The recent demise of Target’s foray into Canada brings home the risks of global expansion, even into a market that is so close to home and seemingly so similar to the US. Target is just the latest in a long list of companies that have aggressively moved into international markets, lured by the promise of new markets which will deliver significant growth. In many cases with growth limited in home markets, global expansion is a necessity, but for every Uniqlo or Apple, there’s a Target or Groupon that’s wasted plenty of capital in a misguided move to grow.
The silver lining with all these failures is that there are themes that emerge that provide guidelines to ensure that you are set up for success. These include:
- Consumers are different – don’t assume the consumer will behave like your home market. Too many US companies assume that Canadians are just like Americans and have similar purchase patterns and behaviors.Target made this mistake and it turned out to be a very expensive lesson. Looks like this was an expensive lesson for Target. There’s also numerous cases of companies going into China and assuming that the Chinese will adopt US or Western behaviors. Both Best Buy and Home Depot made this mistake and had to rethink their business model in China.
- Don’t assume that the local workforce behaves like those in your home country – adopting the home country incentive plans, work practices and motivational approaches may not achieve the desired outcome. Motivations, work practices and attitudes in Europe are quite different than the US and as such this needs to be taken into account. The example of Lincoln Electric provides a good case study.
- Put the right management structure & talent in place – senior executives from the home country need to spend lots of time in the new market, not only learning and understanding the market, but providing the necessary executive oversight to building a business. This needs to be supplemented by local talent who truly understand the nuances of the market.
- Don’t bite off too much too quickly – unless you have real benefits from global expansion, such as, network effects, scale benefits, etc. take a slower more measured approach. Groupon rushed head-on into international expansion before they were ready and had to pull back.
- Understand local regulations and customs – Uber is a fantastic business, meeting a real need and addressing real inefficiencies in the market to deliver true disruption, however they have stumbled as they enter new markets by not completely understanding local regulations and customs. While these tend to be speed bumps not road block, they are slowing down Uber’s expansion and creating bad press in local markets.