How to expand overseas
By Paul Walsh Tuesday, 29 January 2013
The How To Issue: Paul Walsh, the CEO of drinks giant Diageo, explains how businesses can win over markets overseas.
Moving into new markets can provide fantastic returns. In the current economic situation and more than ever before, a UK business - small or big - must look abroad for a large part of the growth it seeks.
Encouragingly, that growth is there to be seized. We have all heard about the BRICs (Brazil, Russia, India, China). If you add in South Korea and Indonesia, these six countries will account for more than half of all global growth by 2025.
Include Mexico and Turkey and those eight markets will represent nearly half of global GDP by 2050.
There are already two billion middle-class people in emerging markets, accounting for about three-quarters of consumption in those economies.
For example, in Africa, the middle classes already represent a third of the continent's population - and are expected to grow to more than a billion in the next 30 or so years.
These are huge opportunities waiting to be grasped, but to do so will require a change of mindset, particularly for businesses that have historically focused on the domestic market.
Here are seven key elements to consider.
Look for help
The first step is always the hardest - particularly as resources are always limited at the start of overseas expansion.
UK Trade and Investment (UKTI) has strengthened its network of advisers and specialists in the fastest-growing international markets and can provide invaluable advice.
In addition, Her Majesty's Diplomatic Service has undergone a radical shift to focus more on economic diplomacy. Our ambassadors and diplomats are increasingly skilled in providing the right help for those opening up new markets.
High-growth markets aren't homogeneous
You can't take a one-size-fits-all approach. Each country has its own dynamic, with different social, cultural, political and commercial traditions. To break through, companies must understand the relevant dynamic and manifestly demonstrate respect for it.
Gone are the days when you could turn up and expect to use local resources to make a profit. In many countries, there's a different view of business: to be accepted, you must be part of the community and give something back.
Diageo runs a range of corporate social responsibility programmes in many countries - from micro-financing initiatives in Guatemala and hospitality training in the Caribbean to providing water supplies in Africa and entrepreneurship schemes in Thailand.
Successful engagement with governments in these new markets is crucial and, for Diageo, CSR initiatives have been important in demonstrating our long-term commitment to the communities in which we operate.
Don't relentlessly pursue cost-reduction
The quality of the goods or services on offer and the growing appetite for inspirational brands are where British business can win.
Given the cost of labour, it's highly unlikely that you can compete on price, and to do so will lead you down a low-margin rabbit-hole. You can't win a race to the bottom. Be bolder and think not about cost-reduction but about how to create the most compelling offering possible.
It's all about quality and cachet - and British business can deliver both.
Look for local partners
Think about who in the market you can team up with to deliver scale and distribution of your goods and services. Your partners should be able to provide invaluable local insights, help you navigate the market and access new relationships.
In addition, don't forget to use the services of UKTI and its expertise to research the opportunities available for companies entering the market.
Pay attention to the way you staff your new operations
Although the right partners will deliver untold value, it's also vital to have the right balance between local staff who know the market and your own people, who know your business and its products or services.
For the most part, the days are gone when you could import expat senior management and hire in sales and administration from the market. Today, you need a blend of skills and experience, particularly in markets that have any degree of regulation or where you are taking on well-established local competition.
Your sales team will need to be well versed in the local market and its key players. If you are sourcing from outside this market, it may be that your supply and procurement teams need to be from within your existing organisation; but if you are committed to a market-based sourcing model, you'll need those with extensive local experience and contacts. Depending on the geography concerned, you must be willing to experience levels of staff churn that would be unacceptable at home.
In Africa, Asia and Latin America, the war for talent is in full swing, with many talented young people planning their careers to include two or three years with an international player before moving on. You'll need to factor in this possibility to your planning and budgets.
Stay true to your values as a company
There can be no blurring of the lines on ethics just because local custom seems to permit actions that would otherwise be regarded as beyond the pale. Whatever the short-term gain, the long-term damage to corporate reputation and brand equity will outweigh it. Moreover, myths about other companies' ethics abound.
The gossip may say that a competitor frequently breaks the rules; take it with a pinch of salt (it's often baseless) and impose your own high standards of behaviour. A UK or US business will be judged - rightly - by the rigorous legal standards that apply at home.
Adaptability is the biggest attribute for doing business in high-growth markets, so be comfortable with volatility.
Business people crave transparency and stability, but in high-growth markets conditions will not be as predictable as you'd wish. The infrastructure can be unreliable, the bureaucracy difficult to navigate, and there can be regulatory uncertainty and political instability.
It is a perpetually moving feast. But if you can become comfortable with that volatility, the size of the prize on offer makes it worthwhile. mt
- Paul Walsh is a business ambassador for the Government.