Thursday, June 2, 2016

Winning Internationally without Deep Pockets

By Dr. Shameen Prashantham

Many new ventures seek to win internationally but simply do not have the wherewithal of their large and established counterparts. And yet, many new ventures that I have encountered in China, India and other emerging markets – where there is an even greater scarcity of resources and capabilities compared to advanced markets – have managed to pull this off. What explains their success? Here are five key (interrelated) factors for winning in international markets – even if you do not have deep pockets.

Factor #1 Learning from others' experience

Learning to internationalize involves gaining an understanding of generalized principles of internationalization, as well as insight into specific markets of particular interest. The traditional route to gaining knowledge about internationalization is experiential – that is, learning by doing. This remains relevant to any new venture. However, given their resource scarcity, ventures need to supplement traditional (and expensive) experience-based learning modes with more cost-effective ones, notably learning from others – through joint activity and observation – to augment and accelerate the learning process, without having to invest directly in the internationalization activity that would normally yield such learning. A case in point is Hong Kong-based Insight Robotics, a venture offering wildfire detection solutions, which has grown rapidly by adopting very diverse sales and marketing approaches in mainland China, South East Asia and North America. These are strategies that came about by observing what had worked (or not) for others. In this way, they have saved time and cost on the internationalization learning curve.

Factor #2 Developing innovations cost-effectively

Entrepreneurs may be able to creatively develop innovation frugally, resulting in good enough products at a price point that is relevant to certain target markets. This was the case with Mango Technologies, a Bangalore-based software company that developed software for low-end mobile handsets in rural markets. In other cases, ventures may engage in more conventional laboratory-based research that is made affordable by leaning on external (e.g. governmental) support and leveraging home-grown expertise and know-how – for instance, in the area of traditional herbs and medicines. In Ghana, I encountered Kasapreko, a company that, when it began as a new venture, built upon precisely such locally embedded traditional knowhow to develop, in collaboration with a local government laboratory, unique herbal beverages. These drinks have proved to hold appeal not only to customers in the home market but also in a range of international markets in the African continent. Kasapreko illustrates that innovation is not only the realm of high-tech companies, and also that it does not have to break the bank, especially when unique advantages embedded in the local milieu are exploited.

Factor #3 Leveraging networks effectively

Internationalization-seeking new ventures ought to leverage their relevant network connections actively, discerningly and reflectively. Active leverage entails taking initiative, rather than waiting to be approached, in exploring opportunities. Discernment means recognizing that different types of networks help in different ways: close friends and family in a foreign market may be helpful in initial opportunities whereas non-co-ethnic acquaintances may be important for expanding beyond that start. Reflective leverage is about learning through networks; indeed, implicit in the previous couple of points is the scope for gaining market-related and technological knowledge by collaborating with others. An international new venture that has done all of the above is Falafel Games, founded in Hangzhou, China by a Lebanese entrepreneur who actively leveraged both new-found networks after completing an MBA in Shanghai and old networks in the Middle East. Discernment in using these networks differently – China networks for the backend and Arab networks for customer interface – and a constant attention to learning through these networks, has helped the venture become one of the biggest online game brands in the Middle East.

Factor #4 Pacing international growth

Once momentum is built, it's difficult for new ventures to desist from pursuing new international opportunities. In many cases, this works to the advantage of the new venture by resulting in accelerated internationalization. In some other cases, however, growing too fast too soon can be counterproductive. Thus one of the most important judgments that entrepreneurs need to make – and this is especially true for emerging market ventures – is when to make decisive moves into international markets, and when to hold back to avoid overstretch. Making this judgment call is especially problematic when entrepreneurs panic if initial efforts to internationalize fail. They might, for instance, enter multiple markets simultaneously in their anxiety. But the results can be disastrous. One Indian startup whose initial US foray struggled despite having a US-based cofounder, hastily relocated a second cofounder to the UK even though its original strategy had envisaged entry into that market at a later stage. The venture hemorrhaged significant resources (its venture capital funding) before it belatedly pulled back – but by then it was too late to salvage the venture. Such knee-jerk reactions stretch the new venture's resources thin, thereby putting the very survival of the venture at risk. Part of the wisdom that entrepreneurs need is knowing when to cut their losses and abandon an internalization attempt, and when to persist.

Factor #5 Embracing contextual realities

While the basic principles of international entrepreneurship hold across the world, geographic contexts vary in their specifics. This relates not only to understanding the local conditions of foreign markets (Factor #1, above) but also to being cognizant of the limitations and advantages of the location in which the new venture is embedded – in other words, its home turf. Ventures in emerging markets face different challenges, stemming from deficiencies in the entrepreneurial ecosystem, relative to ventures in advanced markets – but they also enjoy certain opportunities, at least in the major markets (witness the number of large MNC CEOs visiting China and India more frequently than they do, say, Sweden or Australia). Too many emerging market ventures try to wish away their origins and attempt to accomplish outcomes that are more often than not out of reach. A more prudent tack to take would be to align strategies with locally embedded advantages (as did Kasapreko; see Factor #2, above) or to minimize local liabilities by adopting highly localized strategies in other markets (as does Insight Robotics; see Factor #1). Alternatively, an entrepreneur may choose to bite the bullet and relocate if the venture's goals and local realities simply do not match, as in the case of WhereIsMyTransport (WIMT), a venture originally founded in Cape Town, South Africa which has now recast itself as a company headquartered in London, UK, which too is a reasonable (if less common) approach. The key point is to align context and strategy.

By keeping in mind the five factors highlighted above, internationalization-seeking new ventures can vastly increase their odds of achieving global success.

Dr. Shameen Prashantham is Associate Professor of International Business & Strategy at China Europe International Business School (CEIBS). His research and teaching interests relate to international entrepreneurship and strategy. He is the author of Born Globals, Networks and the Large Multinational (London, Routledge, 2015).

This article was first published by The Economist Intelligence Unit.

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