Companies often choose markets to enter based on an opportunity that presents itself. They might get an e-mail from a potential customer saying they’d like to buy their product and sell it in another country. While there’s nothing wrong with those opportunities, the question is: Are they the right opportunities in which to invest?
“It’s important to have a strategy in which you’ve studied markets that have the most potential and determined where you want to focus your efforts and, more importantly, your time and money,” says S. Martijn Steger, chair of the International Business and Mediation practices at Kegler, Brown, Hill & Ritter. “If you’re more focused you’ll be more likely to create a profitable operation, and less likely to overextend yourself.”
Smart Business learned more from Steger about how to spend your time and money wisely on a venture in an international market.
How can businesses identify opportunities in other markets and establish a presence?
When a client calls and says, ‘I met this great person at a trade show and she wants to distribute our products in all of Asia. Draft up an agreement for us,’ I would say, ‘I can do that. How does that fit your international strategy?’ Because that might be a great opportunity, and it might not. It depends on whether you can really devote the necessary resources to make that a successful venture.
If all you’re doing is making occasional sales in a market, and if that’s consistent with your strategy, then you probably don’t need a whole lot of firsthand knowledge of the market. You do have to be able to trust whomever you’re selling to that they’ll find the right customers, and that they’ll pay you when they buy products. If you’re not getting payment in advance or a letter of credit to secure the payment, then you have an accounts receivable risk in that country.
On the other hand, if you want to do a joint venture, buy an existing company or form your own company, you have an elevated need to have someone you know and trust in that market who can give you local knowledge and guidance. Also, having your project leader spend significant time in the country sends the strong signal to your partner that you’re committed. It’s critical not to take the human element out of business. Without that commitment, you have a higher risk that something goes wrong and you won’t know about it until it’s too late to fix it.