Business expansion into international markets presents numerous growth opportunities for organizations, such as expanding customer base, increasing margins, reducing dependency on domestic markets, and becoming a global industry player. However, without careful consideration and learning from past experiences, B2B businesses may encounter pitfalls that may lead to failure. In this blog, we will explore the top five reasons why international expansions fail, based on years of experience working with B2B companies.
- Opening an Office Prematurely
Assuming that success in the domestic market guarantees success in international markets is a typical mistake many make. In reality, every market, regardless of its cultural similarity or geographical proximity, introduces unique and often unexpected challenges for your organization.For example, many Quebec-based companies choose to open their first foreign office in France with the assumption that linguistic and cultural similarities will ensure quick success. However, in our experience, targeting France, as an initial market, may not be the most suitable option for most Canadian or Quebec-based companies looking to expand into Europe. In fact, organizations that have successfully penetrated other major European markets prior to the French market are perceived more positively there, and their value proposition is taken much more seriously.
Furthermore, companies that established offices in France often underestimate the difficulties of employing French staff. France’s highly favourable employee rights and labour code can create significant challenges when dismissing employees, especially if the company decides to cease operations in that market.
Therefore, taking the plunge and establishing a physical presence in a target market is definitely not the first step to going global. Instead, it is advisable to work first on acquiring clients directly from your Canadian headquarters. This way, you do not put the cart before the horse, enabling your company to develop strong local partnerships, an initial client base, and professional networks that will assist you later in building an office in this market (if needed). This will also enable a better understanding of the market before setting foot in it while reducing the initial expenses associated with the expansion process.
- Being Blind to Cultural Differences
One of the primary reasons for business expansion failure is a lack of understanding of the target market. Insufficient research into the local culture, buyer preferences, competition, and regulatory standards, including HR regulations, can lead to misaligned strategies and market rejection.
Cultural aspects influence buyer priorities and the sales/marketing strategies to approach potential clients. While most companies expect these cultural barriers when entering significantly different countries such as China, India, and Japan, we have seen Canadian companies, for example, trying to enter English-speaking markets such as the UK, US, or Australia overconfidently.
Cultural sensitivity and adaptation are crucial in today’s business landscape, where respect for local customs and norms can significantly impact a business’s success. It is essential to customize content to match the local culture, including wording, style, and even spelling, to avoid being perceived as an obvious foreign company.
Cultural differences and local customs in sales processes can also affect negotiations and deal closures. For instance, in Israel, using an excessive number of superlative adjectives while presenting a sales offer may be perceived as untrustworthy and insincere and would lower your chances of getting a client. On the other hand, in markets like Japan, building a long-term and gradual relationship based on trust and reputation is essential. Prospective clients often take over a year before they are ready to purchase a solution, especially if it is a new offering in the market.
Thus, It is highly important to thoroughly understand the cultural subtleties and nuances that would directly or indirectly impact the sales of your proposed solution (product or service) in the future target market. This information will help shape the go-to-market plan, to maximize readiness in the face of cultural challenges.
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It is essential to assess the needs of that specific region, solution fit, market potential, market size, and clear segmentations to verify it has a viable customer base. Failing to evaluate the competitive landscape and find a match between the offered solution and a specific target audience in that market can result in an unsuccessful market entry.
One common mistake is targeting a market that is essentially too broad or addressing all regions in this market in exactly the same way. For instance, many Canadian companies attempt to enter the U.S. market by viewing it as a single, unified market. In reality, the U.S. market should be segmented according to geographic, demographic, psychographic, or other factors, depending on the offered solution. Gradual entry into nearby regions with cultural affinity may increase the chances of entry success. For example, a Vancouver-based company may consider starting its US expansion to Washington, Oregon, and California due to the proximity and certain cultural similarities.
Of course, market size alone does not guarantee success. Specific large international markets may seem to present significant opportunities, but with a proper opportunity assessment, serious impediments will be revealed, such as saturation of the market with similar solutions or special regulations that may translate into a smaller market opportunity.
Based on these considerations, it is vital to carry out a business case analysis to determine the viability of the market and the level of complexity that would be required to achieve successful international expansion.
- Lack of Readiness to Enter a Specific Market
Each country has legal and regulatory requirements that companies must understand and comply with. Depending on the solution and the industry, there is a need to dig into the regulatory landscape of the target market prior to the expansion process. Obtaining the necessary certifications and the required compliance with local regulations are crucial steps for successful international business expansion. Companies must consider the length of the certification process, as approval by local authorities may take time.
For instance, failure to comply with the GDPR (General Data Protection Regulation) in the European Union or the CCPA (California Consumer Privacy Act) in California can have serious consequences, including hefty fines, legal disputes, and irreparable damage to a company’s reputation.
Another often overlooked aspect of readiness is the intricacies of the distribution network. For example, in most South American countries, due to the concentration of demand in a few urban regions and cities, logistics rules and customs tend to work in tandem with distributors. On the other hand, in large, complex countries such as the US, distribution rules are set by the big retail chains. Accounting for these differences will help avoid potential supply chain delays and ensure seamless operations in the new market.
Last but not least, proper budget allocation and a thorough understanding of foreign exchange rates are also key factors in readiness for international expansion. Underestimating market costs can lead to financial strain and hinder the expansion’s effectiveness. Underestimating the impact of foreign exchange rates on financial planning may affect the profitability of the market. Failure to account for these fluctuations can lead to unexpected losses or reduced returns on investment.
By conducting a comprehensive assessment of the opportunities and risks related to readiness, companies can effectively prepare themselves to meet the expected challenges and increase the chances of a successful international expansion.
- Entering Too Soon or Too Late
Strategic timing and adaptation are vital factors that can distinguish between success and failure in a business expansion. Understanding the implications of timing is essential, as launching a solution too early or too late can have significant consequences.
When considering global expansion, businesses must identify carefully when the market is ready for its solutions. Entering a premature market can result in a loss of competitive advantage. Conducting thorough market research and identifying early adopters can help gauge the potential success of the expansion.
On the other hand, too much delay in entering a market can also present risks and might result in missed opportunities. Innovative solutions that have succeeded in the local market may lose their appeal when introduced in international markets several years later. Competitors may have already solidified their stronghold, making it difficult to gain enough traction and market share.
Consequently, companies need to strike the right balance between seizing opportunities and avoiding overly competitive markets. Identifying niche markets where the solution can offer unique value is key.
Successful international expansion involves five essential steps: First, studying the target market to understand its unique characteristics, buyer preferences, and regulatory landscape. This helps define the correct marketing message for the identified market. Second, developing an effective marketing plan tailored to the specific needs, marketing message, and challenges of the market, to facilitate market entry and penetration. In the third phase, fine-tuning the branding and messaging is crucial to resonate with local audiences and solidify the company’s positioning and appeal. The next step is executing the international marketing plan from your Canadian headquarters, while constantly customizing it to take cultural nuances into account and cater to specific buyer preferences. Last but not least, to secure continued success, maintaining an ongoing process of measuring the impact of the expansion and implementing improvements based on feedback and data analysis will be necessary.
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