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What tech giants can teach growing firms about global expansion

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Expanding into other countries is a logical long-term response to the instability caused by Covid-19. Smaller businesses starting on this journey can learn valuable lessons from the experience of the world’s biggest companies.

It may seem counterintuitive to suggest that now is an ideal time for tech firms to push ahead with plans to expand globally. But in the face of significant instability, operating in more than one country makes a business far more resilient.

So, how can fast-growing tech companies achieve what their larger rivals do routinely: successfully enter new foreign markets?

Big tech brands like Microsoft, Netflix and Amazon are supremely adept at establishing themselves in new territories. A study of how they do this highlights some important lessons that any business, large or small, can apply to its own expansion strategy.

Computer giant Microsoft hit its first real stumbling block on the international stage when it tried to break into China during the early 1990s. It spent seven persistent years with poor financial returns before it diagnosed that the way its business was structured and its Western style of operating created problems for itself.

Microsoft’s predominantly young salespeople weren’t successful in a country where age and experience are supremely valued. The ‘hard sell’ approach also jarred against a business culture of courting buyers and valuing relationships.

Perhaps most crucially of all, Microsoft’s litigious reaction to widespread, and largely accepted, software piracy in China alienated many potential customers who had grown accustomed to using Windows and Office for free. Gates and his team decided not to try to force a square peg into a round hole. They adopted a philosophy of tolerance towards piracy and tapped into this ecosystem of people using Microsoft software to upsell additional products and cement the firm’s brand presence in China.

The company also hired local nationals to run the operation, using their knowledge and long-established professional networks to carve out a space in the market for the American company.

As a result, some 90 per cent of the 200 million computers in China today, including those used by the central and provincial governments, are equipped with Microsoft software that is legally acquired and paid for.

While Microsoft’s international rise took decades, Netflix achieved its global presence in fewer than ten years. Its first expansion into Canada was a success, primarily due to the cultural similarities with the United States. But the streaming service found it much tougher when it turned its attention beyond North America.

Customers in Europe and Latin America preferred programmes in their own language, making Netflix’s vast stockpile of English-language content obsolete. The American firm met fierce competition with established local offerings such as iPlayer and All 4 in the UK, CanalPlay in France and Clarovideo in South America. There were also practical difficulties caused by far less sophisticated technology infrastructures in Africa and parts of Asia.

Netflix worked out quickly that it needed a tailored approach for each country and started to invest heavily in market research and analytics, covering almost 140 target locations. Programming was developed locally and vast sums were spent levelling up internet connectivity in areas with slow connection speeds.

Ten years on and the company went from an exclusively North American brand to one that operates in more than 190 countries with over 190 million subscribers.

Amazon’s success in India is a tale of learning from one’s mistakes. Like Microsoft, it found moving into China difficult. But unlike the computer company, Jeff Bezos’s ecommerce behemoth didn’t adapt quickly enough to make it work. It was unwilling to lower prices or redesign its payment system for customers who favoured bank transfers over credit cards. Its delivery infrastructure also lagged behind local competitors who were making far better use of China’s vast and inexpensive labour pool.

As a result, Amazon lost out to other online vendors such as Alibaba and TaoBao. But the company learned from this and didn’t make the same mistakes when moving into India.

Like China, the subcontinent presented a very different environment to the West – a large number of people didn’t have regular access to the internet and purchases were predominantly made using paper currency in brick-and-mortar stores.

Amazon knew a one-size-fits-all approach had failed once, so it developed an India-specific strategy, starting with the ‘Amazon Chai Cart’ – a door-to-door service offering free drinks and information on the benefits of ecommerce to local businesses. The cart brought onboard 10,000 merchants in 31 cities, who were provided with training, internet connectivity and prime digital real estate on Amazon’s Indian website.

Thanks to its tailored approach, Amazon went on to dominate the Indian online retail market with a 32 per cent market share in 2018.

The lengths these three household names have gone to in order to succeed in new markets may not be feasible for smaller, growing firms, but these examples do serve to highlight three important factors about global expansion.

Understand the local culture, as Microsoft discovered in China. Most companies don’t have the bottom line to spend the better part of a decade to figure out a new market. An effective strategy is to employ people in-country to make you smarter and more nimble. With more limited resources, growing firms implement flexible, compliant solutions to global hiring.

Second, what works in one market might not be successful in another. Netflix’s efforts to understand each of its target markets in great detail, and tailor its product to them, is fundamental to its global success.

Lastly, learn from your mistakes. An unsuccessful expansion could be the key to getting the next one right, just as Amazon applied the lessons from its failed China expedition to its approach in India.

A common thread learned by all three of these tech companies is flexibility. For growing firms, flexibility is paramount. They look for speedy hiring strategies to remain culturally relevant in new markets, adapt their product to local customers, and seek additional markets to double down on success, or move beyond a challenge not delivering a return.

José Montero is chief operating officer at Velocity Global.

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