For its first crack at international expansion, Minneapolis-based discount retailer Target chose Canada. We all know how that's worked out: empty shelves, empty aisles, and an annual loss of nearly $1-billion. And the projections are as red as the retailer's logo.
But Target isn't alone. A few years ago, rival Wal-Mart summarily closed all of its Sam's Club stores in Canada.
When it comes to jumping borders, Canadian businesses haven't fared much better. From Tim Hortons to Canadian Tire, there is no shortage of venerable Canadian businesses that have stumbled in the U.S. market. Do you remember the Baltimore Stallions? They won the Grey Cup in 1995, during the CFL's failed attempt to expand stateside.
So here's the billion-dollar question: If iconic international businesses can't cross the world's longest undefended border, how can we, as entrepreneurs, expect to move successfully into international markets? And even if the opportunity looks right, when is the best time to make our move?
These were a few of the questions raised at a roundtable discussion about international expansion at a recent Entrepreneurship Society event in Toronto. The discussion at our table was lead by tech entrepreneur Michael Hyatt, the executive chairman of BlueCat Networks, and one of the new dragons on the upcoming CBC online series, Next Gen Den.
As Hyatt explained, "Going 'international' sounds great, and somewhat romantic, but it's much harder than most would think. Not only is the way that people buy often different, but the cost of starting up can be significantly higher. You should expand when you can reasonably predict solid demand at a reasonable gross margin. It's not worth expanding if you have to become unprofitable just to play in the market."
Hyatt also recommends that new exporters take time to recruit "someone who has 'been there, done that' in any new territory. Someone who has actually started a new brand from scratch. It's very hard to do, and most fail."
That's why Hyatt believes the best destination for most Canadian entrepreneurs is the U.S. "It's the largest economy, and it's close by. Times zones are the same, and we understand each other well. Americans are also very good at trying new things, and often open to a new business ideas."
My own experience with exporting began some 20 years ago. I was a manufacturer at the time and, to echo Hyatt's experiences, selling abroad was much harder than I expected.
Like most journeys, it unfolded in stages. The first, of course, was the excitement of receiving my first call from a potential foreign buyer. But I knew that I couldn't let the excitement cloud my judgement or divert my focus from the core business.
I approached exporting like starting a completely new business. I knew that it would take more time and money than anticipated. So, I began with the basics – researching the culture and practices of the potential buyer: in my case, a South Korean importer and distributor of natural bath and body-care products. Absent the Internet in those days, I relied on the old-fashioned practice of calling and speaking to those who had previously had success in this market. I even went to the library and signed out a book about doing business in South Korea. Bottom-line: no amount of information is too much. Ignorance about your host country can lead to a deal-ending misstep.
Soon after, I was headed overseas with my business partner to meet our would-be buyer. We were armed with our best product samples and deal-driven pricing sheets. Unfortunately, within a few days, we found out that our best-selling products in Canada weren't going to move a unit in this market in their current form. Fragrances and formulations had to be modified, packaging design had to be changed, sizes had to be adapted – and our best prices had to be lowered.
Basically, everything was wrong. Everything had to be re-worked. We were undaunted, however, and set to work getting it right. We put a team together composed of people from our company and the distributor's firm. After months of re-sampling and endless faxes of potential packaging options, we were ready to ship our first test order. It was the beginning of our ultimate breakthrough. Products started to sell. Yes, some additional refinements were required but that sample order grew to regular orders for full skids. Long-awaited and hard-earned success!
Given the hard work and long odds, the obvious question is why do it? Why go through all of the hoops to expand past our home market? Well, when done correctly and under the right circumstances, exporting offers significant upside potential for your business. It can provide breakthroughs in sales and profitability that most of us could never achieve in a domestic market of 35 million people.
To better understand those 'right' circumstances, I turned to a long-time mentor who immersed me in the best practices of international business very early on in my career. Dr. Nicolas Papadopoulos is an expert in international expansion strategies, and Chancellor's Professor at the Sprott School of Business at Carleton University in Ottawa. He has a simple yet demanding approach to the question, "What are your top-three, export readiness questions?"
"First and foremost," writes Papadopoulos, "ask yourself, 'why do you want go international?' Each answer, whether to increase sales, increase profits, reduce home-market dependence, gain scale economies, fight competitors ... leads to a different strategy, so setting crystal-clear objectives is the all-important first step. The next question should be: Are you really committed to making this work? Success abroad means tough – very tough – slogging, and you have to be prepared to work hard for the long haul. And if you know the why, and are committed, ask yourself: Which market might your product be any good for? If you answer these questions with brutal honesty and come out positive, international success awaits."
Success is out there. But make sure that the timing is right for you and your business. Look internationally as soon as your business acquires significant scale, scope, market share and leadership. Everything we build begins with a great foundation.
Ken Tencer, CEO of Spyder Works Inc. is a branding and innovation thought leader who helps organizations reimagine their futures. He is the co-author of two books on innovation – The 90 per cent Rule and the newly released bestseller, Cause a Disturbance (Morgan James Publishing, NY).
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Ken Tencer