Entering a new market is a tricky business that requires a great deal of research and careful planning. During the market entry phase, companies are usually not thinking about cross-cultural training or consultation, but this should be the first concern.
You wouldn’t want to make the same mistakes that countless companies made when setting up their companies abroad.
For example, let’s think about what happened when Home Depot entered China.
The DIY (Do-It-Yourself) model works great in the United States. Americans love to get their hands into things. They feel proud when they are able to tell their neighbors and friends, “Look at this! I made it.”
We can’t say the same for China. The idea of building something yourself in your home is not something Chinese people normally do. Instead, they prefer to hire someone to do it for them. After just six years in the Chinese market, Home Depot learned its lesson and closed all its stores.
Think about how different this story could have been if Home Depot had done cross-cultural training for China prior to setting up there.
The list of failures due to lack of cross-cultural knowledge goes on and on.
Let’s not forget how retail giant Wal-Mart failed in Germany by not adapting its business model to German consumers properly.
Don’t make the same mistake!
The setup of a new venture abroad goes through various phases, and cross-cultural consultation and should be the first. Consult with a cross-cultural specialist on your target market before going into any other steps on the road to market entry. The process should look something like this:
1. Seek the advice of a cross-cultural consultant.
Once the idea of possibly entering a new market has come into the picture of your company’s plans, the first thing to do is speak to a person who will help you understand how your target market thinks, behaves, and may perceive your product or service.
An experienced cross-cultural consultant will help you understand the mindset of the culture you intend to start doing business in, and will be able to steer your company’s objectives in the right direction.
The outcome should be knowledge of consumer behavior and a grasp on what could be done to adapt your product or service to the new market.
2. Conduct market research.
Once you have gained some important cultural understanding, it would be a good idea to conduct a study of the market to determine the gaps, the existing competitors, and the potential opportunities. Market research will also deepen your understanding of the cultural tendencies and expectations of your future customers.
3. Localize your product or service.
As a result of having had cross-cultural consultation and conducting market research, now you can localize your products or services. Only after understanding the culture and the gaps or opportunities in the market, you can appropriately localize your product or service. This is an ongoing process that should be continually revisited throughout the market entry process.
You must be willing to examine the culture and market frequently and make adjustments accordingly. Also, be on the lookout for sudden opportunities that may arise, and take advantage of them.
Having regular committee meetings with continual brainstorming will help facilitate the process. Keep in mind that the in-depth cultural understanding and appropriate adjustment that your business needs ro enter a new market takes time and patience to achieve.
4. Identify your business objectives and goals.
What do you hope to accomplish by entering the new market? Have you written your business plan? What’s your budget and your 5-year plan? 10-year plan?
How fast you can move with your market entry strategy also requires understanding of cultural aspects of the society you plan to enter. For example, how well does the supply chain work? Is there bureaucracy to consider in setup and obtaining permits? How long does it take to gain people’s trust? If it’s a highly relationship-oriented society, do you have existing connections there or do you have to start from scratch?
Also in this phase, cross-cultural aspects should be carefully considered and could dramatically shape the time frames, efficiency of your setup, and even feasibility of certain business goals.
5. Learn about procedures, timelines, and costs.
Contact a company working in your target market that specializes in launching new businesses or branches of companies owned by foreigners or foreign companies.
Most of these companies will give one free consultation at the start, which will allow you to ask all questions you have regarding the logistics, costs and timelines for opening a business in that country.
You may want to speak with more than one, in order to compare costs and get an idea about who would be a good candidate to eventually carry out your business registration. After all, this is a long-term process–especially since many of these companies also offer post-incorporation services–so be sure you choose one that you can imagine working with for an extended period.
Contact us for a personal referral to trusted companies who can register your company abroad in Saudi Arabia, the UAE, India and Italy.
6. Understand compliance.
Research laws and tax obligations in-depth, then figure that in to your plans. For example, as soon as you open a business in Saudi Arabia, you will be required to register with GOSI, the government agency responsible for social insurance, and this needs to be done through a Saudi national working for you.
You need to have at least one Saudi national working for your company, in addition to your General Manager, and all Saudis working for you must be drawing a minimum of 4,000 SAR (Saudi Arabian Riyals) per month (1067 US dollars).
For these reasons, Yazan Shukair of AEI Saudi, a Saudi firm which specializes in opening companies for expat clients, advises his clients not to launch a company until you already have some clients or a means to pay for the obligatory salaries and GOSI contributions.
“Some people want to start their company and let it sit dormant for a while as they drum up business. However, it’s better to wait until you have some clients ready to work with you and then register your company,” says Yazan.
You can accomplish this by visiting Saudi on a Business Visit Visa conduct meetings on behalf of your foreign company. When you are almost ready to deliver services in the Saudi market, carry out the business registration process for a Saudi-based entity.
7. Develop a strategy.
After having gained all the above knowledge, you can develop your strategy. Research the business structures in your target market and decide on one. Every country has different names for their business types: Inc in the US, Srl and SAS in Italy, Pvt in India, and GmbH in Germany, just to name a few.
Define what your objectives are through setting up abroad. How will you add value to the society you are entering, and how will you achieve that? If the goal is having access to incentives like higher profits, growing your client base, or a better business climate, what other trade-offs will you have to make? Is the cost and time frame of adapting your product or service figured into the plan? Are your staff members culturally ready to make the move?
8. Onboard key partners and roles.
Select the company abroad that will help you register your new company. By now you will have gained a sense for who is the most trustworthy and reliable agency to carry out the business registration for you and see your company through to launch.
Next it will be important to assign roles amongst your staff. Choose the best people in your team to prepare your company for entering the new market and clearly define their goals.
Be sure that anyone who you assign for the market entry is willing and able to conduct visits abroad and is fully trained in the culture of the target market. Cultural sensitivity is of utmost importance for anyone working in market entry.
Since these trusted staff members will be conducting meetings on behalf of your company, they need to be aware of local customs, business etiquette, communication style, negotiation tactics and many other factors that will lead to success.
Keep in mind that people who are ill-prepared may make a negative impression of your company on your foreign counterparts.
9. Plan your budget.
There are many costs involved in entering a new market: new business registration, business license, permits, office and factory space, flights, visas, expenses related to travel like accommodation and per diem, and eventually, all the costs associated with relocating staff, including, of course, cross-cultural relocation training.
Plan ahead also for leeway in your budget, as there are always unexpected costs.
10. Figure out an exit route.
Understand the liabilities and complications with closing your company abroad. In some places there are heavy taxes upon closing your company, so just be aware. Home Depot, for example, had to pay $160 million in taxes to the Chinese government upon closure.
Entering a new market is not for the faint of heart, but with the right preparation, especially in terms of cross-cultural knowledge about the target market, it can be a success.
Remember, the biggest problem companies face when working across borders is not marketing, sales, or generating leads. It’s lack of cross-cultural competence.
Founder of Cheryl Obal & Associates
Cheryl Obal & Associates is a cross-cultural training and consulting company that helps businesses improve their cross-cultural competence.
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