. Success hinges on a clear and transferable advantage, meticulous planning, and adaptability. Companies that excel locally and strategically expand internationally stand to unlock significant growth opportunities. Without a solid foundation and a clear pathway to value creation, international growth can quickly become a liability rather than an opportunity.
For companies ready to take the plunge, the rewards of international expansion can be huge – provided they anchor their strategies in the right mindset, capabilities, and preparation.
