Monday, June 30, 2008

Let's Go International...Maybe But Probably Not China

There is a feeling, especially in some smaller to mid-sized businesses, that in order to grow a business, you need to expand internationally. A firm's growth goals might include a global strategy, but it does not have to be.

There are plenty of successful business that stay local, regional or within the country. In most cases, a firm's growth plans depends on the business and the market for the products or services.

But if international business is one of your expansion goals, then don't start with China.

International expansion is expensive. It requires significant external and internal marketing and product research. Just because product or service work in California does not mean it will work in Asia or Europe. Just because it works in Korea, does not mean it will work in Singapore. What works in England might not work in France.

Case in point: the Oreo cookie we know in America looks nothing like the Oreo cookie in China. It took Nabisco some trial and error to get the product right.

A firm can go abroad to sell its product into a new market. It can go abroad for manufacturing, support, engineering, etc. However, as the price of energy increases, transportation expenses will play a bigger role in the financial justification. The cost to transport raw and finished goods increases; the cost of executive or worker travel go up; the cost of marketing programs are more expensive.

In today's WSJ, there is an interesting article entitled China's Export Machine Threatened by Rising Costs. In China, the Yuan has appreciated significantly; inflation is high; it is harder for Chinese firms to retain their employees; wages are up sharply. All the good reasons to by Chinese products and services are diminishing.

The article examined the Chinese sweater industry. Honghe, China was the sweater manufacturer of the world. These days, they are really struggling to keep plants operational. Walmart is able to find cheaper sources of sweaters.

Markets are dynamic. Nothing is guaranteed (except taxes and death, yea I know). International expansion may be appear sexy, but it is not always what it is cut out to be. It is hard, expensive work. I have been the beneficiary of a global company on multiple occasions. My current firm has not interests in a global presence for the foreseeable future.

If you must go international, start with Canada or Mexico, not China.

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