Go Global for Growth Why Internationalisation is imperative for ambitious Scottish High Growth Companies Building blocks to successful international growth and international best practices White paper Q1|2015 Developing High Growth Companies with a Global Perspective Table of Contents Introduction ....................................................................................................................... 3 What is Internationalisation for Business? ......................................................................... 4 Why go International? ....................................................................................................... 4 The Key Components for Growth: Nationally & Internationally .......................................... 6 Portfolio Approach to Methods of New Market Entry ........................................................ 9 Routes to International Markets ...................................................................................... 10 Snapshot of Marketing, Sales & Business Development Activities .................................... 12 Which international markets shall we enter? ................................................................... 15 Summary on Internationalisation ..................................................................................... 18 2 Developing High Growth Companies with a Global Perspective Introduction Although the jury is still out for many on whether we are actually beginning to emerge from an extended recession, or going deeper into one, consumers are still faced with the prospect of stagnant growth, inflation, continued uncertainty around the effects of the Government's austerity measures and geopolitical activities on a global scale. With the uncertainty of a variety of business and geopolitics activities as a backdrop, it is understandable, and very wise, that businesses are increasingly looking overseas in a bid to boost sales. Whether you are looking to sell homegrown products and services internationally via: • E-‐commerce & digital marketing, • Joint ventures with international partners • Sales distribution and agency agreements • Establishment of a physical presence overseas, having the right international growth advisors by your side is imperative if you are to maximise your potential for business growth and international trading agreements. Targeting the following key internationalisation objectives would be of great value to shareholders and general business growth. • Increasing profitability • Attaining a positive Return on Investment (ROI) • Business Growth • Increasing the customer base • Diversifying market and geographic risk • Building a Brand Equity on an international front To attain these objectives, companies need to a have a healthy balance between having a Global Perspective and utilising International Best Practices, while having analysed, defined, communicated and realised a relevant Corporate Strategy. The key activity components of which include: • Integrated sales & marketing strategy plan • Brand equity development and monitoring • Operational efficiency and target setting via regular KPIs • Detailed financial planning & control • Excellent management The following looks in general at various key parts of an international plan and also what internationalisation actually is. 3 Developing High Growth Companies with a Global Perspective What is Internationalisation for Business? At Onarach International Growth we view both or either of the following as true internationalisation: 1. the use of global best practices to conduct business effectively at home or abroad, and 2. exporting goods and services to foreign markets or having a physical international footprint. Why go International? The Benefits in Summary • Increase company revenues and profitability • Increase brand equity through a global and international footprint • Spreading business risk by having diversified geographic revenue streams • Opportunity to exploit an existing competitive edge in new markets • Expansion of brand awareness to new audiences and increase of client-‐base • Increasing customers at home through the prestige of being known as a global brand • Increase in share price or attracting a Trade Buyer from a different region • Easy and cost effective use of online and digital strategies to grow business • Minimising risk of losing market share to competitors by forging ahead So expanding on the “why internationalisation”, we find some key and core advantages of high growth companies who do take the international route: 1. Untapped potential Think about this, Scotland and the wider UK market has a population of around 62 million, which is only circa 1% of all the people on the planet. Without doubt, expanding your business domestically will provide growth, but extending beyond the borders of Scotland to carefully selected markets could help propel your business to substantial growth. 4 Developing High Growth Companies with a Global Perspective 2. Protecting against challenges and risk By increasing your sales footprint to countries outside of Scotland, you will be protecting your business from any domestic economic challenges. Selling into just one market can be risky, and a little like putting all of your eggs into one basket. Expanding into new territories will help increase your business’s resilience. In these challenging economic times, spreading your sales activities across a number of countries could be the best way to protect your long-‐
term business plans. 3. Greater economies of scale and productivity With diversified sales into a number of countries the volume of goods sold increases. Because costs don’t usually inflate at the same rate as revenues, this means you will be able to achieve greater economies of scale. This increase in productivity will in turn help the margins per unit sold increase, providing a better bottom line. 4. Better returns on investment You may well have invested significant research and development budget into the creation of your product and service, and by expanding the commercial lifespan through export you will derive greater returns on those investments. 5. Improved financial performance With access to new and growing markets, sales volumes will increase, margins per unit sold should improve, and the overall performance of the business will look healthier. This can mean greater dividends to shareholders, or further investment into business, geographical or product expansion. 6. Brand visibility When you export your products you’re also exporting your brand, providing greater visibility. Exposure of this sort enables you to better leverage global social media platforms to spread your message wider and create a loyal brand following. 7. Scotland sells internationally As much as it may seem very basic, but growing internationally based on the Scottish culture and brand is probably one of the most powerful marketing tools available to Scottish companies. a) Technology and Medical Innovators, amongst other things b) Strong business acumen c) Honourable, friendly and very trusted d) Inoffensive, friendly and funny e) Tartan, Bagpipes, Haggis, Kilts, Whisky and knobbly knees The population of Scotland of circa 5.2 million compared to the 6.8 billion global population means we only equate to 0.08 % of the global population. However, we stand out from the crowd. In addition to our Product & Service USPs and quality, companies should embrace and elevate the Scottish connection for maximum new market penetration. 5 Developing High Growth Companies with a Global Perspective The Key Components for Growth: Nationally & Internationally There are many drivers for international growth, with no one driver being more important than the other. At Onarach International Growth we view solid foundations as critical for any growth period, be it home or abroad. A few important lessons: Motivation Internationalisation can be perceived as a prerequisite for survival or an opportunity to exploit an existing competitive advantage in a new market. In the first case, the prevailing feeling is that there is no alternative to internationalisation, whereas in the second, internationalisation presents itself as an attractive option. Strategies for implementation differ according to the type of motivation behind moves to internationalise. Usually, the ‘voluntary’ approach allows for more time to develop, test and implement a strategy, while perceived outside pressure to strengthen a company’s position internationally may lead to quicker decisions and action. Clear strategy and planning Successful internationalisation requires a clear strategy. Why does the company want to internationalise? Which products will be launched on international markets? What is the specific know-‐how the company relies on in its internationalisation bid? Will the company as a whole go international or only certain business divisions? Clear answers to these questions must be sought. To find these answers, the company should undertake a thorough analysis of the potential new markets with the goal of establishing the company’s competitive advantage in these markets. It is equally important to look carefully at the company’s workforce: its potential could well prove to be the most important asset in the internationalisation process. Communicating and discussing the strategy in its developmental phase as widely as possible with shareholders and employees will help to clarify it. It will also lead to different stakeholders buying into the idea and supporting it. The development of a strategy must be followed by a comprehensive plan outlining in detail the financial and human resources required. 6 Developing High Growth Companies with a Global Perspective Communication ‘Listen to people and people will listen to you’ – timely, comprehensive and honest communication is key to a successful internationalisation project. The goal is to achieve the most widespread acceptance and support for the project under discussion. One-‐way information campaigns from management to stakeholders will not suffice. Good communication opens the possibility for feedback from all groups concerned: doubts and fears can be voiced and once these are out in the open, they can then be diffused. This process takes time, as it requires all stakeholders to understand exactly what is planned and how it is going to impact on them. Time for change Internationalisation of any business is not a quick process. A decision requires thorough research into the risks and opportunities of a possible move. Also, there can be a substantial time lag between the taking of a principal decision by management and acceptance of the idea by employees and other stakeholders. The idea has to be ‘sold’ with the help of a well-‐developed communication strategy, which again is time consuming. Implementation of a decision, once taken, very often proves to be more complicated than expected by those who have experienced an internationalisation process. 7 Developing High Growth Companies with a Global Perspective Building Blocks for International Expansion Internationalising management Managing an international business is different from managing a company operating in a national market. The decision about which business areas to manage centrally and which parts locally has to be well thought through. It is essential to have local managers involved in the running of subsidiaries. They provide the necessary knowledge of the local business culture and market. Local management should always be in charge of the local workforce. Culture of change To be successful as an international business, a company has to develop a culture of change. For managers, this means remaining open to diversity, to different approaches, to solving similar problems and to continuous change. Management has to empower its employees and allow for initiatives to be taken as well as for mistakes to be made. A big emphasis must be given to helping others to change. Language training for managers and employees should be offered, as well as possibilities to meet and get to know people from different cultural backgrounds. This would contribute to building trust, which is the prerequisite for success in innovation and change. 8 Developing High Growth Companies with a Global Perspective Portfolio Approach to Methods of New Market Entry One size does NOT fit all markets Which countries should I choose and how do I set up there? The world is enormous and there is no strict science in choosing where to start. You must look at your own products, understand the unique selling points and the value they’ll bring customers, then think about where there is likely to be a market. Managing your exporting success With any new business project, you will need someone to manage it. This is even more so with an export plan. There are a number of administrative tasks that need managing, as well as chasing up third parties, sales and marketing, payment and currency, as well as product adaptation. Selling and marketing in a foreign country One great way to generate demand is to attend trade shows like this one and meet potential buyers. Buyers from foreign countries attend in order to find great new products that they think will sell in their market. This should be your first step. Adapting your product and pricing Search the Internet for similar products and services to yours in your potential export markets. How are they packaged? What price are they? You may not find exact comparisons, however it will give you some insight and ideas. Getting your products overseas Getting your goods overseas is easier than you might think. There are plenty of specialist logistics companies that will not only shop your products, but will also undertake the tax or customs paperwork, and insurance. 9 Developing High Growth Companies with a Global Perspective Routes to International Markets There are a variety of ways to enter new markets depending on the region and also what your product and service is. Local Office or Remote
Strict Non
Circumvent & Non Compete
• Cost effective is dip toe first
• KPI reporting is imperative
•
•
•
•
Central CRM & Sales system for
transparency
Healthy commissions gives
motivation and longevity
Allow them to make a business out
of a business
Exponential growth
Stealth Roll Out
• KPI reporting is imperative
• Exclusivity only after successful performance
regional lock down at the beginning
• Limit
• Have
a non performance exit clause
• Use
CRM for transparency of end clients
• Agree
pricing matrix & co-ordinate region 2 region
•
•
remotely
If business ramps up then one
can evaluate the need for a local
office for added client comfort
Have a good country manager
presence at the offset
Maintain the senior Partnership role
• Split revenues or profits?
• Have a buyout option
• Have a Right of First refusal
on a
sale
• 50-50 split after all HQ central costs
• Marketing & communications sign off
Or, Grow by Acquisition
One must evaluate all the key considerations once you have decided the “How to Enter”. If you have: • The confidence that your foundational building blocks are in place • You have decided the entry methodology Then it is now key to set out your control requirements. This can be for healthy control and reporting over the brand, functions, performance and a whole host of other activities. The following diagram lays out a few considerations for Board decision. 10 Developing High Growth Companies with a Global Perspective Control decisions & KPI points One global
corporate culture vs localised
•
•
•
•
•
•
One Voice vs local voices
• PR led centrally from HQ
• Communications guidelines for local
countries
• Local language communications
Employee handbook
Partner/agent handbook
Corporate Bible
Reporting Lines
Company organogram
Grievance procedures
Transparency through Performance
• Sales Report
• Business Development Report
• Employee performance Report
• Cash Flow Report
• Distributor/Agents Report
• Other Key Reports
• Preferably on internal BI/ERP/CRM system
Brand Protection
• Corporate Entity Guidelines
• Social Media Handbook
• Developed portfolio of Marketing
Materials
• HQ has final say on any new
activities, products or pricing
11 Developing High Growth Companies with a Global Perspective Snapshot of Marketing, Sales & Business Development Activities The whole marketing, sales and business development functions of internationalisation are multi facetted. There is no correct and specific answer. As each company has its corporate culture, they also have their own internal methodologies. The following diagram gives “food for thought” on some of the key considerations or actions around the following sales routes: 1. Digital sales 2. Distributor sales 3. Direct sales 4. Project sales Even for a portfolio of sales routes, Onarach preference is to use the RACE methodology: Reach, Act, Convert, Engage. 12 Developing High Growth Companies with a Global Perspective Know your home market: Scotland You can never do enough analysis and research both in your existing market and your target markets • Market Research & Predictive Trend Analysis • Micro & Macro • B2C & B2B • Top > Down & Bottom > Up Scotland’s GDP Growth: Know your baseline market Latest GDP Growth Figures: Scottish GDP grew 0.7% during the third quarter of 2013. On an annual basis, comparing the latest quarter to the same period in the previous year, Scottish GDP grew 2.1% GDP in Nominal (Cash) Terms: Scottish Gross Domestic Product in 2013 was circa £126 billion. In 2013, the total services sector in Scotland represented around 72% of all economic activity, up from 66% in 1998. Over the same period the manufacturing sector shrank from 19% to 12% of the economy. Scottish Exports: Evaluate opportunities – Existing & New • International Exports: The total value of international exports from Scotland in 2012 (excluding oil and gas) is estimated at £26.0 billion, of which £15.4 billion was from the manufacturing sector and £8.7 billion from the services sector • Industry Results: The top 5 exporting industries in 2011 were food & beverages (£4.7 billion); manufacture of 13 Developing High Growth Companies with a Global Perspective coke, refined petroleum and chemical products (£4.1 billion); legal, accountancy, management, architecture, engineering, technical testing and analysis activities (£1.7 billion); wholesale retail trade, repair of motor vehicles & motorcycles (£1.7 billion); financial and insurance activities (£1.4 billion). • Export Destinations: The top five export destinations in 2012 were the USA, Netherlands, France, Germany, and Norway. Rest of UK Exports: The total value of exports from Scotland to the rest of UK in 2012 (excluding oil and gas) is estimated at £47.6 billion, of which £25.3 billion was from the services sector and £12.7 billion from the manufacturing sector. Total Exports 14 Developing High Growth Companies with a Global Perspective Which international markets shall we enter? Macro to Micro Analysis of Target Countries Take the time to really understand your potential or existing markets, from the macro situation down to the customer on the ground. There are many ways to evaluate a new market, be it from population size down to the GDP. Rank by Population 1 2 3 4 5 6 7 8 9 10 Region Asia Africa Europe Middle East South America Americas Eurasia Central America Australasia Balkans Rank by Size 1 2 3 4 5 6 7 8 9 10 Rank by GDP 1 2 3 4 5 6 7 8 9 10 Region Population 3,387,340,462 1,027,725,180 627,586,050 529,773,963 503,328,095 344,182,000 243,103,245 74,654,536 42,239,017 23,294,676 Population Africa Eurasia South America Americas Asia Australasia Middle East Europe Central America Balkans 1,027,725,180 243,103,245 503,328,095 344,182,000 3,387,340,462 42,239,017 529,773,963 627,586,050 74,654,536 23,294,676 Region Population Asia Europe Americas South America Eurasia Africa Middle East Australasia Central America Balkans 3,387,340,462 627,586,050 344,182,000 503,328,095 243,103,245 1,027,725,180 529,773,963 42,239,017 74,654,536 23,294,676 Area (Sq KM) Density (Sq KM) GDP $ Billions 18,902,047 28,474,402 6,003,219 7,729,836 19,738,965 19,605,231 23,237,158 698,358 8,511,501 264,102 11,764 4,333 23,123 3,983 401 36 709 3,513 2,111 440 25,024 3,072 17,739 3,037 6,333 16,470 3,195 469 1,099 202 Area (Sq KM) Density (Sq KM) GDP $ Billions 28,474,402 23,237,158 19,738,965 19,605,231 18,902,047 8,511,501 7,729,836 6,003,219 698,358 264,102 4,333 709 401 36 11,764 2,111 3,983 23,123 3,513 440 3,072 3,195 6,333 16,470 25,024 1,099 3,037 17,739 469 202 Area (Sq KM) Density (Sq KM) GDP $ Billions 18,902,047 6,003,219 19,605,231 19,738,965 23,237,158 28,474,402 7,729,836 8,511,501 698,358 264,102 11,764 23,123 36 401 709 4,333 3,983 2,111 3,513 440 25,024 17,739 16,470 6,333 3,195 3,072 3,037 1,099 469 202 15 Developing High Growth Companies with a Global Perspective Data Mining & Analysis is key to International Success No. Region Country Population Area (Sq KM) GDP $ Billions 1 Americas USA 309,975,000 9,629,091 $15,075.0 2 Asia China 1,339,190,000 9,596,960 $11,300.0 3 Asia Japan 127,380,000 377,835 $4,444.0 4 Asia India 1,184,639,000 3,287,590 $4,421.0 5 Europe Germany 81,757,600 357,021 $3,114.0 6 Eurasia Russia 141,927,297 17,075,200 $2,384.0 7 South America Brazil 193,364,000 8,511,965 $2,294.0 8 Europe UK 62,041,708 244,820 $2,288.0 9 Europe France 65,447,374 547,030 $2,214.0 10 Europe Italy 60,340,328 301,230 $1,847.0 11 South America Mexico 108,396,211 1,972,550 $1,667.0 12 Asia South Korea 49,773,145 98,480 $1,554.0 13 Europe Spain 46,951,532 504,782 $1,406.0 14 Americas Canada 34,207,000 9,976,140 $1,395.0 15 Asia Indonesia 234,181,400 1,919,440 $1,125.0 16 Europe Turkey 72,561,312 780,580 $1,075.0 17 Middle East Iran 75,078,000 1,648,000 $991.0 18 Australasia Australia 22,421,417 7,686,850 $915.0 19 Europe Poland 38,167,329 312,685 $772.0 20 South America Argentina 40,518,951 2,766,890 $716.0 21 Europe Netherlands 16,609,518 41,526 $702.0 22 Asia Thailand 63,525,062 514,000 $602.0 23 Africa South Africa 49,991,300 1,219,912 $554.0 24 Africa Egypt 78,848,000 1,001,450 $519.0 25 Middle East Pakistan 170,260,000 803,940 $490.0 Micro analysis Again, there is no such thing as too much analysis, especially in foreign and new markets. Dig deep into the relevant data for proper analysis and forecasting: • Mobile phone, laptop, tablet & broadband user numbers, penetration rates & smart phone users • Number of households, number of people per family, income per family, disposable income, tax rates • Employment rates, country age grouping, schooling rates, education & health system, corporate tax • Energy usage, renewable vs. gas vs. electricity vs. other. Infrastructure capability • Stability of banking system and political system • Calculate buying & usage trends for corporates and consumers (B2C & B2B) 16 Developing High Growth Companies with a Global Perspective Questions for Geographical Growth Having done the correct analysis, this allows companies further questions when choosing the countries to enter: Shall we? • Go with low hanging fruit and enter existing established markets with competitors? Eg. Italy, Spain, Germany • Carve out a niche in emerging markets where it is more greenfield Eg. Mozambique, Malawi, Ecuador, Serbia • Or have a balanced approach and enter fairly developed markets. eg. Mexico, Brazil, China, Russia, India, Indonesia Remember:
Think out of the box. Following the pack
or being a sheep will not always give you
the highest return.
An example of this would be Africa, an
example of a true growth potential region
for the future.
The opposite is the real size of Africa
geographically. The picture of what
countries fit inside will surprise many. But
it should not surprise those who did
correct market research and data
analysis.
17 Developing High Growth Companies with a Global Perspective Summary on Internationalisation As was stated in the introduction, Scottish companies have a huge potential if they venture into foreign markets. With correct planning, many more companies can and should venture further afield. Remember: • It is easier than many would expect. • Keep a calm head and realize methodical planning. • Also, confront and overcome your concerns. • Hurdles along the way are not barriers to entry -‐ they are only short term time delays awaiting the correct solution by your management team and staff! Reach your key internationalisation objectives by analysing, planning and executing in order to attain: 1. Increasing profitability 2. Attaining a positive Return on Investment (ROI) 3. Business Growth 4. Increasing the customer base 5. Diversifying geographic risk If you have the following well in hand, with solid foundations in each activity, then you can be well on your way to international growth and continued success. 1. Integrated sales & marketing strategy plan 2. Brand equity development and monitoring 3. Operational efficiency and target setting via regular KPIs 4. Detailed financial planning & control 5. Excellent management Onarach International Growth are also on hand to support you each step of the way. Please call us for a more in-‐depth conversation. 18