As discussed last week, a new company’s R&D resources and strategies are important factors in launching and building a global business and the founders should make an early and lasting commitment to a focused R&D effort that is concentrated on the continuous development of innovative product and manufacturing technologies. A significant amount of time during the start-up will be invested in R&D and recruitment of qualified and experienced scientists and engineers with experience working with technologies that have been successfully deployed in the target foreign markets is essential to success. It is unlikely that new companies will have the capital necessary to establish a full internal R&D team and the founders and senior managers should be the willingness, and the contacts, to tap into external sources such as universities and not-for-profit research organizations. Another possibility is to partner with larger firms in targeted foreign countries that might be willing to provide funding and technical support in exchange for a license to distribute any products that may be created out of the research activities. This type of arrangement obviously has several initiative advantages beyond solving difficult financing issues, including the opportunity to gain access to customer insights on product requirements that would presumably enhance the chances of success for the products in the first important foreign market; however, the company must avoid getting sucked into focusing on “deep niche” products in order to gain an initial foothold in a target market, as might be the case when a company gets too involved with creating a customized version of its initial product for a single customer. While success with that customer certainly has financial and reputational value, the founders and senior managers should not forget that their ultimate goal is entry and growth in multiple global markets and that this will require that the company be able to create and maintain a global product platform that allows it to offer a wide range of applications for each of its products and technologies.
When focusing its R&D activities a new company intent on rapid globalization needs to be concentrating on developing technologies and products that can gain acceptance in its target foreign markets, which means creating technologies and products that can overcome local skepticism and be easily adapted by customers in those markets. Since the company is presumably looking to enter fairly large foreign markets from the very beginning and expand beyond those markets to fully global sales, it is imperative that products be based on innovative technologies that provide customers with truly new and useful features and/or ways to solve pre-existing problems in a significantly more cost-effective manner. In addition, new products should be designed with a particular eye on “usability”, “reliability” and easy and inexpensive adaptation. These factors are important for any new product; however, they are particularly crucial when a company is relatively unknown in the market and customers are rightly skeptical about the quality of the products and the ability of the company to provide the required support and service from afar. Balancing innovation and usability is a challenging task and one that requires constant assessment by the founders and senior managers to ensure that the company is not drifting off track and pursuing a path that will delay product introduction and create products that are perceived as too difficult to deploy by customers in the target markets.
Several of the issues already mentioned in this series–strategy, resources and product focus—are all relevant to the key decisions that must be made regarding the type of customer that should be targeted and the methods that should be used for get customers to buy the company’s products and making sure that they are satisfied with their purchases. Some companies seek to enter foreign markets by concentrating on a major customer that is interested in a customized application of the company’s product. As already discussed, this type of project can be a good way to access funding for R&D and raise the company’s profile in the target market; however, excessive customization should be avoided and the company must retain the right to develop and sell more generic applications of the product to similarly-situated customers in the target market. New companies should also select products that can be sold to industrial users rather than attempting to break into the consumer market at the very beginning. Working with industrial users allows a company to take a more focused sales approach and satisfied industrial customers, whose demands regarding performance, quality and support are typically quite high, can be good references for the company and its products and technologies. However, as already discussed, new companies should be careful to avoid getting too consumed with meeting the non-standard needs of a handful of large customers to the point where they neglect the longer-term goals of building a broader platform of products and applications.
Another customer-related issue is selecting the appropriate channel strategy and for newer companies that typically means at least some degree of reliance on local sales agents and distributors. Industry and local knowledge are essential to making the correct decisions regarding channel selection and if a local agent or distributor is to be used it should be managed carefully by one of the founders or a senior manager to ensure that the company’s interests are being protected and that the company’s goals and objectives with regard to market penetration are being aggressively pursued. New companies, and the persons within those companies assigned to manage channel relationships, need to understand and accept that effective channel management will require a significant investment of time, effort and financial resources and the person in charge should be prepared to travel to the foreign market regularly to meet with key contacts inside the organization of the agent or distributor and participate in customer visits. The company also needs to make sure that procedures have been established for sharing information with agents and distributors on a regular and timely basis. Finally, agency and distribution arrangements should be subject to regular review and assessment on a mutually-agreed schedule. New companies should be aware that termination of agency and distributor relationships is heavily regulated in some countries and care must be taken to draft contracts correctly at the outset to provide companies with maximum flexibility to make a change if the relationship is not working or the company prefers to implement a different sales strategy.
Tomorrow I’ll complete this series by discussing the need to build a presence and management team in the foreign market and certain issues that should be considered when seeking financing for internationalization activities.