Explore the 3 predictable paths of international expansion for digital businesses. Learn why early market entry might be overrated and how to strategically navigate the increasingly competitive global landscape.
In today’s world, highly developed markets are very competitive, and this is one reason why aspiring global brands venture abroad. The possibility of discovering new audiences in uncharted territory can be appealing when the competitive landscape at home is increasingly challenging.
Many decisions to expand globally are motivated by the hope that profit margins are less constricted elsewhere. However, many brands are discovering that these promising markets are also highly competitive. One reason is that digital businesses are following highly predictable paths when expanding overseas. Foreign markets can be divided into three categories:
Historically, western brands have mainly focused on larger developed markets, especially those with proximity to their domestic markets. For example, many UK businesses first set their sights on Germany and France and smaller developed markets like the Netherlands, Italy, and Spain.
For US businesses, there’s a very sizeable benefit of targeting developed economies that share the same language, e.g., the UK, Canada, and Australia. These types of markets are regarded as ‘top tier.’ Non-English speaking markets that are highly developed and sizeable (e.g., Japan, South Korea, and China) are also included in the top tier group.
After global brands have exhausted the possibilities of top-tier markets, or because competitive forces in these markets have made them less attractive, they may turn to second-wave markets. These markets are not quite as attractive as top-tier markets. They may be smaller or somewhat further away for convenience.
Second-tier markets also tend to have their own distinct challenges, e.g., complex regulatory environments or regulations that are hostile to non-domestic businesses. They also tend to be still emerging on some fronts, e.g., they may have low eCommerce adoption. Examples include Mexico, Brazil, and India.
This third grouping of markets encompasses so-called ‘wait and see’ countries. This group includes markets that show future promise for various reasons, but the hurdles to doing business are currently too great. They may suffer from political instability, inadequate infrastructure, or low e-commerce adoption.
One great example of a ‘wait and see’ country is Iran. This country has an attractive pool of young consumers, and there’s currently little competition from foreign brands. This is because Iran has historically been isolated due to political factors. A change in the political climate could cause many global brands to begin regarding Iran as a viable new market.
Global brands seem to spot and react to the same opportunities at the same time. This phenomenon explains why India suddenly turned into a major battleground for eCommerce giants.
This analysis shatters the image of brands boldly venturing into untried markets. Instead, it’s more the case that global brands follow very predictable international expansion pathways and, therefore, tend to expand as a group.
The answer is no, not without accepting significant risk. There are very few brands prepared to be leaders in penetrating highly unfamiliar markets where there hasn’t already been some activity by their peers. There really is safety in numbers - a market demonstrates that it has reached a certain level of maturity when foreign brands begin to flood in.
Being an early entrant to a new market might be overrated. Late movers may have an advantage - an audience that has previously been introduced to their kind of product/service by a competitor that’s already there.
Language definitely influences the path of a brand’s international expansion. A common language and/or a shared alphabet are highly motivating factors. So, why are the ‘difficult’ language markets of Japan and South Korea also considered top-tier? Language is only one of several factors that contribute to the potential attractiveness of a market.
Brands moving into top-tier markets will likely have no problem finding access to the language support they need. Well-trodden paths between nations generally result in the ready availability of translation and localization services for required language pairs.
Conversely, global brands jumping into more obscure markets lacking well-established cultural and trade links will be more challenged to access linguistic expertise for their language pairs. This is even truer if the brand’s home market involves a less widely spoken language. For example, it’s much easier to locate an English-Kashmiri translator than a Finnish-Kashmiri translator.
Translation and localization services are just one type of business support a global brand needs when trying to establish itself in a new market. Other necessary services include local advertising providers and logistics operators. When entering a very underdeveloped market, these business partners can be hard to find.
For some global brands, the very fact that their competition is even considering a new market is enough to make them interested in it. The fact is that in today’s highly competitive world, it’s no longer enough just to compete domestically.
In some especially cut-throat industries, a brand needs to compete overseas in order to be more successful at home. This might be because of the advantage of scale that international expansion brings, increased access to global resources and talent, or because global growth improves a brand’s worldwide reputation.
A company re-orientating itself to do business on a global scale may have to fundamentally change how it does business. It needs to become a brand with a worldwide vision, a knowledge of international logistics and supply, and develop much broader language and cultural insights.
There are logical reasons why brands have generally expanded in a predictable way. Global expansion always poses a risk. However, the key to international expansion is to get the strategy right. Success means picking the right markets at the right time rather than feeling obligated to compete in every possible market and to jump ahead of the competition.
For a brand willing to take the risk to become a global brand, the financial rewards can be significant. It’s crucial to understand which markets are the most suitable and to obtain the right advice prior to entry. This includes evaluating the audience carefully, getting the infrastructure in place, finding good local partners, and selecting the right translation/localization agency for language pairing.
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