It’s Not Just Harder – It’s 3 Times Harder
Over my career as a business leader, I have done business in 27 different countries as just about every business I was involved in worked overseas in some capacity.
So my piece of advice here today may seem counterintuitive. But I am hoping you can learn from my mistakes. In short: don’t go international with your business unless you have exhausted every other possibility domestically first. Better yet, unless your business does more than $50 million in sales per year, you shouldn’t even consider doing business internationally.
Let me be clear: I am not an isolationist. I believe in the power of the global economy. But I think too many executives overlook the massive domestic market in favor of chasing something new and exciting without realizing how much risk and complexity they will add into their business.
While it might seem sexy and fun to join the jet set group where you fly overseas to take meetings in Europe or Asia–you can already picture all the looks of envy as you share your stories at your next cocktail party–it’s less romantic than you think. While my first trip to Tokyo was super exciting, for instance, my 20th trip there was much more of a drag. That kind of travel can get old–fast.
I worked with one entrepreneur that was working on opening South and Central American markets, taking massive amounts of time. And yet, his business was less than $5 million in revenue and he had a multi-billion dollar domestic market!
That’s why, unless you have already maxed out the market share for your products here in the U.S.–and can’t find any other products to market either–you should stick close to home.
Let me explain why.
1. It’s really hard–and it’s risky.
What I found is that for every dollar of investment I made in trying to grow an international market, I got maybe $0.50 in return. It was really hard to make it work. Conversely, it was much easier to get $1 of return for every $1 invested here domestically–if not more. You can also avoid the risk of buying and selling products in a different currency. When you’re forced to price something in yen, euros, or pounds–you’ve introduced quite a bit of potential volatility into your profitability.
2. Language and cultural barriers.
It’s true that English has mostly become the international language of business. You can, for the most part, count on your ability to communicate with other business people with it. But not always. And that doesn’t count the potentially extreme–or even subtle–cultural differences that exist in other countries. This even includes countries that speak English, like England, where there are vast cultural differences compared to the U.S. Are people willing to tell the truth in negotiations, for example, or how intimate are they willing to be? If you don’t understand the lay of the land, you open yourself up to the possibility of offending someone else, or maybe even being unknowingly taken advantage of. Like the old saying that says if you don’t know who the sucker is at the poker table, it’s probably you.
3. Product modifications.
What is acceptable quality in one country may not work in another–which means you might need to make dramatic, and costly, changes to your product mix. Quality standards in the U.S., for instance, don’t always meet the standards in countries like Germany or Japan. Your prices might also be too high for certain markets, which might mean re-engineering your products so you can make them more cheaply.
4. Legislation and regulations.
Depending on the nature of the product your business makes, selling internationally might mean that you have to deal with different export and travel regulations as well as tariffs and other trade barriers you might not be aware of. That means you can easily run astray of the law without knowing it–which will force down your profits if you don’t comply.
Working internationally usually means you need to hire local people to help. But it’s remarkable how much employee law that governs how you can hire, fire, and manage employees differs around the world. You need to be willing to invest in acquiring that kind of knowledge before taking the plunge in making hiring decisions or face potentially severe repercussions down the road.
So, given the stakes, consider doing everything possible to penetrate the U.S. market before thinking that selling overseas will actually open up new doors of growth for your business.
Jim Schleckser CEO, Inc. CEO Project