Modern technology has made the globalization of products, services and even human resources a natural progression for many businesses. In fact, the internet’s expansive footprint has thrust some businesses into the international spotlight and subsequent expansion much earlier than expected. Whatever their circumstances, they’re not alone. International trade is growing exponentially.
According to the 2018 World Trade Report, trade growth is expected to culminate in as much as 34 percent total growth (over a projected 15-year span) by 2030. The cause being new technologies, which have reduced the cost of international trade by about 15 percent since the mid ’90s. Interestingly, the biggest benefactors have been small and medium-sized businesses (SMBs). According to recent assessments by the U.S. Census Bureau, SMBs make up nearly 98 percent of identified exporters and 97 percent of identified importers.
Don’t let the numbers fool you, expansion is still a hefty task–one that requires innumerable considerations. Many businesses that take on the endeavor will fail, and all will face challenges. Of their many tasks, they’ll need to navigate the financing, shipping, pricing, distribution, tax codes and regulations of another country. But one of the most critical components of their endeavor will be their ability to grasp and navigate the country’s cultural nuances.
“Any organization with plans to go global needs to ensure it is building upon a solid foundation grounded in research and insights,” says Howard Belk, co-CEO and chief creative officer of global strategic branding firm Siegel+Gale. “Research has to include more than basic brand metrics like awareness, recognition and understanding. You really have to understand how people make choices in different parts of the world, based on different value systems. Mapping your audience’s decision-making process is central to how you present your story in culturally relevant ways.”
Below are several questions brands should answer before embarking on global expansion.
What is the purpose of your expansion?
Are you looking to secure greater market share? Will tapping other markets help balance the seasonal fluctuations of your domestic business? It’s important to develop a strong understanding of what you plan to gain by expanding into a foreign market. This knowledge will help you withstand the challenges you’re sure to encounter. “It takes double to triple the energy you put into your brand to expand it into other countries,” says Jin Choi, president of styling tools manufacturer Izutech. “You’re dealing with language, culture and distribution that you’re not familiar with. Make sure you have enough resources or assurances that you really need to get into that country.”
Belk concurs, adding that businesses must survey the competitive and cultural landscape of the country from the outset. “There may be regulatory barriers that make it impossible for you to sell your proposition. It’s also possible that what you do is so far afield of cultural norms in a particular market that the proverbial squeeze isn’t worth the juice; especially when you consider the resources–both capital and human–it takes to break into new markets,” he explains. “Ask yourself simple and clear questions about how steep the climb will be. And be very clear about the investments needed to break through, your expected returns and your long-term commitment to get there.”
What is the country’s idea of beauty?
You’re selling beauty. But beauty isn’t the same everywhere. So, it’s important to know their beauty expectations to help gauge your brand’s chances of success. “[This helps you know whether] what you have in the product may influence or enhance their beauty,” adds Choi.
Is there foreign demand for your product?
Are there consumers outside of your domestic territory looking for what you’re offering? Are they familiar with your product? “The biggest myth is that you can just take what works at home and rinse and repeat in additional countries. History is full of brand disasters where more than the tagline was lost in translation,” says Belk. Businesses cannot think of new countries as outposts if they want to build the brand globally, he explains. “Cultural missteps can cost a company millions in sales and cause significant reputational damage.”
For Izutech, expansion was a no-brainer. When the efficacy of its fast-heating KTX450 LT Titanium 1.25 Inch flat iron spread by word of mouth to other countries, Choi knew it was time for expansion. The existing demand for his product in other countries gave him the assurance he needed to embark on expansion.
However, demand and ability to penetrate a market doesn’t promise long-term success. For example, the KTX450 Keratin Treatment Express flat iron was doing really well in Egypt, until the Egyptian government unexpectedly banned formaldehyde, halting sales for the product, and consequently, reducing total product revenues.
Can its relevance be effectively translated into the country’s business standards and culture?
“Even if the brand is relevant to the end consumer, the market–including distribution, pricing, trade terms, supply chain and business partners–can make or break the best brands,” says Francesca Raminella, chief commercial officer for JD Beauty Group, manufacturer of professional beauty products. “The devil is in the details: formulas, packaging rules, names, advertising and overall imagery. The best ideas will fail if execution is not flawless.” She explains that even for the Wet Brush, which she referred to as a simple solution to an everyday problem (brushing hair sans pain or damage), the concept still had to be sold. “Detangling was a word and concept that had to be expressed and explained in different ways in different countries. That educational part of the proposition had to be worked on and expanded.”
Belk tells brands to remember where they’re going, not where they’re from. In other words, you’ve got to focus on whether the product can be successful in another country, regardless of the success it’s had in the United States. “Brand imagery must reflect in-country perspectives on gender, privacy, overall social norms and historical context. Design is a critical piece of the puzzle; making assumptions on the design front is perilous.” He adds that it’s important for brands to give attention to their graphic identity system, such as their logo, color palette and fonts. “Many global companies have wisely created proprietary fonts to set them apart and make them immediately recognizable in multiple languages and territories. Think about production standards and costs. Everything from signage to photography, point-of-sale merchandising and delivery will need to be modified depending on the market.”
How does the country adapt to change, trends and new offerings?
Will it take months or years for your brand or product to be embraced? “Explore how they learn and adapt to new options,” says Choi. “Asian countries are very different in the way they adapt: Japan and Korea are very dynamic, very quick to adopt new trends, while other countries are not.”
This research, in particular, will help set your expectations and can guide your strategy. Belk recommends that businesses think holistically about brand experiences, language and translation, the brand promise, professional and contractual relationships, and the tools they need to make it work. “Respect the realities of the markets in which you hope to expand,” he says. “While the world seems smaller, thanks to global connectivity and social media, your brand will still have to master a number of challenges, including tackling cultural divides and potentially unexpected resistance. It can get complicated quickly.”
Belk adds that another reality of the globalized market is that many emerging markets go digital from the outset. “Not being mobile-first is a one-way ticket to irrelevance. Build your brand for small-scale viewing of brand assets, messaging and communication strategies. It’s how people relate to brands–and make purchases–in new markets,” he explains.
The Economist Intelligence Unit report lists the Top 10 challenges businesses encounter during international expansion, as rated by the surveyed businesses. Challenges range from price stability and supply chain, to internal and external logistical issues, and environmental factors.
The Top 5 issues stated by these businesses were:
• Socioeconomic circumstances in the target country . . . . . . . . . . . . .23%
• Exchange rate volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21%
• Security and personal safety. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19%
• Political climate in the target country . . . . . . . . . . . . . . . . . . . . . . . . . . 18%
• Setting up a distribution network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18%
Some of the pitfalls of international expansion can be avoided, however, with insight, foresight and the right connections. Professional services firm EY’s Global Capital Confidence Barometer report on international expansion highlights issues such as not establishing a Plan B to limit risk, choosing a market based on personal contacts or geographical preference, and foreign tax and regulatory ignorance (including domestic ramifications) as avoidable pitfalls. Furthermore, some risks may be mitigated via the right advisers, which relates to one of the other pitfalls listed by EY: not properly recruiting, managing and integrating an effective management team and local workforce. Choi, Belk and Raminella all agree that it’s of utmost importance to speak to as many experts in the territory as possible to find the best consultants and human resources.
“Finding a person who is knowledgeable in that country is crucial and the greatest asset in terms of the business,” says Choi. “Without that person, you don’t know where to start. [And beware], there are a lot of people who say they’re experts. So speak to as many people as possible and narrow [the choice] down with research and background checks.”
Remember that many tasks will take more time and cost more money than expected. Raminella suggests starting with the easy products and gradually moving into the ones involving complex legal and compliance regulation. She adds that it’s not just the complex matters that will constrain you but the seemingly simple ones too. “Answers to even basic questions, such as, ‘Can I use this symbol on the packaging?’ are not readily available,” she says. “Launching globally is not a part-time job.”
Choi concurs, saying that certification can be an uphill battle in some countries. And in certain cases, you may even need to create separate SKUs or make modifications to products to fit the country’s usage and standards. He adds that even trademarking costs can be drastically different between countries, ranging from a couple thousand dollars to tens of thousands. Even marketing is no easy task. “Marketing is the biggest challenge because I can’t control how my product is advertised, [as] I don’t know the language. I have to rely on the distributor or business that is representing our brand,” he explains.
“[For] your brand to thrive, it must connect to the people, the culture and the history of the countries [in which] it wishes to build connections,” concludes Belk.
Photo by Kelsey Knight.