Unless you have the good fortune of being at Google or Facebook, most venture capitalists would venture to say you’re out of your mind to take your small business global in this economy.
Beyond the obvious basic market risks, you’ve got to beat the local competition and get a handle on any political and cultural risks. From a risk/reward perspective, it’s not a pretty picture.
“Be very strategic and careful when attacking the overseas market,” says Rick Rickertsen, a venture capitalist and managing partner at Pine Creek Partners. Rickertsen is on the board of four companies with overseas operations and has 20 years of watching folks fail and succeed.
Keep Good House at Home
Before hitting the high seas, maintain a healthy domestic business. “How can you take on something new and foreign when you can’t even handle what you have at home?” asks Rickertsen. If a business can’t get up to 35% return with the added layer of political and cultural risks, then an overseas push isn’t worth it, Rickertsen says. It’s hard to be bold and expansive in this economy. If you’re already fighting battles at home with your company, you certainly don’t want to fight them overseas.
Know and Be Ready To Battle the Competition
You believe your product is incredible and you’re hyped to take things over, but that doesn’t mean local competitors are going to just hand you business. In a flat market, you have to take market share from competitors. “No one just rolls over without a fight,” says Rickertsen, who is also baffled by how blasé businesses can be when studying competitive analysis. “Some are just five lines in their business plan. That blows the credibility of their competitiveness.”
Look for a growth market
In a no-growth market, you have to take out each business directly, fighting them to the bitter end. Conventional wisdom to enter markets with similar cultures like in Western and Eastern Europe is now a no-go because their troubled economies, so alternative markets bode better. India, Argentina and Vietnam have good long-term growth markets and impressive infrastructure, says Rickertsen. Forget China though. “I don’t know people who really made money there. They are a military and political risk. A lot of really smart people thought they’d make a ton of money in China. They were wrong.”
If You Can’t Beat ‘em Join ‘em
Partnering with a business or individual already living and working in the country is the smartest move for expanding your business internationally. You get a lower return, but you get lower risk. You don’t have to build the business from scratch and there are fewer political and cultural risks because your partner is familiar with the lay of the land. Plus, your partner is watching your back, already economically motivated to succeed in their market.
Do your research, though. “You can enter a market in good faith but their ethics aren’t up to American standards.” If things go sour, expect to hire a local law firm that can suck up time and money, says Rickertsen.