09 November 2021
Article

Blending In. How to Enter International Markets in Times of Crisis

Andrey Shishakov, professor of business practice at SKOLKOVO, believes that entering international markets in times of crisis is even easier. In his column, he shares ideas on what needs to be considered in the first place before going ahead with expansion.
Blending In. How to Enter International Markets in Times of Crisis
Content source: istockphoto.com

In lieu of a preface: two families that I know moved to the U.S. East Coast with a significant capital. Both had successful restaurant businesses in Russia, but opted for different ways of integration in the new place.

The head of the first family rented an expensive office straight away, found a place for restaurant in the city center, hired the best head waiter, and placed an expensive advertisement. Three years later, he spent all the money he had and did not make any profit. He still works there, but as a hired manager.

The other put money in the bank, decided not to open anything from the start, and found a job in a local restaurant. He tried to understand the ins and outs of local business in terms of suppliers, tax payments, cycles that exist, and important holidays. After 18 months, the family opened their first small food outlet on the outskirts of the city—and owns a café chain by now.

On the one hand, nobody abroad expects “guests” today. So in terms of costs, it is a good time to enter new markets. On the other hand, it is more important than ever to mimic better and blend in as fast as you can. It is not an easy way, so you must clearly know the answer to the question “why”. And it goes without saying that entering international markets only makes sense once you have made profit and won operational independence in your home region.

What needs to be considered in the first place

As a rule, the plan of “coming and dazing everyone” does not end well for the same reason that tourists are charged three times as much as locals. Such a “conqueror” will most likely be charged an arm and a leg for almost anything and prone to building their team by hiring former chief executives from among “downed pilots”. As a result, they will be hung out to dry.

The second plan is not as spectacular, but an effective one instead. Ideally, you should come and live in the country where you want to do business. And thus you not only become aware of the locals’ habits, but also get to find local assistants. Different countries have different “most important people”. Sometimes they are accountants, sometimes—even insurance brokers. For example, you cannot do business without such “assistants” in the U.S. When in California, a second or a third question you will be asked is “Who is your lawyer?” Such professionals play the role of both an intermediary and a filter for the locals.

istockphoto.com
istockphoto.com

Turbulent markets, such as Africa, most certainly require investment insurance. Political coups are not rare in that region. And a new victorious government will not always be ready to fulfill the obligations assumed by the previous one. So it is better to think about an insurer and negotiator from the start.

Choosing entry strategy

There are two ways to plan expansion. They correspond to the two types of strategizing. The first one is when you look “top-down” at the market, consider it as a whole, then break it down into segments, choose the golden mile, etc. This is the Porterian method (after Michael Porter). In that case, you should enter the market after considering analytics and trends—look where in the world your industry is developing, what stage it is at, and what share is up for grabs in the new country. When following this strategy, you should be focused on large markets. Examples include Yandex entering the Turkish market and MTS entering the Indian market.

istockphoto.com
istockphoto.com

The second one implies a resource-based strategy. If you strategize “bottom-up”, which means you start from knowledge and skills, then you should determine your competitive advantage first and only after doing so decide where it can be applied. “Grassroots” approach is drastically different. For example, if you work in mining, be it mineral deposits or other resources, it makes sense to look at the nearest markets, search for convenient business chains, and try to find your place in there. This strategy can benefit greatly from international organizations—SCO, BRICS, trade missions, etc. This type can be illustrated through Natura Siberica’s entry to new markets. The company started with an exhibition in Italy and was represented in 50 countries during its best days. As for the Bookmate book subscription service, its cooperation with the West started with a single local partner in Singapore.

There are no right or wrong approaches—the type of strategizing depends on how you have developed as a personality. It is important to understand what suits you personally.

Building your first team

Save yourself the trouble of hiring people from among immigrant circles—do not take your acquaintances on board just because they are someone’s husband or friend. You need professionals in the first place. An additional advantage they are going to have is knowledge of the local language and understanding of the region’s business etiquette rules, with some of them most probably being business club insiders.

At the initial stage, consultants are most useful, and they may as well come from university circles—the better you are prepared, the less expensive mistakes you are going to make in the future.

istockphoto.com
istockphoto.com

But most importantly, find a person who will be passionate about developing your office, have this idea on their mind, and be as committed to it as you are. They may have a share or simply good conditions and authorities at the workplace. But it is exactly that person who must become the center around which everything revolves in the new country. Without them, everything else is of no use.

After those three stages, routine operations lie ahead—testing business hypotheses and the product, adjusting the business model, and analyzing the demand. But having blended in, you will find it easier to understand the underlying reasons and make the right decisions.

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