With the U.S. economy still struggling to fully recover and global markets more accessible than ever, more companies are exploring expanding their businesses across borders. Global business development expert and author Mona Pearl recently spoke with MDM about why this is an important trend, how middle-market companies should approach such a task and how to overcome some common mistakes made along the way.
Middle-market companies face a unique set of challenges in an increasingly global business environment. They don’t have the same resources available to them as large multinational corporations, yet when looking to expand, they’re finding the need to compete on that same global stage.
“It’s really not an option if they want to keep being in business. Nothing is going back to where it was,” says Mona Pearl, a global business development expert and author of Grow Globally: Opportunities for Your Middle-Market Company Around the World.
“It’s going to be different, because it’s a different world, and there are different players, and it’s a different game and there are different rules, and everything is going to be different. There are going to be new ways of doing business.
“It already is different, and things are not going to go back to the way they were.”
Incentives for Global Expansion
There are several reasons middle-market companies – which Pearl defines as between $30 million and $500 million in annual revenues, depending on the type of company – should be looking to expand internationally, Pearl says.
The first is “because they have no choice,” she says. “Whether we like it or not – or if companies are aware of it or not – we already compete globally.”
Over the past several years, foreign companies have been actively acquiring U.S. companies as an easy entrance into an attractive market, she says. Recent examples in distribution include ERIKS’s plan to grow in North America and Paris-based Sonepar’s active expansion throughout the U.S., lately focused on California. “We can’t say we don’t want to deal with the world because the world is here,” Pearl says.
A second incentive for international expansion, according to Pearl, is that the U.S. is no longer self-sufficient. The size of the U.S. market is “both a blessing and a curse,” she says. There is a lot of opportunity, but at the same time our domestic markets are shrinking.
The curse? Because there has been so much opportunity, companies haven’t had to look elsewhere and now lack the experience and knowledge to do it effectively. Not correcting that tunnel vision will be counterproductive in the new economy.
The third reason Pearl offers for global expansion: business health. “The goal of any investor should be to diversify their portfolio,” she says. Doing so protects your investments from a downturn in any single area. The same principle applies to where you do business. “By doing business both internationally and domestically, many companies I’ve talked over the last three or four years didn’t suffer as much because they saw a lot of growth internationally even with shrinking domestic markets,” she says.
Deciding to expand globally is only the first step in a long process to a successful international business venture, cautions Pearl. And it takes patience.
“We are a little bit impatient in this country,” she says. “We want to go into another country, sign a contract and start doing business. It doesn’t really work this way.
“If you’re using how business is done in the U.S. as the benchmark, prepare for it to take at least twice as long … at least.”
One of the biggest mistakes made, according to Pearl, is underestimating the role of relationships. “Here in the U.S., we’re quick to say ‘so-and-so is my friend.’ We talk to someone and we say he’s my friend,” she says. “But in many other countries, until you break bread with someone, until you really know them, until they invite you home and tell you about their family and all of that, it’s not a relationship. You’re not a friend.”
Business relationships are based on personal trust. “You may have the best legal agreement here in the U.S., but you may not be able to enforce it in other countries,” she says. The act of negotiating and how it is approached is far more important to the lasting relationship than the paper that results from the negotiations, Pearl writes in Grow Globally.
Understanding the culture of doing business is the only way to move the relationship forward. “I don’t promote bribery by any means, but you have to know how things run,” Pearl says. And that may require an “incentive program” that includes small tokens of appreciation for your host company.
Another mistake is not doing product research to see if your products will work in the target market. “There are a lot of examples of companies that take a U.S. product where there is no interest because the lifestyle is different,” she says. “They don’t have huge screen TVs or giant refrigerators; they don’t need the Costco-sized orange juice. They don’t live this way.”
Pearl advises to really look at your product and ask yourself: Is this product going to sell in these countries? How can the product be modified to make it work? Where is it going to sell, at what price point, and how are you going to make money? “These are basic things that many companies make mistakes on,” she says.
And there are endless examples of mistakes. Don’t be intimidated by the idea of making mistakes, Pearl says. Instead understand that mistakes will be made, and make sure you have the correct resources in place to address the mistakes.
Where to Start
Perhaps the biggest barrier to doing business is the corporate mindset at many middle-market companies in the U.S., Pearl says. “They think that going global can simply be an extension of what they’re doing here,” she says. “But that’s not the case. An effective global strategy requires an actual global strategy.”
It starts with making sure your company is ready for the global market – something Pearl addresses with her “Six Pillar Foundation.”
“A lot of people – even those at the C-level – confuse ‘sales’ with ‘business development’ and ‘business development’ with ‘strategy’,” she says. “And when it comes to international business, it’s crucial to understand the differences, or you will find yourself taking a more costly path to achieving your goals.”
The Six Pillars, she says, provides a sort of roadmap for getting where you want to be, with very specific action steps to follow.
And it all begins with an internal assessment. “You need to know where the company is in order to be able to take it somewhere else,” she says. Once you have a clear idea of that, you can progress through the other steps, which include product assessment, finding potential new markets, market demand estimates, partner development and building out potential in that market.
And through it all keep your eye on the ball.
“The end target is not to just be able to say you’re global,” she says. “It’s about establishing and expanding a business. Things are changing very rapidly in the global environment. You have to know where you want to go.”