2017 seems like a challenging time to cross borders.
While certain economies are focusing inward, unlike anything we have experienced in recent history, many businesses still want to accelerate growth outside their home markets.
Achieving success globally is not easy under ideal circumstances, so it may be even harder in a world with greater protectionism. In particular, diving into markets where growth may be high, but visibility is low can seem even more perilous to entrepreneurs than simply sticking where they are.
However, many growing, asset-light, pure digital businesses are already part way there. For some, there is existing demand for their product or service from new markets. This demand is often easy to ignore because it seems too difficult to cultivate.
Other businesses are already global without realizing — they are ‘accidental tourists’ who have gained international traction on their platforms without even trying. Whatever their situation, many businesses already have a foundation to deliver the significant growth they seek, if they attack the opportunity in the right way.
Consumer needs are the same across the globe. How these needs are met can vary slightly, but a product that has success in one country is already about 80-90% there in another. Achieving the true product market fit for a new geography comes down to the remaining 10-20% that needs to be localized. So, how do companies looking to achieve their full potential internationally avoid the pitfalls?
Just the act of taking your business international creates a set of predictable challenges. High-growth markets throw in some extra tests that you must navigate to succeed. In our 20-plus years of helping digital businesses expand into high-growth markets, we have seen the most consistent challenges fall into five buckets:
Infrastructure. Entrepreneurs looking to expand internationally often find the first hurdle they must cross is the variance in infrastructure in developing markets. For pure service- or content-based businesses in particular, quality, cost and availability of Internet access significantly shapes your approach to the market.
Many developing economies have skipped desktop computing for a mobile-driven experience, so a mobile-first approach becomes essential. At the same time, bandwidth and cost constraints mean that services need to be tailored to market needs. Offline downloads vs. streaming content and a stripped-down app can be essential to success.
The key to success is to neither expect things will be the same as in Western markets, nor to just assume the challenges are insoluble. Quickly developing an understanding of the underlying issues often leads to simple workarounds that may not mirror the original market services precisely, but fit local market needs and constraints.
Pricing. Pricing strategy is an often underdeveloped muscle in many businesses, but it is absolutely crucial when thinking about geographic expansion. Once again, analysis of conditions in the new market is an essential starting point. In theory, digital businesses have ultimate flexibility — low to zero marginal cost should mean pricing can be more closely aligned to value in each market. The reality is sometimes quite different.
For example, content driven businesses have to be aware of the potential for geo-shopping, where savvy consumers use VPNs and other technologies to geo-shop and buy from the lowest price market. This can lead those businesses to have more inflexible one-size-fits-almost-all pricing models such as that used by Netflix and others.
In fast-developing markets such as India, where the average annual salary is less than $2000, this creates a ceiling on growth and creates openings for competitors. Being flexible enough to set global pricing at levels that maximize total global cash flows, rather than just in the origin market, is often the key to success. Even better is to look for features or capabilities, such as sub-sets of content, or the bitrate of the streams in the case of content businesses, that allow for lower priced packages that enable usage by a broader population without impacting the core service.
Payments. Pricing strategy is fine in theory, but only works if you are able to actually receive payment. In developed markets, this often means the ability to accept credit-card payments — something now readily available to even the smallest of western businesses. In many emerging markets, however, the trend is contrary to this, as Alternate Payment Methods (APMs) such as e‑wallets, bank transfers, and other local payment methods have played an important role.
Access to traditional cards, particularly credit cards, remains limited to the banked and high-income subset of the population. It sounds simple, but having the operational capability to accept payments wherever you have customers is vital to success, because, fundamentally, payments are local. Do you support Boleto Bancario (Brazil), Toditocash (Mexico) or Yandex.Money (Russia) payments, for example?
Naspers-owned payments company PayU exists today because our e-commerce companies experienced these problems first-hand. Many years ago, our companies could not find payments partners that met local market needs. So PayU built the capabilities. PayU has been a pioneer to enable merchants to accept APMs online and supports more than 250 payment options globally, an unmatched capability in emerging markets.
This leads to higher conversion and revenue for merchants as well as better customer experiences. We have repeatedly seen companies get false information about their product-market fit and overall potential in a new market simply because their western-centric payments solution only supports credit cards.
Government. One of the more daunting aspects of expanding into foreign countries is learning the ins and outs of doing business under another government – complicated tax structures, compliance requirements, varying consumer protections and ever-changing trade regulations can be enough to scare a lot of companies away at a mere mention. Still, many businesses take on the challenge and with experienced local counsel, are successful.
Starting out on the right foot by setting up legal and funding structures correctly and understanding local tax requirements to make sure the basics are right from day one is key for success. Begin simply and fine-tuning the structure and model once the business matures is a great way to keep the initial task from being overwhelming.
Compliance with data privacy is another tricky area to navigate as rules differ substantially around the world. The rules govern what kind of data you can store, where you can store it and how you are required to respond to breaches of data, and more. The penalties for non-compliance vary widely and can be very high in some markets, which could be detrimental to your business. So, building your business following the counsel of someone highly experienced with the government where you are looking to expand is essential.
People. While consumer needs are global, ultimately, successful international expansion relies on knowledge. The more you know about local market conditions, the better able you are to make the changes, often relatively minor, that are needed to succeed in new markets. This leads to the final challenge — how do you get the right people in place to deliver that local knowledge into your global product?
The classic western business approach is to take an existing team member and drop them into the new market — bringing with them knowledge of the company and its culture. I’ve personally had the opportunity to do this exact thing in multiple European markets. It can work here and there, but all too often this approach fails for the simple fact that local market knowledge is far more valuable than company knowledge.
Finding people with deep, local understanding and entrepreneurial drive is the final key to successful global expansion.
For businesses looking to expand, moving into high-growth markets can be a highly effective route to success, particularly in these uncertain times. Expansion isn’t without its challenges, but often they are less intimidating up close than they may seem from a distance. If growth businesses focus their efforts in the right area, international expansion can help them sail through the turbulence and set themselves on a course to global success.