Every stage of international expansion requires careful analysis. From evaluating market opportunities to deciding on whether to make an acquisition, form a joint venture (JV) or grow organically, a leadership team must do its homework and be prepared to adapt to the commercial realities of each country. Get it right and the rewards are such that business models can be transformed.

The first step is to give serious thought as to whether a country is a good fit. Paul Walsh, Chairman of FTSE 100 catering and support service Compass Group and former CEO of global drinks giant Diageo, says: “[It’s] about looking at the GDP projections, the populous and the ladder of aspirations. You look at the social acceptability of what you’re selling, the political environment [and question whether] this is a market whereby a non-local company can do well… All of these things have to be analysed, then [you] make your priorities accordingly.”

Bill Caplan, Chairman of crane hire company Weldex International and former Regional Director for Europe, the Middle East and Emerging Europe at temporary power firm Aggreko, says: “You generally look at the macro-economic activity in the country, fine tune it to what’s happening in the sectors that you’re strong in and then, within those sectors, decide on your addressable market.”

Boards should be wary of being taken in by a market’s size and fast-growing GDP. Bart Cornelissen, Head of Emerging Markets within the Global Joint Venture Practice at KPMG, comments: “There is another dimension to this and that’s the whole question of what the ease of entry is like and what the competitive landscape is really about? It’s easy to focus entirely on the potential but you can forget to ask: ‘How are we going to make this work? What’s the right business model, e.g. a joint venture or local partnership, and how do we ensure we have the necessary capabilities?’”

Best-laid plans

Once a market has been chosen, the next challenge is the small matter of deciding on an entry strategy. While some leaders have a formula which they claim can be rolled out, the consensus is that the decision will be based on the speed at which you plan to expand, the experience of your senior leadership team and the risks and regulatory structure of any given market.

"So much depends on the sector, the geography and the business model," says Charlie Johnstone, Origination Partner at private equity firm ECI. "A good example is [our portfolio company] Fourth, whose software is excellent at helping the hospitality sector understand and control their costs... When we invested they were doing some work in North America but were definitely underweight there.

“As we didn’t need [to introduce] a new product to sell into the US, a sales-led office opening strategy seemed sensible. However… given the small, monthly payment nature of the contracts, it would have taken a long time to scale. So, we helped Fourth identify and buy a software business in Connecticut which was in the same sector… [and] this gave the company immediate scale in the US, a sales force and signature clients.”

Tea Colaianni, Group HR Director at Merlin Entertainments, explains how an acquisition in Istanbul has given the theme and leisure group a platform from which to grow: “We’ve always wanted to be in Turkey… [so] the location was very attractive and it gave us an opportunity to establish a relationship with a number of people: landlords, city officials and so forth. We’re [now] in discussion to open possibly another two attractions in the same location.”

Alternatively, JV may be the best option as this allows organisations to share not only the risks and capital investment, but capabilities as well. David Moore, Chief Portfolio Officer at private equity firm NorthEdge, comments: “JVs allow you to leverage a locally-based business’s infrastructure, whether that’s people, manufacturing capability, logistics, know-how of operating in the territory, customers, routes to market or an established supply chain.”

Andy Dunkley, CEO of clothing company Lee Cooper Brands, which was acquired by global fashion group Iconix in 2013, comments: “We’ve got a JV partner in Southeast Asia, Li & Fung… We add to the portfolio of products that they can sell and [the hope is] they’ll grow our business and provide a supply chain, which we as a company will never do. So they help us on that missing jigsaw piece, as it were.”

Not every country presents a series of choices when it comes to selecting your entry strategy. Paul says: “In Vietnam, for example, a lot of the entities that you’re looking at are actually state owned and the government will only allow you to take a partial stake.”

Starting from scratch

The other tactic to use when entering a new market is to opt for organic growth. It is generally a far slower route to take, but it does have its advantages. Giles Daubeney, COO at international recruitment consultancy Robert Walters, comments: "In our industry [the issue with] acquisitions is if I buy a company... and all the consultants decide to leave, which can happen if they’re unhappy with the new compensation package, you’re left with nothing.”

Giles goes on to explain that expansion has to be client led. “I was having a meeting with [a major client] and he said: ‘Listen, what are you guys doing in Japan? We’ve just entered that market and we think it’s a huge opportunity.’ We then went and did a bit of research and decided to open an office in Tokyo… We’ve been in Japan 15 years now and we’ve got just short of 200 people, two offices and it’s purely organically grown.”

For Mark Silver, CEO of European property management specialists VPS, if you’re going to grow organically, the management team needs to really understand the market. “If I was going into, say, Scandinavia, I’d look for an acquisition because… it’s a really new area for us. But if I was going to go into Portugal, where we’re not currently located, I might choose to do that via organic growth because we have a business in Spain, so it’s just down the road.”

Whatever route you choose it will require genuine focus from your senior leadership team. “If you are going to invest or build you are committing yourself and you can’t get cold feet part way through, so you must have done your homework,” comments Paul. “I think the leadership, wherever they may be based in the parent company, has to invest time in visiting the market, understanding the people and creating strong relationships.”

Without that first-hand attention to detail, you may not appreciate the need to make changes to strategy. Bill says: “[Don’t] be afraid to revisit your… business plan and change it as you go along... [because] no matter how much due diligence you do… once you’re in, more is revealed and, as a result of that, you end up having to be responsive to things that you didn’t necessarily anticipate.”

It’s universally agreed that it’s wise to hire people that know the market from the inside. Paul explains: “You have to get people with local knowledge. Where businesses fail, in my opinion, is where they think they can just have either ex-pats or people visiting from London; you’ve got to have people who are senior and know the market, and you have to establish a very firm bond of trust.”

International expansion is difficult to get right but, as long as the markets are carefully selected and the entry strategy is aligned with an organisation’s capability, the rewards will be very much worth the effort.

I hope to see you soon.