Read the full script of Module 7, Episode 4 of the Global Growth Master Class below. Want to get certified on global expansion? Simply click here to access the complete course today.

Now, let’s explore some additional aspects of the Localization Premium Analysis and key lessons, through case studies of some fast-growing companies.

One of the biggest things we have seen is how language in particular, and to a lesser extent geographic proximity affect the market selection and prioritization for companies, which is a concept we call the Familiarity Bias.

Similarity of language and/or geographic proximity does not necessarily equal success when entering new markets. When teams focus on entering new international markets, they may assume that a geographically adjacent market or one that speaks the same language will be a good market to launch in and that little adaptation will be required to achieve company-market fit. However, this is a form of Familiarity Bias, which leads to dangerous assumptions.

For example, countries that primarily speak English may have similar cultures, but there are differences in many of the localization premium categories that necessitate pivots to the core business model - this means that the strategy of expanding from an initial market in the USA to the UK, Australia, and Canada, all because these countries speak English, isn’t always correct. The same is true when a company from a Spanish-speaking country seeks to expand to another Spanish-speaking nation. Familiarity Bias prioritizes a market simply because it shares the same language or is geographically close, but this approach can be misleading.

It’s also important to call out the risks of following organic growth. Just because you see some initial traction in a new international market, does not mean you should commit to launching and scaling in that market. It might be that these early adopters represent a large portion of the total addressable market in that country. Moreover, to capture the mass market in that country may require extensive localization that these early adopters don’t require. Organic growth can be a good indicator of opportunity, but consider it as part of a deeper analysis and not as a sole or primary driver of where you expand.

Let’s investigate Square’s expansion and how it was driven by Familiarity Bias

Let’s look at how familiarity bias affected Square’s initial international expansion. Square faced challenges at many levels with its physical products (POS systems) as it expanded internationally. Testing was essential to the company’s expansion journey and failures/complexities along the way led to changes that eventually ended in a globally scaled business.

In Australia, air shipping distribution is not as advanced as in Europe, Asia and the US. You need to understand the quirks and nuances of the distribution in each country and in Australia, they are not as distribution savvy. Even to be able to answer straightforward questions like, what is the best way to move products from somewhere in Queensland to Melbourne to meet a commitment of a fast turnaround for a client? can be difficult.

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Before launching in Australia, Square’s supply chain team conducted a thorough test of the county’s shipping system to ensure product and packaging integrity along with calculating estimated shipping times. This was part of a broader pre-launch testing initiative that also included labels/stickers since every country and even individual retailers do it very differently (having UPC and GTEM labels and deciding which stickers go where to meet local requirements; some going on the unit packaging others on the carton and others still on each pallet). 

A relevant note is that in the hardware world, shipping products with batteries are a big deal because there have been airplane accidents related to having lithium batteries onboard, so carriers are sensitive to this type of cargo and have their own custom rules for their transportation (a big International Debt risk!).

When it came time to launch, Australia Post refused to ship Square’s products (which had batteries) via air. The team hadn’t uncovered this in all the testing conducted since the test products were shipped via ground service. Even though the product was certified by the International Air Transport Association (IATA), adhering to its centralized universal standards, in attempts to internationalize packaging, the decision came down to one Australia Post employee who wouldn’t permit the item to be shipped. A similar situation in Canada came down to a single carrier employee’s decision as well.  In the end, the Square team had to choose another carrier.

Learning their lesson, the team did more in-depth testing before including speaking to carriers during Listening Tours to uncover issues they found with their standard packaging being 1MM too big to fit in Korean mailboxes. This afforded the team time to change the packaging in advance of the launch, avoiding a frantic post-launch issue.[7] [8] 

Another thing the LPA can help you take advantage of is the concept of Linked Markets & Pattern Identification

Although adjacent markets have significant differences and require adjustments, there can be a linked relationship between markets. Changes made to gain traction in one market may be applicable when entering a nearby market. Thus, accumulating localization premium in one market may limit premium costs in certain categories when entering a related market. Linked markets may share similarities in language, culture, or legal structures, or they may be geographically close, or none of these factors may apply. In other words, the LPA can help you determine the order in which to enter new markets to create momentum and scale.

Let’s use Airbnb’s Expansion to South Korea, China, and Japan as an example

As Airbnb ventured into new markets in Asia, it prioritized three countries (initially focused on attracting travelers over local hosts) - China, Japan, and South Korea. While all three countries are major markets, the travel industry in each had different stages of growth and maturity and varied in size and scale. South Korean and Chinese consumers, especially young consumers that Airbnb targets, tend to be more open and adventurous with their travel preferences. In contrast, Japan has a more established travel market, and more consumers viewed Airbnb's new travel style as riskier. Under the framing of traditional market analysis, Airbnb would have noted that China had the largest population, prioritizing launching there, or would have favored the more developed Japanese economy with higher income per capita. Understanding the power of Linked Markets, Airbnb took a different approach.

Despite being the smallest of the three markets, South Korea served as a reference point for Chinese and Japanese consumers who looked to Korean influencers for the latest trends. Consequently, instead of distributing marketing resources equally, Airbnb initially focused more on South Korea.

To gain a foothold in key Asian markets, Airbnb took various steps to expand its reach and appeal to local consumers. They expanded their customer service operations in these locations and introduced support for Asian languages (Sales Premium). The app's original English text was replaced with a more visual interface that would be more engaging for Asian consumers and overcome language barriers (Product Premium). Different marketing strategies were tested, with a focus on travel trade shows and partnerships with local travel organizations and influencers (Marketing Premium). These organizations provided additional opportunities for outreach that were not as necessary in the company's more direct-to-consumer approach in the United States but were critical to building momentum in South Korea and other important Asian markets. 

After finding traction in Korea, when Airbnb expanded into China and Japan, they were able to leverage the work they had done in the South Korean market. The improvements made to the app, the customer care center, and marketing tactics used in South Korea were easily adaptable to these markets, resulting in lower Sales, Product, and Marketing Premium. This allowed Airbnb to use a proven playbook to accelerate its market penetration and build momentum.

Despite incurring localization premium, particularly in Infrastructure and Admin Premiums in China, Airbnb was able to scale faster in the region thanks to the groundwork laid in Korea. Similarly, Apple was able to reuse much of the playbook it had developed in Brazil when it expanded to Mexico, thanks to employee training and knowledge gained from partnering with local labor unions in the region, resulting in significant Org. Premium benefits. Platzi, an online education platform, discovered linked markets throughout LATAM, while Spotify had early success by leveraging linked markets in Scandinavia (Denmark and Norway in particular) during its global expansion.

Choosing the right sequence creates momentum because the localization work is front-loaded. This doesn’t mean you should choose markets that incur a lot of Localization Premium, but what it does mean is that if you understand how certain markets are linked and you prioritize the right markets first, then the localization you do there can be scaled into other adjacent markets, which means that the localization work that needs to be done in these additional markets is smaller, leading to speed and scale. 

Now let’s look at - Perception vs. Reality: Expected Localizations vs. What Actually Led to Market Penetration & Growth

The localizations actually required to gain traction in a new market may be drastically different than what a leadership team may initially anticipate. Often teams will underestimate the amount of changes or will focus on a subset of the Localization Premiums, often, the Go-to-Market parts on the top of the spider chart, leaving the operational elements, the part of the iceberg below the surface unanalyzed or misunderstood. Such was the case with Evernote’s expansion into India.

Evernote’s Expansion to India

Troy Malone initially recognized that certain aspects of the company's go-to-market and operating models would require changes, but underestimated the extent of these changes, particularly regarding the latter. He believed that entering the Indian market would be easier than other countries under consideration due to the size of the Indian market and the high number of English speakers - India is the world's second-largest English-speaking country. This perception was influenced by familiarity bias and the belief that the go-to-market premiums (Sales, Marketing, Product) would be minor. However, the go-to-market premiums turned out to be just the tip of the iceberg in terms of the localizations required to achieve company-market fit in India.

Regarding the go-to-market Localization Premiums, Evernote's team initially believed that the pricing strategy would need to be adjusted (Sales Premium) while the product could largely remain the same (Product Premium). However, they were caught off guard by the need to rely on partners to sell their business product (Sales Premium) instead of solely relying on personal users to upgrade to business users, as was the case in the US. Additionally, they underestimated the level of Marketing Premium required due to India being a mobile-first country, which required a shift in their marketing strategy from desktop-focused to mobile-focused.

The operating strategy changes were even more extensive and unforeseen. Initially, the team anticipated minimal localizations were necessary for the infrastructure, and this proved to be accurate. However, they expected only minimal Org. Premium would be necessary, which was NOT the case. The business culture in India followed a norm of not questioning authority and only performing tasks without adding to discussions or building on ideas, which was in contrast to Evernote's collaborative and open company culture.

The most significant unexpected costs were related to Admin. Premium, which incurred more expenses than initially estimated. Evernote had to deal with various complex administrative procedures, including complying with Indian regulations that mandate businesses to have a local entity with an Indian chairperson and require in-person board meetings twice a year, causing company executives to fly to India regularly. Additionally, transferring revenue out of the country was challenging due to bureaucratic procedures, resulting in significant amounts of paperwork and other obstacles, leading to a higher-than-anticipated amount of Admin. and Org. Premiums.

Looking at the graphic on the screen, you can see a comparison between what Troy and the Evernote team initially thought would be the amount of premium incurred for each category versus what ended up happening during market entry.

NOTE: Don't miss out on the next episode! If you want to continue learning about global expansion strategies and dive deeper into the course material, simply click here to access Module 7, Episode 5 of the Global Growth Master Class.