Why Should IT Companies Enter International Markets and How to Take First Steps?

Why should companies enter new markets? There are more answers to this question than it might seem at first glance.

“I want to live in country XXX” is a perfectly valid answer, but then the market doesn’t matter – you need to go and choose where you like it best.

“I want to diversify currency risks and receive part of the revenue in foreign currency” – this is about business. Many companies and investors are motivated by this, but it’s worth looking at which currency is least susceptible to inflation risks and force majeure.

The main motive for a startup that all venture investors in the world like is “I want to build a company with large capitalization.” Keep in mind that capitalization reaches its maximum values when going for an IPO.

“Need an investment round” – local investors will give money if the legal entity is registered in their country, intellectual property is registered to the legal entity, the CEO has a visa and legal grounds to be in the country, and the company has traction and revenue. Your successes in your home country don’t matter – investors want the proof that you can work in the local market.

There can be many answers to the question “why should I enter another market?” There are no wrong ones, but you need to decide. The strategy will depend on these.

In general, the methodology suits most companies regardless of country. Here are the basic steps:

What to Base Market Selection On?

There is no global market. There isn’t even a local one – there’s no European market or Southeast Asian market. We assume these countries are united by some similar features, faith, language, culture, history. But when choosing a market, you’ll focus on a specific country, or maybe even some part of it.

The simplest option is to follow the customer. Where there’s more money, there’s a bigger market, and one might assume that’s where to go. At the same time, if we look at the list of the world’s largest economies, the top spots are the US, China, Japan, Germany. It’s important to understand the limitations though.

Another important indicator is growth rate. It’s much easier to work in a rapidly growing market. Look at India – it’s a specific region, but in three to five years, it will become the world’s third-largest economy.

The main disadvantage of evaluating the market through GDP is that these numbers don’t tell you about the size of your specific segment.

Choosing Top 3-5 Countries

We narrow down the list of countries. You can create a simple Excel table ranking countries by the following points:

• GDP – how much money is in the economy?
• How many potential customers?
• CAGR – what is the year-over-year growth in customers/money?
• Internet penetration
• Political restrictions
• Cultural and religious characteristics
• Legislation

Answers to the first five points are quite easy to find online. To understand political risks and cultural characteristics, you need to talk to locals. Perhaps the most difficult question is legal – even experienced lawyers don’t always understand the highly specialized issues of your product and market. However, from the first 6-7 points, you can already understand whether the market is suitable or not.

There may be additional parameters for your business, but these are the most basic.

Additional considerations might include:

• “Do I have partners among international companies?” You can try to enter a new venue through these connections. The business will receive a certain limit of trust, acquaintances, and useful information from them.
• “Customers outside my country.” Look at those who have bought from you. There might be single purchases from abroad that went unnoticed. Talk to these customers; you can get a lot of interesting information.
• “Which markets are my main competitors in?”
• “The team has a native speaker or localization is already ready” – also a strong advantage.

It’s important to understand how our cultures differ. For example, in Latin America, it’s difficult to get quick decisions and answers. Mañana, the favorite word of the locals, actually has a connotation not of “tomorrow,” it means “not today.” One might agree, the difference is significant. It’s just their psychology; they’re not in a hurry.

Look at the Country Mapping Tool service; although it’s paid, it clearly shows the difference in behavior and cultural characteristics.

After this research, you should have 3-4 countries left in your target market list.

Conducting Interviews and Research on Customers, Competitors, Experts

Startups are familiar with the Customer Discovery method of market research. If not – you need to urgently read literature, watch webinars; all the information is available. Briefly, it’s a series of interviews with potential clients, competitors, and market experts.

You’ll have to pay for some interviews; good experts value their time. But most often it’s worth it.

It’s important to remember that the product can and should be changed. First talk to customers, then modify the product for them.

Setting Up Lead Generation

After the very first interviews, you need to launch lead generation. Set up advertising, translate slogans, focus on competitors’ ads. You’ll get potential customers, find channels, see conversion rates and lead costs.

There’s a big but. This won’t work in an enterprise segment. When there are only 50-100 large clients in the entire country, you need to look for other approaches. Reach decision-makers through mutual acquaintances or through funds and programs with international networks, participate in local accelerators.

Market testing should end with first sales (in B2C, B2B SMB segments) or a pilot if you work in B2B-enterprise.

Choosing One Country

If you have a large and well-stuffed wallet, you can go to several countries. Some large companies do that, though it requires tens of millions of dollars. If you don’t have such resources – concentrate on one country.

What do you need for this?

To independently go through the entire process of searching and testing markets, you need at least three components:

• Dedicated team. A full-time team of 2-3 people, led by the founder. The CEO (or person who will become CEO of the international direction) must participate in this process. If there is no such leader or they’re busy with something else, then the international market entry will likely fail.
• Budget. I would estimate several tens of thousands of dollars. You need money for the team, hypothesis testing, lawyers, translations, and localization. Without a budget, like without a leader, the project is doomed.
• High speed. A dedicated team with a budget should quickly test hypotheses. Slower than one hypothesis per week is poor work. It means processes aren’t set up, something is missing, like native speakers, or understanding of specifics, or a tracker. The entire market selection process described above should take about three months; if slower – you need to change your processes.

For over 10 years, the Internet Initiatives Development Fund has been helping startups grow, find new markets, and develop. The GoGlobal program works specifically for IT companies looking to scale, with support from the Moscow Government and Moscow Export Center. Thanks to the support of more than 150 teams, teams have launched sales in 30 countries across Europe, Asia, and Latin America.

By Dmitry Kalaev, Partner at Internet Initiatives Development Fund, CEO at Accelerator IIDF

Last Updated on 1 month by News Desk 1