Expanding your business abroad can seem like an easy way to grow your market. But there are many simple, obvious mistakes that companies make when they start a new business in a foreign country.
These are the sorts of errors which should be easy to prevent in the first place.
Big companies who made mistakes entering foreign markets
There are many companies who made mistakes when entering foreign markets. One of the most common errors is a simple one – mistranslation. But it’s one which can end up having a huge financial cost.
Amongst the most infamous examples of this was the HSBC “Do Nothing” campaign (a mistranslation of their “Assume nothing” tagline), which tripped the company up to the tune of $10 million. It’s widely quoted in lists of businesses which tried and failed to enter foreign markets.
But mistakes can be much more wide ranging. Consider the example of Walmart trying to enter the South Korean market:
The huge US retailer simply ignored differences between their new and home markets. These were basic errors, such as failing to adjust the heights of their in-store signs and shelves, or selling fish that was already packaged. South Korean customers are more used to fish being alive and visible in a tank close to the counter.
Doing things differently was, for this audience, as strange as it would be for an American or European audience if the situation was reversed.
There’s also the example of Pampers, who tried to market their baby-centric products in Japan using the (in the United States) traditional image of a stork. This confused Japanese consumers, who had no cultural basis for understanding why that bird would symbolise a product designed for infants.
Common mistakes when expanding a business abroad
Opening your business abroad can certainly present a challenge then, but even these brief examples show that there are certain obvious mistakes to avoid:
1) Not enough research
Any business expansion should be accompanied by serious and effective research. But it’s surprising how many of even the largest companies decide they can rely on brand power alone to penetrate into new markets.
Don’t expect your new market to function identically to your home market. You should, at a minimum, be aware of:
- Local competition – your biggest competitors at home might not be present in your target market, but there will still be established competitors you’ll be set against. Starbucks were faced with this situation when they attempted to enter the Australian coffee market. McCafe (part of McDonald’s) and Gloria Jean (an American company that has the majority of its 1000+ coffee houses in Australia) already dominated the market, despite not being serious competitors at home.
- Local industry trends and trend forecasts – perhaps your expensive coffee is a favoured drink of commuters in your home market, but is that true of commuters in your target market too? What if they prefer cheap caffeine, or another drink altogether?
- Local regulations – are there significantly different laws governing taxes, imports and exports, or even business ownership? These are the sorts of regulations that it can be very easy to trip over without some local knowledge.
The answer, of course, is to do more research. Once you know the situation, you can make a proper decision as to whether expansion into this new market is going to be worth your efforts. If you know too little about a certain country or market, you risk wasting your investment.
2) Not understanding cultural differences
As evidenced by the examples of Pampers and Walmart above, a failure to understand even basic cultural differences can lead to large-scale failure for even the biggest brands when they try to reach new markets.
It’s probably the most common mistake that companies make when they want to start a new business in a foreign country:
Their business model works at home. Why wouldn’t it work elsewhere too?
For this reason many brands make the error of believing they can skip the need to understand cultural differences. This can be equally true of both the differences in consumer preferences in their new market, and differences in the way companies do business in this part of the world.
Even relatively straightforward details can be dramatically different in other cultures:
- How employees expect a meeting to be run
- How public speaking is expected to work
- How internal employee relationships are understood
- How business to business meetings take place
By way of a small example, in Japan it’s considered rude not to properly read a business card you are given before carefully placing it in a special wallet or other storage which shows you are going to keep it and look after it. It’s not something that a person trying to enter the Japanese market from abroad would necessarily know, but such a misunderstanding could easily compromise a business relationship before it even starts.
Even companies seeking to enter the United States as a foreign market, where you might think that the almost global proliferation of American culture would give companies at least some nominal understanding, often quickly fail due to lack of research.
3) Not having a plan
It might seem obvious – that entering a new foreign market would require some serious planning – but a surprising number of even the biggest brands don’t always seem to make the effort.
A common error is made by businesses which base their entire decision to expand on the fact they have a single large new client in a particular market. By putting all of your eggs in one basket and relying on a single large customer deal to motivate – and financially support – your move into a new market, you’re almost certainly setting yourself up to fail.
Equally, if you’re getting some sort of interest in your products or services from consumers in several countries it can be tempting to start marketing your product everywhere.
In both cases, even high demand from a single source doesn’t necessarily equate to there being an equal demand across the whole market – or indeed anywhere else in the market!
Planning business expansion
You should seriously consider all of the following before deciding whether to expand into a new market:
- Foundation – foreign expansion should only take place when your business is stable and ready to deal with it. Do you have the organisational practices in place to handle this expansion?
- Demand – one large client isn’t enough. Is there real demand in the target market?
- Finance – how to finance international expansion. Where are these resources coming from?
- Return – linked to the above, what is the expected return on the investment in your international activities? And – vitally – on what timescale can you expect that return to appear?
- A detailed resource assessment, measured against all related costs
- A market research plan
- A clear action plan
- Targets, and metrics for measuring progress to targets
- A Return On Investment assessment
Proper research and planning will prevent many missteps before any serious investment has taken place.
4) Not looking for local partners or foreign distributors
Whether it’s as simple as having someone who fluently speaks the local language, or as important as knowing that you’re going to be speaking to the consumers and companies who are your target market in a way they understand, having a local partner can save you a whole lot of unnecessary confusion and expenditure.
Some larger corporations take the step of acquiring a well established local business to absorb their client base and local knowledge. But for those on a more limited or sensible budget, working with a team – or building a team – which understands the market, local business practices, and customer preferences, as well as the language is a solid step to take.
Having a local partner can help you avoid many of the common mistakes that businesses make when they try to enter a foreign market.
5) Not learning the language, or not “learning the language”
This is perhaps the simplest way to summarise most of the mistakes above. Many companies which try to start a new business abroad assume that the new market will adapt to them, rather than that they need to tailor their products and services to the new market.
Not being able to speak the local language is the most obvious example of this. Many business owners (especially many of those who have English as a first language, it must be said) assume that their language will be the language chosen for all negotiations. But if a foreign company came to you and expected you to communicate in their language, would you be more or less receptive to their proposal?
That’s why you need to localise not only your actual language but also your attitude and your message to meet your new audience. For instance, even translating something as simple as an address form on your website will require careful planning to adapt to local norms, name and date formats, and so on.
Now apply that thinking to your products and services, your marketing messages and channels, your brand positioning.
How to avoid mistakes that companies make when they start a new business in a foreign country
If that’s how not to do it, how do you start a new business in a foreign country?
Here are simple positive tips:
- Research your new market extensively – make sure that the demand is there. Consider contacting any agencies or government departments at home which might be able to help you.
- Work to understand cultural differences – to begin with, unless you already have a local partner or bilingual or locally-raised colleague who can assist you, a basic understanding of cultural differences to avoid the most egregious misunderstandings is a must.
- Make a plan – don’t just jump in head first. Make sure you know how and why you’re entering this new market. Set your goals and evaluate your foundation to ensure you’re ready to proceed.
- Look for a local partner – as they’ll be fully conversant with not only the local language, but how to set prices, comply with legal requirements, and negotiate locally.
- Bring your own interpreter – in any meeting or negotiation you want your interpreter to have your interests at heart.
- Don’t rely on body language in negotiations – body language differs tremendously depending on a person’s culture, as do simple gestures. Shaking your head in parts of Bulgaria or Southern Albania can mean yes, for example.
In general, the message to take away is that when entering a new market you need to be willing to adapt.
Don’t expect consumers or companies in your new market to change and start doing business “your way”. The more you go out of your way to adapt to a new culture, to localise your goods and services, the more you’ll find potential partners and clients are willing to go out of their way to accommodate you too.
Asian Absolute works in every culture
Entering a new market is always easier with expert help. From successfully starting to do business in a new country to localising your marketing materials so that they get your message across to a new audience, Asian Absolute makes it simple.
Expanding your business abroad is indeed a sure way to reach more customers and get that vital strength your company needs in order to continue growing up. But there are plenty of pitfalls along the way and a thoughtful, experienced manager should know how to avoid them. Please use the comment section below to express your thoughts on this topic or share your experience with our readers.