Expanding into new markets can be a transformative move for small to medium-sized businesses (SMBs). Successful expansion can increase revenue and diversify the markets in which the company operates, reducing risk and increasing economies of scale. It can also improve a company’s corporate reputation and potentially open up more opportunities with other geographically diversified partners. Finally, penetration into new markets will lead to innovation and learning, which can lead to the development of new products and services that could benefit the company and increase customer satisfaction.
However, geographic expansion can also be very risky. Expansion requires significant financial investment. New markets often come with unfamiliar cultural norms and regulatory landscapes, which can lead to strategic missteps, legal issues, or reputational damage. Managing operations across multiple markets increases complexity, which can strain management teams, especially without effective local HR and people strategy. Without a deep understanding of the local competitive landscape, an SMB may struggle to gain a foothold.
The overall goal of geographic expansion is a sustainable, profitable increase in revenue. Setting the right mix of supporting metrics will help SMBs measure progress and identify potential issues early. While each expansion will have its own unique set of specific metrics, setting the right mix of internal and external metrics can help a company achieve its revenue goal. Metrics may include a mix of market, customer, and internal measures including:
1. Market Dynamics
- Competitive Landscape: The maturity of the market and the effectiveness of local competition can vary, affecting market penetration and growth metrics.
- Economic Conditions: Economic stability, growth rates, and consumer spending power can influence sales targets and revenue projections.
- Compliance and Legal Requirements: Each market has its own set of regulations, such as requiring that hardware within a market incorporate local materials. These can affect operational metrics and timelines for market entry and growth.
2. Customer Measures
- Consumer/Customer Behavior: Different cultures have varying purchasing behaviors, preferences, and values. What works in one market may not work in another, so the product offering and marketing communications must be tailored to local preferences, making it difficult to establish universal metrics.
- Brand and Reputation: Building brand awareness, corporate reputation, and customer trust takes time, which can affect initial sales targets and customer acquisition costs.
3. Internal Capabilities
- Supply Chain and Logistics: Setting realistic metrics for supply chain efficiency, delivery times, and inventory management can be challenging in unfamiliar markets. Also, local content requirements should be included in any metrics.
- Human Resources: Availability and productivity of local talent and in-country experienced leadership can affect operational efficiency and performance metrics.
- Financial Resources: Budget allocation for market entry and growth initiatives needs careful monitoring and adjustment, influencing financial metrics
Companies should engage with experts, conduct thorough market research, and remain flexible in adjusting their metrics based on real-time market feedback and performance data. This approach helps ensure the supporting metrics are relevant, achievable, and aligned with the new market’s local conditions.
In conclusion, while the expansion into new markets holds great promise for SMBs and can lead to increased profits, diversification, and innovation, it’s essential to approach this strategy with a thorough understanding of the associated risks and challenges and put in place the right strategic plan to achieve sustainable, profitable revenue growth.
ExecHQ’s International Group advisors are experts at helping clients successfully enter new markets. We’re ready to help—please give us a call.
By Kathy Leech & Mike Read