The US is a market of more than 328 million people that generates about a quarter of the world’s gross domestic product. Hispanics are already the largest minority, with 17% of the population, which makes this market even more attractive to companies from Spain and Latin America. Success in this country can be a turning point in the development of any company.
The Cosentino Group, producer and distributor of surfaces for architecture and design, was created from a small marble producer company founded in Almería, Spain in the 1940s. Today, more than half of its sales come from the US market, where its workforce exceeds 1,000 employees.
After 16 years of work experience in the US, largely leading or advising internationalization projects, I have witnessed numerous triumphs and failures of foreign companies in their entry efforts. This has allowed me to learn multiple lessons about the keys to the success of such operations. These keys can be extrapolated to internationalization in other countries.
1. Get an in-depth understanding of the target market
It is essential to achieve from the outset an in-depth knowledge of the target market of our products and services, in terms of potential customers, competitors, distribution and sales channels, access to critical resources, barriers of entry, opportunities and trends. All this will allow us to assess the feasibility of our internationalization project.
British supermarket giant Tesco, the third largest in the world, failed in its attempt to enter the US market after spending more than 1.7 billion euros in five years. Their mistake? Focus on selling fresh and healthy food, following a highly successful trend in Europe, which was not sufficiently appreciated by the average US consumer at that time.
Too often companies try to sell their products without having made the effort required to understand the needs of their potential customers or the competitive environment, before any adaptation of their value proposition. Sometimes a decision is made to address the market starting from a single opportunity with a client, forgetting to act strategically.
2. Know the cultural, legal and work environment
Cultural differences are profound and the nuances of the language are extremely complex. Even after several years in the US, one is often surprised about details not perceived earlier. The way you do business, the dynamics of meetings, rituals and customs differ from other countries. It is essential to accomplish a full adaptation to be able to obtain the respect and confidence necessary to launch our business.
Swedish manufacturer Electrolux tried to sell its vacuum cleaners in the US with the slogan “nothing sucks like an Electrolux”, which in colloquial American English means “nothing is as bad as an Electrolux”. Unsurprisingly, the outcome of the campaign was a disaster.
Many other aspects have to be taken into account to operate successfully after landing. In particular, the labor market, the regulatory environment, the fiscal and tariff aspects, as well as barriers to entry.
Multinational companies must adapt their policies to the country to be able to attract and retain talent, this must be done with the support of local experts to avoid costly mistakes.
Cultural nuances and language can get you in trouble…
Santander City Council translated “Centro Botín” by “Loot Center” on its tourism page for Fitur 2018. Botin is the last name of the founder of banking firm Santander and also means ‘loot’. The danger of automatic translations…
In the translation of the human resources policy of a Spanish company in the US, the word “retribution” was used instead of compensation (“retribución” in Spanish), which gave a dangerous wrong message.
3. Define the correct initial strategy
From the knowledge of the areas mentioned above we can define an initial strategy. In the case of a multinational or an online business, you can think globally, but must always act locally, adapting to the characteristics of each market.
All options should be considered for the initial operations: acting through local agents or partners, creating a local subsidiary, acquiring an established company, or a combination of several of these routes.
A SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) is a good way to perform in a structured way the study that will allow us to define the strategy.
Another lesson learned of enormous importance:
Think big, start small, learn fast
That is, be ambitious in your vision, but start with something small and learn quickly.
4. Adapt the marketing
Toyota successfully manufactures and sells several vehicles in the US that it does not market in Japan or other countries, such as trucks and minivans. Approximately 50% of its US sales are assembled locally.
Trying to insert in a new country the company’s entire commercial offer with hardly any modifications is a mistake. It is necessary to choose the products with the highest probability of success and adapt them as necessary. So did IKEA when it entered the US market, where it focused on its line of kitchen products and bedrooms. In the extreme, as in Toyota’s example mentioned above, you can export capabilities rather than products or services, designing exclusive products fully aligned with the demand of local consumers.
Obviously the price must be adapted to the market, which will define whether or not it is competitive depending on how the product is promoted and perceived, regardless of production costs.
Marketing, as an integral part of the process, must also be shaped to produce the desired impact on potential customers according to the selected strategy.
Zara’s prices in the US are about double the prices in Spain, even though the per capita income is only 36% higher
5. Finding the right balance between local and company human resources
The success of an internationalization project requires perfect coordination between:
- Local human resources in the target market, who provide the ‘U.S. face’ when needed. It is critical to invest in their training and integration with the company culture. A permanent challenge is the enormous dynamism of the U.S. labor market, in which it is difficult to attract and retain highly skilled personnel.
- Leaders of the Parent Company who have weight in it, know their products and services in depth, and have the flexibility and learning capacity sufficient to adapt to the target market, acting as a bridge with the rest of the home company.
It will be necessary to obtain the collaboration from both sides and organize long joint seasons, especially at the beginning, to achieve this integration.
Cost differentials and the value that each party can provide must be taken into account. In some cases, wages in the US will be much higher than in the home country, but it may be a costly mistake to assign to the parent company certain tasks such as sales, marketing, accounting, IT, human resources, legal issues and others.
6. Relying on partners and institutions
Implementing our strategy successfully at an acceptable cost will depend to a large extent on us finding and using effectively the necessary external supports. These include:
- Federal, state and local U.S. institutions, always interested in supporting any project that brings investment and will create jobs. A good starting point is SelectUSA, a program of the US Department of Commerce that aims to facilitate entry to business projects.
- Institutions from the home country supporting exports, the corresponding Embassy and consulates in the US, and frequently organized trade missions.
- Associations and Chambers of Commerce
- Consulting companies such as Markentry USA, experts in internationalization projects that know both countries well and can provide the necessary local support.
- Other foreign companies working in complementary markets that can act as partners sharing resources, contacts and knowledge.
- Local companies with which “joint ventures” can be established when a model of mutual benefit can be defined.
7. Consider both the commercial and government markets
The US Federal Government is the world’s largest customer, with an expected 2020 spending of more than 4.8 trillion dollars (US trillions)
A pinch of this gigantic cheese can dramatically boost any company that wants to land in this country, both by volume and for the prestige it entails. At a lower level but with great importance are state and local administrations. All of them should be considered as part of the potential US market.
In public contracts it is necessary to take into account aspects such as:
- The “Buy American Act” (law that requires preference for U.S. products in purchases by the federal state)
- The advantages given to local Small Businesses in certain contracts (“Small Business set-aside”) that generally do not apply to foreign-owned enterprises
- The dynamics of public contracts and the complex rules applicable to such tenders, with a great emphasis on ensuring the transparency of the awards and free competition.
- The complex mechanisms that foreign-owned enterprises must put in place in order to work on defense contracts or dual-use technologies.
8. Define realistic deadlines and budgets
In 2011 the Spanish chain 100 Montaditos attempted to export its successful franchise model to the US, where it announced a plan to open thousands of establishments. After opening 50 restaurants in 4 years, its U.S. subsidiary had to declare bankruptcy (“chapter 11”). After a restructuring process the company seeks to be reborn through a new strategy.
With very few exceptions, a company’s internationalization projects tend to require much more investment and time than initially estimated. In many cases it will be necessary 2 or 3 years before having results that confirm the success of the initiative. In order to have a realistic forecast, it will be necessary to complete an initial study that gives us the necessary information and allows us to define a strategy that we can use to obtain a reliable plan and budget.
All costs should be included, including human resources, required investments, costs of external consultants, licenses, lawyers and accountants, offices, travel, and a long list of factors. Careful financial planning will be needed to ensure project continuity even in less optimistic scenarios.
But it is also essential to take into account in the decision the intangible benefits of the project. Entering prestigious markets like the US has a multiplier effect and helps the brand globally. Similarly, the presence in the US can give access to sources of human and financial resources of enormous value to the company. The opportunity cost of not acting should also be considered if we are not taking advantage of options that can be exploited by competitors, which could allow them to grow and snatch some of our home market in the future.
9. Once the strategy has been defined, act quickly and adapt it continuously
The definition of a good initial strategy is critical but we must avoid a state of ‘paralysis by analysis’ which could end up delaying the start of the activities. At the same time we should not continue implementing the initial strategy religiously without change and indefinitely. As Eisenhower said…
“Plans are useless, but planning is indispensable”
That is, what is important is that we follow the strategic planning process well and that we are prepared to do it again often, incorporating everything that we learn along the way, knowing that every plan that we generate will be full of errors and will be obsolete in a short time. At the beginning, we don’t even know what we don’t know. We must not try to generate a perfect business plan that serves us for the long term, but rather a template that we will manage in an agile way and update periodically with everything we learn along the process.
10. The most important point: Selecting the right staff to lead the process on both sides, giving them the necessary resources and supporting them to the fullest
Energy, ambition, humility, empathy, open mind, flexibility, tolerance to rejection and failure, learning skills, passion for the project… are essential qualities for the people that will be at the forefront of the initiative to achieve success.
But it won’t be enough. They will need the maximum support of the top management of the company, which must have faith in the long-term project. Some of the success stories are explained because senior executives, including the company’s CEO, are personally involved and travel frequently to the US, especially during the initial stage.
This article was initially published in Spanish in the Blog of Jesús Lacoste and is reproduced here with his authorization.