Don’t misinterpret the above title. The intention isn’t to
imply that focusing on international markets isn’t important. Instead, it’s
to say that a company shouldn't pursue overseas markets to the detriment of its local market.
Ultimately, it's less about how to pursue overseas customers and more about when to pursue those customers. Do you do that now, when so many opportunities remain in your own backyard, or should you just plow ahead and hope for the best?
Unfortunately, far too many companies set out to penetrate overseas markets without first knowing whether they’ve properly maximized sales within their own market. Case in point: I recently completed a project for a manufacturer of custom-engineered industrial finished goods. This company had global aspirations. However, they ignored the potential of their existing customer relationships.
The owner of the company asked me to attend an information session on international marketing with him. The focus of the session was to explain why pursuing new markets should only happen IF the company has properly serviced its existing customers. After all, why pursue overseas customers when you're ignoring the ones right next door.
It's about duplicating your success by understanding what works and why. Here are the main points they covered.
1. The Pareto Principle: The 80-20 Rule of Business Revenue
First, they talked about the Pareto Principle. This 80-20 rule of business states that 80% of a company’s sales typically come from the top 20% of its client list. These top customers often drain the company’s resources.
The more the company works on these large customers, the further removed they become from their market. Once they lose some, or all of these top-tier customers, they suddenly find themselves facing a new reality, one where their competitors dominate the market and are entrenched as the primary vendor. This is exactly what was happening to this company.
2. Defining Market Barriers to Entry
The second portion of the session focused on the importance of understanding a market’s barriers to entry. They described how often companies try to penetrate large markets simply on the basis of its size, and perceived potential, rather than on how easily that market is penetrated, how fast sales will occur or how easy it is to retain customers.
The focus should be on defining what it takes to enter that market by defining its roadblocks, its potential for sales, and the time needed to generate those sales. These barriers include the following.
Market Culture: How do competitors, vendors, influencers and customers interact in this market? More importantly, how is business done? Every market is different. What you might consider outdated, and or second nature, may just be a prerequisite to buying and selling in this new market.
Credit and Financing: Ultimately, it doesn’t matter how strong your company's financial statements are or how ideal its debt-to-equity ratio is. If creditors see this new market as high risk, then you’ll be hard-pressed to secure the capital you need to finance inventory, finance receivables, or finance sales and marketing.
The Market’s Makeup: Who dominates the market and why? Is this market made up of a select few companies, ones who will use their position of dominance to squeeze out any new competitors that come along? Some markets are dominated by companies with extensive influence on vendors. They can easily use their economies of scale, influence and lower costs to completely remove you as a going concern.
Operations and Supply Chain Management: What will it cost you to sell into this market? Don’t think just in terms of sales cycle times. Think about whether key vendors are open to selling to new companies. Again, this market may be dominated by a select few companies who have strong vendor relationships and strategic partnerships. Managing an efficient supply chain is critical to entering a new market, but it only works if the opportunities to work with vendors are present.
Government Regulations & Tax Laws: Understanding your potential market means understanding whether it’s highly regulated, or open to all. For instance, are there any additional duties and taxes that will all but price you out of the market? Is this market known as one where heavy duties on imports and regulations are commonplace? Some geographies are well known for their protectionism. You must know this long before you try to pursue any new opportunities.
Competing Brands: You must become an expert on your new market, one with the ability to immediately decipher who the leaders are. You need to understand whether it is dominated by one or two competitors, or whether it's ultra-competitive and open to anyone who wants to enter. Understanding your future competitor’s strengths will help you identify sales cycle times and the difficulties of pursuing new customers.
Next, they talked about the importance of having a marketing budget. Ultimately, you must use this budget to track your company’s costs of leads, costs of qualified leads and costs of customer acquisition and retention.
It’s not just about generating leads. Instead, it’s about whether or not those leads are qualified. Your marketing and advertising will generate interest, but whether or not that interest comes from qualified prospects is something else entirely. Far too many companies focus on lead generation without understanding whether those leads are worthwhile.
You have to delve further in order to define how well your strategies are working. Don't just count the number of leads generated by individual plans. Instead, identify which ones produce the most qualified prospects, and which ones produce the most customers. You want to understand how much it costs to find potential customers, turn them into paying customers, and ultimately, how much it costs to keep them.
4. A Tailor-Made Marketing Strategy
Finally, they covered the importance of having a focused marketing strategy, one tailor-made to the new customers you are pursuing. This involves choosing the product offering most likely to succeed and outlining the reasons why it will succeed.
Will it be a winner because of cost-per-use benefits, longevity, quality or cost? Next, the strategy should play to your company’s strengths by accentuating your company's core competencies.
They then identified several critical errors to avoid. First, don’t focus on products you’d like to sell in this new market but can’t. Second, don’t focus on unproven products that have no consistent sales history. Third, don't focus on products where your competitor is stronger and you have no differentiating features and benefits. Finally, avoid strategies that indirectly push potential customers to your competitors. This occurs when companies lack definitive product strengths: The customer may be interested in what you have to offer, but they'll surely go to your competitors if they feel their offer is better.
The ultimate strategy is to stick to what you do best by choosing your strongest product offering for this new market.
Finally, they explained that none of these should happen if you haven’t first pursued all the opportunities within your existing market. You can get the ball rolling. You can start the process of looking into overseas markets. However, as long as there is business to pursue right in your own backyard, you shouldn’t be taking off after another market unless you are assured your current customer list is properly looked after.
At the end of the session, the business owner and I sat down. I asked him what he thought. Like all business owners, he retained only the information he wanted to, and disregarded the rest. He liked the Pareto portion and the marketing strategy, but he completely ignored the barriers to entry, the budget and the importance of not ignoring his current client list.
The company lost business because it didn't have a budget, didn't have a pulse on what was happening in his own backyard, and didn't understand the importance of having a strategy. Pursuing overseas customers was his way of making up for having lost so much business.
To read more, please go to the following articles.
What is the GE Strategic Business Unit (SBU) Matrix?
When Should You Start a Strategic Business Unit (SBU)?
Your Customer Service Strategy Must Start with Marketing & Sales
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