Emerging companies obviously must confront and overcome significant risks during the early stages of development, even when their operations are initially limited to strictly domestic markets and a relatively small group of potential customers. However, many emerging companies have found that aggressively expanding into foreign markets soon after the firm has been launched can actually increase their chances of success, even while they are still struggling to gain a foothold in their home market. For example, young businesses with limited financial resources may benefit from using low-cost manufacturers in foreign countries to produce goods that can be sold at attractive prices in the company's own domestic market. A new company may also seek out foreign markets that have not been identified by larger competitors and build significant market share as a barrier to entry. The success of the product or service in a smaller foreign market can then be used as a base for entering larger markets and can accelerate the process of establishing a positive global reputation for the company.
Globalization can seem like a daunting task for the founders of an emerging company when they are first starting out and struggling to complete development of their first product or service and identify potential customers and partners that can assist the company with scaling up operations quickly and efficiently. Nonetheless, the evidence shows that globalization should be incorporated into initial strategic planning, even if exporting is not the first priority. A group of researchers who surveyed and analyzed globalization among young high-tech companies from Germany and the UK in the late 1999s—and found that internationalization was the norm for those firms and that the key strategic question for them was not whether, but when, to internationalize—generated a useful list of recommendations to founders and managers of similar firms who wished to improve their chances of successfully growing and internationalizing. In general, these recommendations can be broken out into several key areas, each of which is discussed in the following paragraphs: skills and experiences of the founders and initial senior managers; the strategic orientation of the company; the core resources of the company; the company’s research and development focus and activities; the attributes of the company’s initial products and services; the target customer base; and the company’s financing strategies.
The pursuit of successful globalization begins long before the company has been formed and commenced operations with the formation of founding team and recruitment of senior managers to oversee various functional activities. Whenever possible, emerging companies looking aggressively exploit foreign markets should look to bring on founders and managers with extensive international experience. In many cases, the international experience comes from previous work with large multinational companies that provide exposure to a wide range of foreign markets and sophisticated methods for analyzing those markets and developing and implementing marketing and sales strategies. However, international experience gained by working with smaller companies can be an invaluable asset since it teaches how to get by with limited resources, which is the situation that normally confronts an emerging company when it is first starting out. Founders and senior managers who have worked on international activities at small companies in the past will likely be more adept at assessing and managing local sales agents and distributors in foreign markets and identifying and implementing cost-effective ways to identify potential customers. A background with a smaller company also builds a better appreciation of the need for simple product design, which is easier for a small company to support and enhances the chances that foreign customers will adapt the emerging company’s products even though the company has yet to build a track record in the marketplace. Regardless of where the founder or senior manager obtained his or her international experience, the hope would be that he or she can bring their own network of prior relationships with suppliers, customers, investors and consultants to the new venture as future resources for building the firm’s international knowledge base.
Next time we'll discuss integrating globalization into the company's strategic orientation and selection of core resources.