Join Doug Ladd for an in-depth discussion in this video Direct investment, part of Marketing Foundations: International Marketing.
- You may have heard this question before. On those rare occasions when you get to have a nice breakfast, including bacon and eggs, you realize there were several entities involved in making the meal. The difference lies in the level of involvement. A chicken was involved in providing the egg, but the pig was committed in providing the bacon. One strategic option to pursue for international expansion is the direct investment model. This requires total commitment. The benefit of pursuing the direct investment path is that you get to make all the choices within your control.
You get to select everything, from the location of your business, who you hire, how they are trained and managed. You also get to manage all the aspects of the marketing mix. You don't have the same level of control if you go with the export, licensing, or joint-venture models. When you make the direct investment to open a new geography, you also get to keep all the profits from your venture, rather than splitting them with intermediaries or partners. Of course, you get this particular benefit because you're the one taking the financial, organizational, and reputational risks to open the new market.
Opening a new market and going direct is much like starting a brand-new business. There are several factors you must consider. Typically, the first step is to incorporate or establish a new business entity in the new country. This helps provide the appropriate level of structure and separation between your existing, successful business unit, and the new organization. In many countries, it's simply a requirement that you have a locally registered company. You'll want to get your lawyers involved early, to figure out what must be done, and what is the best way to get it accomplished.
You can learn more about the requirements in various countries at buyusa.gov. While you're on that website, you should also research the employment laws in the country you're considering. In some countries, such as Germany, the labor laws can be very restrictive. It many limit your options on how you choose to run your business, and how much you want to invest. In some markets, it can take the better part of a year to terminate the employment of a non-performing associate. And the benefits and vacation structures may be different from those of your home country.
These aren't reasons to avoid developing a direct structure in a certain country. Just a reminder to go in with your eyes wide open. After you've taken the necessary steps to get your new company registered, you will want to be begin adding staff who have the knowledge and skills to get your product into the country and through the distribution channel to your end-customer. Linkedin.com is one of the best resources for finding people you can hire around the globe to help you market your products. The other key consideration with going direct is to make arrangements for all the back office systems and tools you need to support your marketing efforts.
Your Enterprise Resource Planning, or ERP system, may need an additional module to support in international transactions. If you have a retail website, you should also consider whether or not your ERP is capable of managing e-commerce in different languages and currencies. Creating a checklist of the very systems and tools you'll need will be helpful to ensure you don't miss something critical while you're building this business. The investments in people, money, and time are significant when pursuing the direct investment model. And so are the potential rewards.
If you are successful in this approach, you will likely create not only an on-going profit stream, but also a framework or template for how to do other international expansions. The investment can be as minimal as hiring one person, and giving her the basic tools to get the job done. Other business models may require dozens of new headcount to achieve success. Many business leaders look to get their profitability as quickly as possible when expanding into new geographies, so they can then further invest in growth initiatives. This means they keep a close eye on headcount and spending, as a way to test the market, rather than building a large infrastructure before the business assumptions are proven out.
How efficiently could your business invest in a new market if you went direct?
The course also investigates options for global expansion, such as exporting, licensing, joint ventures, and direct investment, and details how to put together a successful marketing mix using distribution, promotional methods, and translation. Plus, learn where to turn for more information about your specific target markets.
- The rise of the global consumer
- Learning about customers in global markets
- Accessing foreign markets
- Adapting products
- Balancing risks and rewards