Most businesses will consider exporting at some stage in their growth story, understanding the potential but perhaps not how to take the plunge.
Even for those that already export, or have done before, overseas ventures might have come about opportunistically rather than by design. As a result, success can be patchy or hard to replicate across further territories without the same initial good fortune.
Along with a good dose of courage and perseverance, having a clear strategy from the outset will help you secure the funding to realise your international ambitions.
1. Set your goals
Are you defending against international entrants coming into the UK market? Or have you calculated the cost of simply not exporting – will you lose talent, miss out on ideas or simply stagnate?
Give yourself a three-year timeline to reach your objectives. This is long enough to allow for a strategy to be fully implemented, lessons to be learned, and benefits to be realised on the bottom line.
2. Putting a pin in the map
Your business - its brand, products and services – needs to have a clear competitive advantage to play in your target geography.
Getting to the nub of this is vital and it will require a fair amount of due diligence on possible markets. Try speaking to business partners, current customers and even competitors. The Department for Trade and Industry’s Overseas Market Induction Service is also a great resource. Your research needs to cover the size of the product’s market, the growth rate, the current offering available and price points. Then ask yourself what an achievable market share is for you over your three-year timeline.
3. What to take – and whether to change it
Sometimes your product or service will translate easily into new markets. But other times you’ll need to consider adaptations to cater for local nuances and expectations. For example, crisp brand Seabrook, with whom we’ve been working since 2015, needed to invest in new machinery to produce shorter specialist product runs to cater to the tastes of new overseas markets.
Running a pilot is a good way of testing the water. It will also help give you a better understanding of what your value proposition is and gather proof points that will demonstrate to your backers what works.
4. How to sell it
Having gone through our first three steps you may have identified suitable acquisition targets that will give you instant access to new markets and bolt on existing sales. This is certainly worth considering if you can afford it.
Or, you will be ready to consider how to grow organically. In this instance, you’re faced with the question of whether you sell directly, through intermediary channels or a blend of both. Direct will likely demand making hires overseas and it will also drain time from your own leadership team to oversee this new extension.
The channel route can be quicker to establish but is not without complexity. There is likely to be a web of direct and non-direct relationships between distributors, retailers and re-sellers to navigate and choose from. Once decided, you’ll need to work out how to compensate them and how to support them with marketing tools.
Lastly, consider how your competitors will react, anticipate their next move and build this into your plans. If they’re going to drop their prices, have you got sufficient flexibility in your own model to react? As before, consider how things will pan out over your three-year timeline.
5. What’s it going to cost?
By now you’ll have a pretty good idea of what level of resource you’re going to have to commit. But still to come are the questions around the operational infrastructure you’ll need to support your sales team, the size of your inventory and what IT support your teams or sales partners require. One of our former portfolio companies, premium lifestyle clothing brand, Joules, achieved export growth of almost 200% in two years, but not before making significant investments into its supply chain, IT and a new international sales force.
Currency fluctuation is an incredibly tricky issue. It can be looked at from point of sale, invoice or delivery. And it will have a massive impact on your margin depending on the length of time taken between production, sales and payment. Businesses with longer timelines might benefit from hedging.
6. The final, taxing issue
As critical as currency considerations is tax. The tax regimes of different countries can vary enormously and what you do in the UK will not be what you do elsewhere. Within large territories like the US, tax policy can even differ from state to state. And with the shape of Brexit still be determined at the time of writing, your three-year picture is going to be little fuzzy on tax.
But don’t let that put you off. Ongoing, specialist advice is the only guard against uncertainty and a way of staying on top of changes to avoid the risk of future liabilities you hadn’t budgeted for.
Successful international growth starts with the right ambition. Then there is a constant need to invest in research and resources, and you’ll need patience in abundance. But the rewards of a successful strategy can be significant.
Chris Hurley is chief portfolio officer for private equity firm LDC
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