When building a business, the critical first step is to develop a strategy that resonates with your market. But once you’ve crafted that winning strategy, what does it take to successfully translate it into new markets?
When companies expand overseas, they often assume the competitive advantages that have made them successful in their home countries will seamlessly transfer into new global markets. And indeed, this can sometimes be the case. For example, Sequoia’s existing brand resonated well with Indian entrepreneurs, and so its expansion into the Indian market required minimal adaption. Similarly, Intel has achieved lucrative returns selling semiconductors to customers in China because its chip design and manufacturing technology is hard for competitors to replicate.
However, not all competitive advantages translate quite so smoothly. Through more than 100 in-depth interviews with executives at multinational corporations based all around the world, my team and I found that there are three primary factors that determine whether a competitive advantage will transfer into new markets: the local competitive landscape, local customer preferences, and the extent to which a company is willing and able to adapt to meet those local demands.
1. Local competitive landscape
The first common hurdle we identified was differences in competitive landscape. You may have successfully beat out the competitors in your home market, but that victory doesn’t necessarily translate to other markets, which may be home to other competitors with different strengths and weaknesses.
For example, despite its success in many global markets, Starbucks lost $143 million in the first seven years of operations in Australia, ultimately forcing the company to close 61 of its 84 Australian stores. What happened? There were several factors at play, but a major flaw in Starbucks’ strategy was its underestimation of Australia’s rich coffee culture. In contrast to other markets in which customers were less familiar with coffee as a “lifestyle experience,” Italian and Greek immigrants had developed a vibrant coffee scene in Australia dating as far back as the 1940s and ‘50s. By the time Starbucks entered the market, it was competing with a wide variety of independently owned coffee shops that offered more flavors at lower prices, and that already had strong brand loyalty among Australian customers — a vastly different landscape than what the company was accustomed to at home.
2. Local customer preferences
Differences in competitive landscape often go hand in hand with differences in customer preferences, as competitors respond to (and in some cases, create) demand that diverges from a company’s home market. As a result, a product that’s appealing to consumers in one market may be utterly irrelevant in another.