With this column, CFO begins a series of articles about how businesses can expand into new geographic territories more successfully. For expert advice, we asked Bill Hite, CEO of Hull Speed Associates, a firm that helps companies set up overseas operations, for his perspective. In this first column, he tackles one of the most important initial questions: where to go?
A publicly traded software company took a common approach when it first decided to expand into Europe: it located in the United Kingdom with the expectation of managing all European operations from there. The company hired 12 people over eight years there before finally deciding to pull the plug on this operation, which generated disppointing revenue and market share, along with unnecessary costs such as company cars and personal assistants.
What went wrong? The approach wasn’t all bad. For one, the company didn’t try to manage overseas operations from the United States, a budget-saving effort that almost inevitably fails. Assuming it was setting up a foreign office, Europe is a logical place to start, since it has many legal and cultural similarities to the U.S. And the UK certainly has some advantages as a landing spot. In fact, 44% of U.S.-based executives would consider the UK as a prime location for future investment, in large part due to common language, according to a recent survey by the Institute of Chartered Accountants in England and Wales, compared with 38% considering all other European countries.
But too often, companies choose a country for their foreign operations without enough careful thought. Language and ease of doing business are important factors, but they shouldn’t be the only drivers of where to locate. In fact, defining — and locating in — the true target market, rather than swinging wide at an entire continent, has some unbeatable advantages.
Now, four years after pulling out of Europe, this software firm is moving back to the continent, but this time with a different strategy that includes hiring locally instead of consolidating all employees in one region. The firm has hired a local business-development professional in the Netherlands and is in the process of hiring experts in Germany. They will also hire in the UK, but this time, the UK folks will only focus on the UK market.
How can your firm make the right location decision the first time around? Consider and weigh all of the following points, rather than just one or two:
1. Core Customer Base
Pinpoint the location of your core potential customer base. Sometimes, the answers are obvious. If you sell into the car manufacturing industry, perhaps Germany would be a good choice for you. If you sell into the fashion industry, your choice is likely more focused on Italy or France. In other cases, finding the core customer base is a discovery process, and you may need to adjust course along the way. Many countries have a chamber of commerce or a representative organization in the U.S. that can be helpful in the process. You should also look at where your competitors are, or companies in related industries. Strategic partners in your home country who have already established an overseas presence can also help you get quick traction, just to name a few.