The accelerating globalization timeline

It’s almost redundant to say that the world is changing fast, but it’s not always changing in clear-cut ways. For example, in the world of commerce, while global market capitalization has skyrocketed, international trade in goods has flattened, and cross-border capital flows have declined sharply since 2008. And though real wages have stagnated in many developed economies, what most of us don’t know is that the number of people living in extreme poverty has dropped to its lowest ever, falling by over a quarter billion in just the past ten years alone.

The nature of the international market and the expectations of global consumers have changed dramatically as a result. A few of those changes pertain to expanding business internationally — particularly where startups are concerned.

While poverty rates may not seem relevant to startups, they actually are from a commercial standpoint. Why? Because a very large number of (mostly non-native English-speaking) people with rapidly increasing expendable incomes are joining the global marketplace and generating demand for goods and services. The big story, of course, is the staggering growth in the flow of digital information, having increased by a factor of 45 between 2005 and 2016 and expected to grow by another factor of nine by 2021, according to McKinsey. People are using global digital platforms more and more to connect, learn, find work and shop. Some big examples are that India overtook the US as home to the highest number of Facebook users some time ago, and in China, India and Latin America, over 2 billion digital natives will join the middle class by 2030.

The rapidly growing number of consumers with digital access has lowered the barrier to entering international business more than ever. But the opportunities created by digitization don’t change the sequence of events for going global. They just significantly increase the speed at which the sequence can happen. Startups may need to think about globalization during the first stages of capitalization, as success in nonnative markets depends on much more than translation and localization — just as it always has.

Market research

The first challenge for fast-growing businesses is to decide where to go next, how that market might perceive the brand, how much to spend going in and potential pitfalls along the way — all questions answered by a thorough assessment of target markets. Each locale has its own level of demand, local customs and languages, supporting industries, infrastructure and governmental support.

There are several ways startups can pinpoint initial contenders. One is to gather insights from markets by using the traditional segmentation, targeting and positioning (STP) approach. Although the recent mobile boom in emerging and developing markets has led to huge (and sometimes controversial) new research opportunities like passive data collection. Most companies start by looking at adjacent geographies where they have easier access to market information. Others consider the overall strengths and differentiators of popular markets, such as high access to technology in Japan and Germany and lower labor costs in China and India. Another potentially overlooked technique is to track browser data and system languages, incoming traffic and geolocation information on web properties to detect trends in interest and help determine ROI for a given language group.

Prerequisites for market entry also need to be considered, such as economic freedom or ease of doing business, the online engagement of a customer base, their level of expendable income and their interest or confidence in the industry in question. But global companies should evaluate the way target markets are sliced: not just by traditional B2C and B2B demographics like age and company size, but regionally or nationally. Focusing on money to spend, willingness to spend and language can provide interesting insights. As noted above, the number of people living below the global poverty line ($2 per day) was four billion in 1975, or 60% of the world population. In 1990, when the localization business was just starting to emerge as a distinct industry, the poverty line had dropped to 36%, and today the number is below 10%. The World Bank believes it could reach 3% by 2030. This is a huge number of people entering the global marketplace from the bottom who have rapidly-increasing access to low-cost technology, and this demographic tsunami is moving people up the income spectrum along the way. That means literally billions more non-English-speaking consumers, more expendable income, more types of business and more economically viable languages.

Yet the same assumptions have the potential to steer startups in the wrong direction. For example, online engagement doesn’t necessarily lead to sales. Burberry learned this the hard way after building out its Facebook fan base to an impressive 30 million people — largely teenagers in emerging markets who couldn’t afford high fashion. Neither can a startup assume that markets in which their industry is concentrated are ripe for the picking. Look at the fashion industry in Europe where the market is saturated and it’s difficult (and expensive) to build customer engagement.

At the same time, each market’s laws, requirements and expectations can introduce pitfalls. One of the biggest challenges in international business is ownership and intellectual property (IP) protection. Copyrights, trademarks and patents are all protected under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), a covenant signed by the World Trade Organization, but the potential to lose assets in countries that offer poor IP protections and byzantine conflict resolution processes might dissuade innovators from entering.

Going to market

Expanding into new countries might require adjustments to one or more of the four levels of the marketing mix (product, price, promotion and place), depending on the impact of globalization and the differences in business environments within each locale. Accounting for and adapting to these differences (including culture, language, political and legal systems, economic systems and infrastructure) are two of the most important challenges for startups to overcome and require a global mindset.

With these opportunities in mind, startups will also need strategies for the following steps in going to market.

Mode of entry

Whether exporting, licensing, franchising or entering into a joint venture or strategic alliance, different modes of entry come with various levels of corporate control, cost and risk. Exporting, often the least expensive, requires no long-term obligations to local partners, but leaves the manufacturer out of retail decisions like product displays. Similarly, licensing and franchising are quick, low-cost methods for entering foreign markets, but offer little control over the signee’s marketing decisions, which might hurt the brand. Local partnerships come with the danger of leaked proprietary knowledge. But on the upside, the increased financial and legal risk yields higher returns and valuable local connections that can provide worthwhile market intelligence.

International positioning

The positioning process is the same in domestic and international markets except for one key contrast: international positioning involves changing or creating attitudes through differentiation in multiple customer segments, which, unlike the STP approach (which identifies homogenous sub-groups), identifies a value proposition that applies across all markets. This is something organizations like Google, as one of the world’s top search engines, do well — although even Google is not the leader in every market. When formulating their positioning, startups must also consider:

Technology: Technological capabilities and comfort levels of consumers can influence how a product is positioned, perceived and received. Less-developed countries clearly suffer from the digital divide, but that gap is closing fast. Even the lowest per-country penetration of smartphones is approaching 15% and now over a third of the world’s population has a smartphone.

Country of origin: The “country of origin effect,” or a consumer’s bias for or against a product due to its source country, can impact perceived value positively or negatively. Multinational corporations like Sony and Levi Strauss leverage the effect to differentiate their products to their advantage, but in some cases it can be advantageous to create a new brand, potentially even producing it in-country, to reach customers who want a “native” product.

Regulations: These can make or break positioning as well as the ability to enter a market at all. For example, packaging and labeling issues can muddy the market’s political or regulatory environment. Just ask anyone who provides tech support for products in both China and Taiwan. Battles over tariffs and control of IP are in the headlines almost daily.

Product and brand

management

Different markets demand different levels of product adaptation. Depending on the startup’s industry and legal restrictions in their chosen market, products can be standardized across markets, adapted to the country’s unique circumstances, or a combination of both.

Standardization, or what The Coca-Cola Company calls its hugely successful “lift and shift,” makes sense for products that see success in their home market, and indeed this approach saves costs and offers efficiencies — but at worst, ignores unique consumer needs. Adaptation (which can be as minor as rewriting a product’s information or as major as rebranding it entirely) builds customer satisfaction, brand differentiation and sales, but incurs costs sometimes higher than the return.

Perhaps the most competitive option among startups, of course, is innovation. New product development comes with cost and risk, but can bring long-term sales success. Nike, known for its strengths in global branding and a recently accelerated delivery model to local markets through its new Consumer Direct Offense strategy, exemplifies this: 100% of its fiscal year 2018 growth came from international geographies, which are expected to inject another 75% growth in the next five years.

Distribution 

A variety of factors influence the development of distribution channels. Many countries (especially in emerging markets) lack the physical or technological infrastructure to deliver goods effectively and efficiently. This might necessitate a channel partner who can bridge the gap between products and consumers in several ways, from market research and promotion to order fulfillment and inventory control.

However, as many startups discover, international order fulfillment — whether exporting goods or importing raw materials — can be surprisingly complicated and expensive. Besides pricier shipping (if not restricted completely by export or import regulations), international businesses often face import duties on parts and final products, which vary by country, and lengthy customs clearance times can be a huge problem. Savvier companies procure order fulfillment services that understand international distribution at a deep level.

Sustainability 

Another important consideration is sustainability, both for product lines and as a core marketing and operational ethic. Consumer demand for green products continues to grow globally, but as innovation lowers costs and increases profits, changing regulations and customer expectations for sustainability tend to push the goal posts further. Any given solution has an increasingly short shelf life. But sustainability itself sells and can be an important differentiator.

Large international companies like Samsung are championing a commitment to empowering global communities while reducing their environmental footprint. The tech giant aims to make 100% of its energy renewable in the US, Europe and China by 2020. Other companies are bound to follow suit — especially in crowded markets.

Translation 

As we know all too well in the industry, translation and localization should be a core consideration in product and content development, rather than tacked on to the end as an unfortunate cost center. Startups may realize that localizing their products and content is necessary, but might throw everything over the fence to a channel partner, which sometimes works at the risk of diluting their brand voice. But worse is not planning for localization at all.

The content that companies create for any market should be understood for the purpose intended: to influence prospective customers to engage, buy, solve, evangelize or any number of other outcomes. This comes back to putting the customer’s needs first. If marketing starts with the consumer’s culture and language preferences in mind from the beginning, startups can profit from localization as more of a revenue driver.

Resources and in-country management

Depending on the nature of the business, international startups can benefit from a few further resources. For example, if shipping overseas, missing documentation can hold up effective international expansion. Governments require certain paperwork before entering a country, the primary being an export license, which is driven by the type of product, its final destination and its use. But licensing requirements can be overwhelming, which is why many startups use electronic services to help, in addition to the expertise of IP or trademark lawyers, international trade lawyers or international tax services.

As far as opening a new office overseas, setup and management depends on the startup’s preferred leadership style: ethnocentric (enlisting existing employees and keeping current policies and procedures, which exercises greater control over the organization but potential resistance with local cultures) or polycentric (entrusting operations to locals: a less expensive option that takes advantage of local knowledge to more quickly adapt to the host country, but a challenging one in terms of maintaining lines of communication). The startup’s age, type of product or service and differences or similarities between home and host countries can all determine the best course of action.

And anywhere a company has full-time employees, local revenues or a lease, they absolutely need a local accountant and tax lawyer. Every country has different corporate law and business tax structures, and it is the newcomer’s responsibility to adhere to local accounting regulations, handle tax payments correctly and file the right paperwork. For many US startups that sponsor highly specialized workers, that includes H-1B visa applications, which are more likely to be approved if processed by an immigration lawyer (the startup visa that was supposed to go into effect last year has been put on hold).

Finally, startups must consider from which pool of talent to draw for various roles and responsibilities. International salespeople, for example, cost more to train than their domestic counterparts, and generally, expatriates have a deeper understanding of the business than host-country locals but little of the target market, and vice versa.

Many startups understand that it makes sense to go global to grow, but funding can be a major obstacle. Having fulfilled their criteria for market attractiveness and potential product fit, startups often engage in channel partnerships or licensing to distribute their products early. For full-scale launches, fully-owned subsidiaries or tight franchise models work best. Generally, the higher the control a company wants to have over profits and brand equity, the more it needs to invest.

But throwing money at global expansion doesn’t always work — even for the established leaders in an industry. Several high-profile international business blunders have been made by Starbucks in Israel, McDonald’s in Bolivia and Walmart in Germany. So even companies with a strong track record of global growth can fail completely. Starbucks was trying to sell American-style filtered coffee to Israelis who have a taste for a much stronger and grittier brew; in Bolivia, McDonald’s couldn’t beat the established lower-cost indigenous competition; and Walmart bet big, to the tune of $2 billion, that Germans would enjoy shopping like Americans. Turns out they don’t. In all these cases, the companies jumped in before doing their homework on their local consumers.

Final thoughts

It’s no surprise that startups are racing to go global as soon as they can. By design, they are intended to rapidly scale. With the advantages of technology to build on, the growth curve for startups is accelerating. But as easy as it is to rush into new markets, translate your product for local consumers and hope for the best, the real leaders know what they are up against in each market and they know their customer well.

The risks of entering a global market are still significant. The velocity of digital business hasn’t changed this at all. But now is the time for startups to go global by planning carefully. Translation and localization are certainly a core part of the strategy, but true understanding of the local customer will always come first. International pilots, thoughtful market research and a careful game plan to scale in chosen markets will always be a winning combination for success.