Developed markets are competitive places these days and that’s why many brands are venturing abroad. The prospect of finding new audiences in uncharted territory is very appealing when the competitive landscape at home is increasingly challenging. Many global expansion decisions are motivated by the hope that margins are less narrow elsewhere.
But many brands are finding that these promising markets are equally competitive. And it’s no wonder why. Digital businesses are following a highly predictable path when they expand overseas. It’s so foreseeable in fact that a strong pattern is emerging that shows how global brands expand internationally by following roughly the same paths as each other.
The path to global expansion
Historically, western brands have tended to focus on the larger developed markets and on those with proximity to the domestic market. That’s why many UK businesses first set their eyes on the US, France and Germany, as well as smaller developed markets such as Italy, Spain and the Netherlands.
For English-speaking businesses, there’s also the very sizeable benefit of having large, developed economies that share the same language – including Canada, Australia and the US. These types of market have been christened ‘top tier’ by a recent Forrester analysis of global expansion routes. Non-English speaking markets that are sizeable and highly developed, such as Japan and China, are also included in this group.
Next, brands tend to turn their attention to the so-called second-wave markets. These are the dynamic markets that brands turn to after they’ve exhausted the top tier or because competitive forces have made these markets less attractive to them. Second-wave markets are, pretty much by definition, not quite as attractive as top-tier markets. Perhaps they’re smaller, or a bit further away than is convenient.
These markets also tend to bring their own challenges, such as a complex regulatory environment. They’re also likely to still be emerging on some fronts. Perhaps they have low eCommerce adoption, for example. For whatever reason, they haven’t looked quite so appealing to brands before now. Examples include India, Mexico and Brazil.
What’s significant about the split between top tier and second wave markets is that it’s not necessarily the case that second wave markets suddenly get more appealing. Instead, it can be other motivating forces that drive brands to turn their attention from the top tier countries to second wave markets. These forces might include tighter competition in the top tier.
The final group of markets has been christened ‘wait and see’ countries. These include markets that look promising for a number of reasons but the hurdles are presently too great. Iran is a great example of a ‘wait and see’ country. This market has a strong pool of young consumers and it has historically been isolated because of political factors – meaning there’s little competition from foreign brands there at present. A sudden change in the political climate could cause a lot of brands to start seeing Iran as a viable new market.
Other ‘wait and see’ countries tend to deter brands because of their poor infrastructure, instability, or low eCommerce adoption. Rapid development in many countries with this profile means they have the potential to convert into ‘second waves’ within a fairly short time span.
Some of these markets are already on a trajectory to achieve this. For example, infrastructure is developing rapidly in markets such as Nigeria. In many ‘wait and see’ markets the path can be unpredictable.
For example, the outcome of an election could deter brands from entering that market for at least another election cycle. It can also be as simple as business real estate becoming available that suddenly makes that market a viable option. Building a new mall can make the difference that turns a ‘wait and see’ into a viable option.
Following the herd
What this shows is that brands seem to spot and react to the same opportunities at the same time. It explains why India has suddenly become a major battleground for eCommerce giants and why it’s a significant news story when a UK brand penetrates an unfamiliar market such as Kazakhstan or Mexico.
This analysis shatters our image of bold brands venturing into untried markets. Instead, it’s more the case that brands follow very predictable paths in global expansion and tend to expand as a group – although rival brands might never admit this!
Is there any way to beat the competition reliably?
Not without taking a significant risk. Very few brands are bold enough to be the first to penetrate a highly unfamiliar market where there isn’t already some activity from their peers. There really is safety in numbers because it shows a market has reached a particular state of maturity when foreign brands start to flood in.
Usually, there are very practical reasons why brands are staying away from a particular market, such as a regulatory environment that’s hostile to non-domestic businesses. Late movers may find other advantages too, such as an audience that’s already been introduced to their type of product by an early moving competitor. Being an early entrant to a new market seems to be overrated. Instead, it’s more valuable to learn from what others are doing and aim to be more successful with your local strategy than other market entrants.
Language has an influence in dictating a brand’s path of global expansion but it may not be as straightforward as you think. A brand from a major western market such as the UK might first consider tackling Canada and Australia because of the shared language, or France and Germany because of a shared alphabet and other language and cultural ties.
But why are the ‘difficult’ language markets of South Korea and Japan also considered top tier?
It’s not just the case that brands approach markets with the ‘easiest’ languages. There are other draws at play and language is just one of many factors that dictate how attractive a market might be.
One other factor that brands rarely consider is the availability of language resources to support them in their move. Brands that move into top tier markets are unlikely to find it difficult to access the language support they need.
Well-trodden paths between nations usually result in the high availability of translation services for those language pairs. Brands that boldly venture into more obscure markets, without well-established trade and cultural links, may find it more challenging to access linguistic expertise for their language pair and specialism. That’s even more true if the brand is coming from a market with a less widely spoken language. It’s much easier to find an English-Kashmiri translator than a Finnish-Kashmiri translator, for example.
Translation services aren’t the only business support brands need when they are establishing themselves in a new market. There are also services such as logistics operators, local advertising providers, and other myriad business services. If you’re entering a market that’s really very underdeveloped, these partners can be hard to track down.
Beating the trend
Is it better to beat the competition by expanding in an unpredictable manner? That’s only a good strategy if your only interest is in beating other competitors at reaching a new audience. In most cases, it’s generally best practice to tailor your approach to every market you enter. Sometimes the best strategy is not to enter a market at all.
Harrods is another example of a brand that’s taken an unusual path – although one that probably makes a good deal of sense for a luxury retailer. The famous high-end department store has a small number of boutique-style outlets in places including Thailand and tiny, wealthy Singapore, as well as Qatar Airport. Although these aren’t conventional markets for a linear expansion, these locations make perfect sense as the optimum way to reach high-net-worth individuals in Asia and the Middle East.
Harrod’s core clientele is likely to be highly mobile, hence the airport locations, and also passing through other luxury shopping destinations such as the high-end mall in Singapore where the Harrods boutique is located.
Although the conventional approach may be to ‘flood’ the top-tier markets before even considering its second wave and ‘wait and see’ counterparts, this isn’t always the best approach. Popular Italian-style restaurant chain Olive Garden is one brand that has bucked the trend somewhat when it comes to overseas expansion. Like many US chains, it first tried expanding into neighbouring Canada (a top-tier market), where it has since closed some of the branches it initially opened.
After this initial venture within the top tier, the chain has taken a more eclectic approach to picking markets. In the last decade, it has opened restaurants in Mexico, the tiny state of Kuwait, Peru, Costa Rica and the Philippines. This seems like a muddled mix of market categories but there seems a logical strategy afoot.
There are many older US expats in Costa Rica who may appreciate a chain they recognise. The chain’s Philippines location is well placed to reach a large number of US expats in Laguna and Cavite provinces. Kuwait may be tiny but there are a number of US military bases there as well as other US expats. Olive Garden’s approach isn’t as scattergun as you might think – it’s catering to expat Americans in carefully chosen overseas markets.
Chasing the competition
For some brands, the very fact that their competitors are even considering a new market is enough to make them take an interest in it too. Brands that might previously have been content to compete in home markets are now taking their fight for market share overseas.
It’s no longer enough just to compete domestically. In some particularly cut-throat industries, it’s necessary to compete overseas in order to win at home. This can be because of the advantages of scale that a global expansion brings, to increase access to global talent and resources, or because it improves the brand’s global reputation.
A company that re-orientates itself to operate globally fundamentally changes what it does. A brand that’s previously done really well at, say, making tractor parts or sports drinks for a home market audience suddenly needs to become a brand with a global vision, international supply and logistics knowledge and a much broader cultural and language insight.
Any firm that does this essentially becomes something very different from a domestic operator. For many brands it’s too hard a stretch to go from one to two markets; reaching out to more markets with even more different environments can be entirely too challenging. That’s why many brands from English-speaking countries have historically been content to expand within English-speaking top-tier countries they feel a cultural affinity with and leave it at that.
Other successful and well-known brands are only active within one category. Shirtmaker Charles Tyrwhitt focuses on the UK and US with one store in Paris. Some brands with large domestic markets don’t feel the need to go overseas – family-owned fast food restaurant White Castle seems content to expand at a slow pace across the US.
For brands with less modest ambitions, the key to global expansion is to get the strategy right. It’s about picking the right markets at the right time rather than feeling obliged to compete in every market and across all categories.
There are good reasons why brands have tended to expand in such a predictable pattern. Global expansion is always a risk.
For brands willing to meet that risk, it’s important to understand which markets are the right ones and to get the right cultural advice prior to entry. This includes getting your infrastructure in place, finding good local partners and advice, evaluating your audience carefully and selecting the right localisation agency for your specialism and language pair.