International Expansion
The process of building an international business has the potential to create significant shareholder value and future asset value. Many of the world's most respected brands have at some time implemented an international expansion in multiple markets. The process is complex and requires a proactive and detailed approach to ensure the foundation is capable of creating the intended outcomes. There are three non negotiables to making international expansion successful - strong cash flow and profitability, domestic market strength and the ability to focus senior management resource on the international expansion. Few businesses build strong international operations which generate serious asset value but despite the challenges a well structured approach can make international expansion more attainable.
Issues
- The real challenge is the transfer of business systems between countries not merely the export of a product or service
- International business models such as joint venture, master franchise and direct entry are not well understood
- The ability to raise capital as part of an international expansion should be carefully considered
- The highest instance of failure is due to a reactive, poorly planned response to an inbound international enquiry from an interested party
- Country selection must be through rational analysis, rather than an emotional connection to certain markets
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International Franchise System
International franchise business models have contributed to the expansion of many of the world's largest brands and networks. The franchise model creates the opportunity to define responsibilities between the various stakeholders and package 'business in a box' to ensure domestic business knowledge is harnessed and balanced with international market specifics. Franchising on a domestic basis is not a prerequisite and the international rights to certain businesses may be worth millions of dollars for a single region. The development of an international franchise system requires consideration of a range of areas such as commercial structure, people and governance, capital base, intellectual property strategy, operations infrastructure, information technology, marketing and branding, product and service supply, and international recruitment and marketing.
Issues
- There is no prerequisite that a business must franchise domestically first
- An international expansion strategy has multiple business model options that are not well understood
- The ability to restructure the domestic business must be a by-product of going international
- The infrastructure that is developed must be able to support multiple markets: this requires a shift in thinking from the domestic mind-set
- The majority of international franchise systems fail to create the intended outcomes due to poor preparation and planning
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Market Selection & Analysis
An international expansion strategy requires a considered and unemotional approach to market selection. Confronting the significant number of market variables requires identification of critical success factors and limitations for the business. An emotional or anecdotal approach based on experience or reactions to inbound enquiry significantly increases the risk. The major regions of the world - Europe, Americas, Asia Pacific, Africa and the Middle East all have rich opportunities for businesses with appropriate structures and customer offerings. It is critical any analysis ensures international expansion is based on a fully informed decision that increases the chances of success. There is a necessity to identify both the starting point and the order of expansion to ensure results and resources are leveraged.
Issues
- There are practical limits and diminishing returns to extensive levels of market research from abroad
- The highest instance of failure is due to a reactive, poorly planned response to an inbound international enquiry from an interested party
- Emotion, anecdotes and personal experiences require a well-considered framework to diminish subjectivity from the decision making process
- Language and cultural barriers are often not accorded the respect required to make international expansion a success
- Long term profitability and the size of the asset being built is vastly more important than the number of countries being contemplated for operations
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Business Model Development
The range of business models to expand a business into international markets is almost unlimited. It is critical the international business model is determined by the issues and specific requirements of operating the business internationally, rather than the past domestic success or the limited view of familiar business models. The diversity, success and failures of the master franchise, direct investment, joint venture, master license, distributor, multi level selling agency, broker, or dealership models continues to grow. The choice of business model requires the development of a detailed economic, commercial, legal and country specific perspective and a multi business model strategy is a possible outcome.
Issues
- The development of a business model is far more complex than the simple preparation of a legal agreement with some key commercial parameters
- The choice of business model is often ill-considered or does not reflect the realities of the countries selected for expansion
- It is important to consider not only the entry business model, but also how the business model needs to evolve over time
- The integrity of the international business model is the major driver of future asset value which is more relevant than the number of countries
- Any international business model tends to have useful life of 5-7 years before change or evolution is required
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Corporate Fiduciary Structure
The structure of an international business is by nature more complex and requires greater knowledge of global market constraints than a domestic business structure. Careful consideration is required in key areas such as corporate structure, asset accumulation, revenue or royalty repatriation, tax strategy, intellectual property management, arbitration and dispute resolution structure and immigration strategy to name a few. There are a complex range of issues that require a series of considered decisions and clarity on the overall strategy to ensure the short, medium and long term ramifications have been understood.
Issues
- The development of an international structure must contemplate a multiple country strategy
- The possible strategy for the future sale of the business has a significant impact on the intended structure
- The human resource strategy is a key component of developing a corporate fiduciary structure
- International tax structures are frequently over-complicated and fail to reflect the strategic direction of the business
- Good management of the value and ownership of intellectual property on a global basis requires short, medium and long term strategies
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Board of Management
A strong Board of Management is the back bone of a strong performing business as it creates the opportunity for practical and focused decision making. The process of working 'on' the business rather than 'in' the business can be drawn out at every level of an organisation. The ability to structure decision making is the balance of entrepreneurialism and structure and it should be defined and flexible all the way to the customer. Governance extends well beyond the board room and the factors of people, skill sets, frequency of communication, KPIs, focus, open culture and number of people are all relevant and need to be evolved constantly.
Issues
- The lack of governance in small and medium business is a constant challenge both in form and functionality
- Customers are lost every day due to a lack of governance which impacts the customer end of the business
- The composition of a management team and board are often overlooked in the face of day to day challenges
- The inability to formulate and execute a decisive course of action has brought about the end of many strong businesses
- Focus needs to remain on decision-making, not a process that produces an irrelevant agenda, discussion and documentation
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