Friday, May 23, 2008

A beginner’s guide for growing internationally

By Ashley Stephenson

Most companies produce some kind of yearly operating plan that captures the important business goals and metrics for the coming year. Such plans detail a variety of corporate objectives, including revenue and margin targets, head count evolution and operating expenses, road maps for new product or service introductions and, often, a strategic investment component for new technologies or markets, including the potentially lucrative but risky global market.

One important decision that may affect every aspect of the annual plan is the desire or requirement to grow. Modest year-over-year growth comes naturally for a vibrant business and does not necessarily require specific consideration. More significant growth objectives require careful planning because they have the potential to distract or, even worse, bankrupt the company. Having decided you want to grow, the next step is to figure out how to pay for it. Growth costs money when it requires investment ahead of the curve. An interesting metric for any company is the self financed/funded growth rate, or SFGR. This tells a company how fast it can grow using income from its operations based upon the profile of its current business (e.g., margins, day sales outstanding, taxes, working capital requirements).

Different businesses can have wildly varying SFGRs. Some businesses can fund unlimited growth for certain periods of time, for example, when Dell Inc. collects payments from its customers before it has to pay for the parts for their new computers. Other businesses must invest years ahead of any financial return in order to grow, such as cable or satellite TV providers. If your growth ambitions exceed your SFGR then you must turn to external funding options such as debt financing, public/private equity markets, or venture capital and strategic acquisitions/alliances (M&A).

The type of growth you are looking for affects how you set out to achieve it. Organic growth within your current market or geography requires a penetration approach. How do you get to more customers in the same industry or more businesses in the same geography? Rapid growth in new geographies requires an expansion approach. You must look to build your expertise by leveraging partnerships relevant to the new target markets. Look for trade groups or consortia that give you rapid access to a wide range of new players including potential employees. Joining overseas industry or government initiatives can also ramp up your knowledge very quickly.

Going global is a growth objective for many companies in the current business environment. It provides a larger potential market while insulating the company from fluctuations in a single economy. Today, global expansion for small companies is easier than it has ever been. The Internet has flattened the world. This in itself often creates a competitive need to grow, it is just as easy for foreign businesses to enter your core markets at home and potentially overtake you.

The first year of any global growth initiative should include a short list of beachhead countries within the target regions. Buying or hiring local expertise will facilitate the process, but learning-curve issues still remain regarding how to position your products or services and how to articulate their value proposition to a new audience or even culture. It is important to build momentum and insight with regular time in-country, meeting with the local businesses. Remember to listen and be prepared to see things differently.

Establishing local representative offices or subsidiaries is a prerequisite to success in certain markets. Additional important considerations include careful management of the impact on your existing business. As you move to operate in multiple time zones, the working day for home-office, customer-facing departments such as finance, marketing and support can be extended from early morning to late at night. Important e-mail arrives around the clock as someone around the world is always in the middle of their working day. New challenges arise such as intellectual property protection in developing markets where patent or copyright protection is worthless. Each new county may bring specific tasks for translation, localization, and regulatory compliance requirements. Expect to leverage new technologies: Instant messaging, webinar chat and “sharing” remote desktops have become the new tools of international product demonstrations, support and training.

Successfully executed, a global growth strategy can catapult your corporation into the international spotlight and with the right planning you should be able to maximize your chances of success on the global stage.

Ashley Stephenson is chairman and co-founder of Reva Systems Inc., a Chelmsford-based RFID network infrastructure provider. He may be reached at astephenson@revasystems.com or 978-244-0010.