International expansion can deliver
turbocharged growth and it is a logical
step for businesses that have achieved
success in their home market. But corporate
history books are littered with examples of
expensive failures from companies of every size and
in every industry. Developing a strong and successful overseas presence involves careful thought and preparation, as well as awareness of cultural sensitivities and regulatory discrepancies. Above all, making a go of it requires resources – time, effort and sufficient capital. ​

GROWTH

For many companies the prospect of international expansion is the Holy Grail of business. It is a promised land of increased sales and profits and a route to global brand recognition and market dominance.

But like any worthwhile quest it is not easy and the road is littered with failures. Everything from cultural insensitivity to poor timing can derail a company’s expansion beyond its domestic borders.

No one knows this better than Cath Kidston, the British retailer, famed for its floral and vintage designs. In 2003, 10 years after the business was founded, Kidston attempted to expand into the US, only to withdraw shortly afterwards. 

Too much, too young

“Fools rush in may be the best way to describe it. When we went into the US we only had seven stores in the UK within the confines of the M25. We were trying to run before we could walk and as a small organisation we were not equipped to deal with that. Even just figuring out US customs regulations was very difficult and being so far away made it hard to oversee the business. We were just too young a brand,” says Cath Kidston’s director of marketing Sue Chidler.

Cath Kidston has since regrouped and now has more than 180 stores outside its UK home market. It has successfully expanded into Europe and Asia and is even considering growth in Latin America. However, Kidston’s initial failure is a salutary lesson, particularly at a time when more businesses than ever are looking for growth in new markets.

Eye on expansion

According to the Centre for Economic and Business Research (CEBR), nearly a fifth of Britain’s small firms intend to expand overseas by 2025. A similar story can be heard across the EU. Around 74 per cent of European businesses are looking to expand abroad to access new markets for their products and services, according to the Economist Intelligence Unit and international expansion consultancy TMF Group. And nearly half of those businesses cite two principal reasons behind their ambition: increasing competition at home and a bid to offer more value to customers.

Thinking big

Of course, there are many benefits to expanding abroad, particularly into large, well-established markets such as the US. Leading digital dictation company BigHand, for example, has experienced significant growth since expanding into North America, Australia and New Zealand.

Founded just over 20 years ago, the company’s technology is used to improve the productivity of legal, healthcare and professional organisations and it was acquired by Bridgepoint Development Capital in 2012. At the time, the US accounted for about 12 per cent of BigHand’s revenues and chief executive Ian Churchill was keen to boost the company’s international firepower. Now the US accounts for 25 per cent of group sales. 

 

GROWTH

Where

next?

Europeans on the move

Transatlantic expansion has helped deliver stellar sales, healthy margins and strong cash conversion rates and it has been fuelled by strategic acquisitions of several US companies.

“About 1,000 firms are using BigHand’s services in the UK and 1,600 overseas. Initially we expanded into Australia and then New Zealand, each time putting one of our UK staff members on the ground. We did the same when we went into the US. The professional services market in the US is massive, so it has been hugely important in helping us gain a larger customer footprint and we continue to evaluate accretive add-on acquisitions,” says Churchill.

Polish online payment service platform PayLane is another business that has made a real success from international expansion. Having started out in Gydnia, a small town on Poland’s Baltic coast, PayLane is now used by merchants in 26 countries, including the US. The payments industry is highly regulated so overseas expansion is complex but PayLane had global ambitions from the start. And its internationalisation has been achieved, amid heavy competition from larger businesses.

Rapid growth

There are many other examples of European and US companies looking to expand abroad. Deliveroo, the food delivery service, secured $275 million in equity backing last August to fund further domestic and international expansion. Zalando was founded nine years ago in a Berlin flat and is now Europe’s largest online-only fashion retailer shipping fashion to more than 19 million customers.

AO, Britain’s fast-growing white goods online retailer, has moved into Germany and the Netherlands, and Joules, a rival to Cath Kidston, has been making inroads into the US and German markets.

Heading stateside

Even the conservative German family-owned business Lidl, the discount grocery chain, is targeting growth in the US. Lidl is expected to open its first 150 US stores next year in a larger debut than was originally planned. It has secured stores in dozens of US cities, established a headquarters in Arlington, Virginia and is building warehouses in key locations. But Lidl will have some way to go to catch up with rival Aldi, which already has more than 1,300 stores in the US. Market experts believe both Aldi’s and Lidl’s expansion in the US is fuelled by the need to find new markets to counteract slowing demand in Europe, where both supermarket groups dominate the discount grocery sector.

There is almost no industry where businesses are not considering driving sales growth through internationalisation, as Mark Barnes, KPMG’s leader of International Corridors, explains: “When it comes to manufacturing, pretty much every manufacturer in the world is hoping to achieve global growth by entering into new markets.”

Avoid the pitfalls

While the benefits of expansion are obvious – more customers, more markets, more sales and more profits – there are potential pitfalls too. Expanding abroad can go horribly wrong if it is not properly executed. No matter how good a product or service is in a domestic market, for example, expansion could be doomed if there is fierce competition or weak consumer demand in the target market.

Gap, the US household retailer, announced last year that it was closing all its Banana Republic stores in the UK after weak demand led to a string of disappointing sales results. The ailing San Francisco-based chain found it was unable to cope with better European rivals such as Inditex’s Zara and H&M. And Tesco, once a byword for supermarket success, failed abysmally with Fresh & Easy, its ill-timed and poorly executed entry into the US.

Be prepared

Many companies that have lost out when expanding abroad have neglected to follow some simple but essential rules, such as carrying out detailed research and market testing before launching a full-scale business. Bridgepoint-backed Pret A Manger, for example, has succeeded in the US because it spent more than five years testing market demand and refining its offer through a single store in New York before expanding further.

Joules spent a significant amount of time mapping the size of various markets, as well as the ease of doing business, before deciding where to expand. As chief executive Colin Porter explains: “From that exercise, we decided we were going to focus on the US and Germany as our prime markets. We don’t need to be everywhere. Our strategy was let’s try and go deeper into a couple of markets rather than being small in lots of markets.”

Joules also calculated that the best way to expand was to partner with large department store operators such as Nordstrom, Dillard’s and Von Maur in the US and Peek & Cloppenburg in Germany. “We find the right partner and start small. Then we build it up over time,” says Porter.

Local expertise

BigHand’s Churchill believes one of the most important elements of any expansion plan is to enlist local staff support as soon as possible. “We found that you get to a certain point where you need a national to run the business. You can only get so far with expats parachuted in and you then need someone with local understanding of the market.” 

Most companies agree that local knowledge is paramount. UK hygiene and workwear provider Rentokil has acquired more than 100 companies since 2014 and now generates more than 70 per cent of its revenue from overseas. Throughout this expansion spree, a small and experienced central mergers and acquisition team worked closely with local country and regional divisions to identify target acquisitions that could help fuel the company’s overall growth and profitability.

Sometimes, however, success might simply hinge on cultural awareness. When Cath Kidston was expanding in Japan, the group soon realised that folding bank notes was considered bad luck in the country. Its best-selling wallets were quickly adapted so they were large enough to accommodate Yen notes.

“You can’t push the same product onto every market,” says Chidler. “You have to be open to cultural differences which sometimes might be staring you right in the face.” 

Back to articles

International expansion can deliver
turbocharged growth and it is a logical step for businesses that have achieved success in their home market. But corporate history books are littered with examples of
expensive failures from companies of every size and in every industry.
Developing a strong and successful overseas presence involves careful thought and preparation, as well as awareness of cultural sensitivities and regulatory discrepancies.
Above all, making a go of it requires resources – time, effort and sufficient capital. ​

Around 74 per cent of European businesses are looking to expand abroad to access new markets for their products and services”​

You get to a certain point where you need a national to run the business. You can only get so far with expats parachuted in and you then need someone with local understanding of the market”​

For many companies the prospect of international expansion is the Holy Grail of business. It is a promised land of increased sales and profits and a route to global brand recognition and market dominance.

But like any worthwhile quest it is not easy and the road is littered with failures. Everything from cultural insensitivity to poor timing can derail a company’s expansion beyond its domestic borders.

No one knows this better than Cath Kidston, the British retailer, famed for its floral and vintage designs. In 2003, 10 years after the business was founded, Kidston attempted to expand into the US, only to withdraw shortly afterwards.  

Too much, too young

“Fools rush in may be the best way to describe it. When we went into the US we only had seven stores in the UK within the confines of the M25. We were trying to run before we could walk and as a small organisation we were not equipped to deal with that. Even just figuring out US customs regulations was very difficult and being so far away made it hard to oversee the business. We were just too young a brand,” says Cath Kidston’s director of marketing Sue Chidler.

Cath Kidston has since regrouped and now has more than 180 stores outside its UK home market. It has successfully expanded into Europe and Asia and is even considering growth in Latin America. However, Kidston’s initial failure is a salutary lesson, particularly at a time when more businesses than ever are looking for growth in new markets.

You get to a certain point where you need a national to run the business. You can only get so far with expats parachuted in and you then need someone with local understanding of the market”​

Around 74 per cent of European businesses are looking to expand abroad to access new markets for their products and services”​

No matter how good a product or service is in a domestic market, expansion could be doomed if there is fierce competition or weak consumer demand in the target market”​

Eye on expansion

According to the Centre for Economic and Business Research (CEBR), nearly a fifth of Britain’s small firms intend to expand overseas by 2025. A similar story can be heard across the EU. Around 74 per cent of European businesses are looking to expand abroad to access new markets for their products and services, according to the Economist Intelligence Unit and international expansion consultancy TMF Group. And nearly half of those businesses cite two principal reasons behind their ambition: increasing competition at home and a bid to offer more value to customers.

Thinking big

Of course, there are many benefits to expanding abroad, particularly into large, well-established markets such as the US. Leading digital dictation company BigHand, for example, has experienced significant growth since expanding into North America, Australia and New Zealand.

Founded just over 20 years ago, the company’s technology is used to improve the productivity of legal, healthcare and professional organisations and it was acquired by Bridgepoint Development Capital in 2012. At the time, the US accounted for about 12 per cent of BigHand’s revenues and chief executive Ian Churchill was keen to boost the company’s international firepower. Now the US accounts for 25 per cent of group sales. 

Europeans on the move

Transatlantic expansion has helped deliver stellar sales, healthy margins and strong cash conversion rates and it has been fuelled by strategic acquisitions of several US companies.

“About 1,000 firms are using BigHand’s services in the UK and 1,600 overseas. Initially we expanded into Australia and then New Zealand, each time putting one of our UK staff members on the ground. We did the same when we went into the US. The professional services market in the US is massive, so it has been hugely important in helping us gain a larger customer footprint and we continue to evaluate accretive add-on acquisitions,” says Churchill.

Polish online payment service platform PayLane is another business that has made a real success from international expansion. Having started out in Gydnia, a small town on Poland’s Baltic coast, PayLane is now used by merchants in 26 countries, including the US. The payments industry is highly regulated so overseas expansion is complex but PayLane had global ambitions from the start. And its internationalisation has been achieved, amid heavy competition from larger businesses.

Rapid growth

There are many other examples of European and US companies looking to expand abroad. Deliveroo, the food delivery service, secured $275 million in equity backing last August to fund further domestic and international expansion. Zalando was founded nine years ago in a Berlin flat and is now Europe’s largest online-only fashion retailer shipping fashion to more than 19 million customers.

AO, Britain’s fast-growing white goods online retailer, has moved into Germany and the Netherlands, and Joules, a rival to Cath Kidston, has been making inroads into the US and German markets.

Heading stateside

Even the conservative German family-owned business Lidl, the discount grocery chain, is targeting growth in the US. Lidl is expected to open its first 150 US stores next year in a larger debut than was originally planned. It has secured stores in dozens of US cities, established a headquarters in Arlington, Virginia and is building warehouses in key locations. But Lidl will have some way to go to catch up with rival Aldi, which already has more than 1,300 stores in the US. Market experts believe both Aldi’s and Lidl’s expansion in the US is fuelled by the need to find new markets to counteract slowing demand in Europe, where both supermarket groups dominate the discount grocery sector.

There is almost no industry where businesses are not considering driving sales growth through internationalisation, as Mark Barnes, KPMG’s leader of International Corridors, explains: “When it comes to manufacturing, pretty much every manufacturer in the world is hoping to achieve global growth by entering into new markets.”

Avoid the pitfalls

While the benefits of expansion are obvious – more customers, more markets, more sales and more profits – there are potential pitfalls too. Expanding abroad can go horribly wrong if it is not properly executed. No matter how good a product or service is in a domestic market, for example, expansion could be doomed if there is fierce competition or weak consumer demand in the target market.

Gap, the US household retailer, announced last year that it was closing all its Banana Republic stores in the UK after weak demand led to a string of disappointing sales results. The ailing San Francisco-based chain found it was unable to cope with better European rivals such as Inditex’s Zara and H&M. And Tesco, once a byword for supermarket success, failed abysmally with Fresh & Easy, its ill-timed and poorly executed entry into the US.

Be prepared

Many companies that have lost out when expanding abroad have neglected to follow some simple but essential rules, such as carrying out detailed research and market testing before launching a full-scale business. Bridgepoint-backed Pret A Manger, for example, has succeeded in the US because it spent more than five years testing market demand and refining its offer through a single store in New York before expanding further.

Joules spent a significant amount of time mapping the size of various markets, as well as the ease of doing business, before deciding where to expand. As chief executive Colin Porter explains: “From that exercise, we decided we were going to focus on the US and Germany as our prime markets. We don’t need to be everywhere. Our strategy was let’s try and go deeper into a couple of markets rather than being small in lots of markets.”

Joules also calculated that the best way to expand was to partner with large department store operators such as Nordstrom, Dillard’s and Von Maur in the US and Peek & Cloppenburg in Germany. “We find the right partner and start small. Then we build it up over time,” says Porter.

Local expertise

BigHand’s Churchill believes one of the most important elements of any expansion plan is to enlist local staff support as soon as possible. “We found that you get to a certain point where you need a national to run the business. You can only get so far with expats parachuted in and you then need someone with local understanding of the market.” 

Most companies agree that local knowledge is paramount. UK hygiene and workwear provider Rentokil has acquired more than 100 companies since 2014 and now generates more than 70 per cent of its revenue from overseas. Throughout this expansion spree, a small and experienced central mergers and acquisition team worked closely with local country and regional divisions to identify target acquisitions that could help fuel the company’s overall growth and profitability.

Sometimes, however, success might simply hinge on cultural awareness. When Cath Kidston was expanding in Japan, the group soon realised that folding bank notes was considered bad luck in the country. Its best-selling wallets were quickly adapted so they were large enough to accommodate Yen notes.

“You can’t push the same product onto every market,” says Chidler. “You have to be open to cultural differences which sometimes might be staring you right in the face.” 

Back to articles

No matter how good a product or service is in a domestic market, expansion could be doomed if there is fierce competition or weak consumer demand in the target market”​

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Bridgepoint  |  The Point  |  May 2017  |  Issue 31