Read the full script of Module 7, Episode 2 of the Global Growth Master Class below. Want to get certified on global expansion? Simply click here to access the complete course today.

Let’s talk about the transition between Hypothesis Development and Complexity Mapping.

Both the Hypothesis Development and Complexity Mapping steps of the Market Readiness & Strategy Development stage of the global agile methodology have distinct but interconnected goals and purposes. The main use of the Business Model Localization Canvas (BMLC), discussed in the previous module, is to facilitate localization discovery, market identification, and identifying potential localizations for new markets.

The Localization Premium Analysis, or LPA for short, the primary framework of the Complexity Mapping and Market Entry Strategy Creation steps serves as an implementation, communication, analysis, and prioritization tool, while the BMLC is more focused on iteration and validation.

The LPA is particularly useful for creating a plan to achieve market entry and finding company-market fit during the market growth stage and allows for comparison with the initial market as a reference point

[1]  The framework is multifaceted and integrates with the BMLC, with insights from filling out the BMLC translating into the premiums in the LPA. To simplify the process of uncovering necessary localizations in a new market, we have outlined the six go-to-market and operational areas, which we label as “Localization Premiums” described in the previous module to better structure communication around localization, allowing for a more direct route to generating new hypotheses for the business model in the new market.

Overall, the LPA serves as a bridge between strategic planning and implementing localization strategy while taking complexity into account

By using a spider chart, we can effectively map out the different subcategories of localization premium and gain a better understanding of how much each area deviates from our current business practices. Essentially, each premium in the analysis reflects a specific aspect of the business that may require localization in order to successfully enter a new market and establish company-market fit.

The spider chart is centered on your core model or product-market fit in your initial market [2]. This serves as the foundation for achieving successful international expansion. Without a solid base, your core may constantly shift, creating operational instability for local teams in new markets. For instance, Microsoft’s Workplace Analytics team was drawn to the Japanese market before confirming product-market fit in the United States.

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The Microsoft team saw that they could ride a tailwind and be one of many solutions to support a government-backed initiative that asked Japanese companies to address concerning work practices (including the problematic and tragic issue of karoshi, or “death from overwork”). Still lacking clarity on the appropriate customer use cases and more comprehensive value propositions in the United States (initial market) made it exponentially harder to find traction in Japan beyond pilot engagements without a core reference point that had been validated in the initial market. 

The portion of the spider chart surrounding the core depicts various layers, 5 in all, akin to standard deviations or the degree of difference from the core as described by Paul Williamson from Plaid.[3]  The larger the surface area among the chart's points, the greater the Localization Premium being accrued [4] . Each point corresponds to a business area and its operations, where localization premiums can accumulate. The top half of the chart comprises subcategories related to a company's go-to-market strategy, while the bottom half represents the operational strategy and scaffolding supporting local operations.

There are 5 rings around the center, meaning that the highest Localization Premium, complexity rating each category can get is 5. If the dot is placed right at the center, it is a localization premium of 0, signifying the model for that category exactly matches the model in the validated market. A score/placement of 5 represents a drastic shift from the current model being required. With a maximum premium of 5 per localization premium category, and 6 total categories, the largest Localization Premium possible is 30.

As described in the previous module, the Localization Premium categories and their subcategories include:

• Sales Premium – distribution channels & sales, customer service, pricing & revenue model

• Product Premium – product and feature changes

• Marketing Premium - target customer, advertising channels/marketing strategy, value proposition, use cases, competition

• Administrative Premium - corporate entities, employee compliance, intellectual property protection, transfer pricing, taxes, local politics and more

• Infrastructure Premium - supply chain, tech stack, and payment infrastructure

• Organizational Premium - hiring, training, organizational culture, support teams, as well as the structures and processes (which we detail in the next module) to support growth and operating at scale

The Iceberg

What often happens with the Go-to-Market Premiums (Sales, Product, and Marketing) is that companies treat these premiums like an iceberg, focusing much more on the visible portion, thinking that a straight-forward exercise of language translation, changing pricing to local currency and localizing marketing messages is all that is needed to succeed. In reality, there is much on the bottom half of the LPA spider chart (the part of the iceberg below the surface) that requires localization and is often overlooked.

Besides outlining the degree of localization required in each of the go-to-market and operational areas, the Localization Premium Analysis has a number of other valuable uses.

Localization Premium Analysis Use Cases & Benefits

The Localization Premium Analysis, LPA, is a tool that can serve a number of purposes and can solve problems many companies face when going through both market entry and market growth phases. Here are a few of the ways you can use the LPA to assist as you navigate through the localization process.

●  New Market Analysis

●  Market Prioritization

●  Communication Tool

●  Visualization of Risks

●  Overcome Myopia

●  Road Map Alignment

●  Foundation of Playbook

●  Implementation Tracking

●  Linked Market and Pattern Identification

Paired with data on market size/opportunity and organizational readiness (which can be determined by the Global Readiness Score, as we previously discussed) the exercise of determining the overall composition of changes required to enter a new market is an effective tool for determining which markets to prioritize. Countries with a lower localization premium may be the right focus in the short term, but in the long run, it may make sense to prioritize a market that requires more localization because these changes could be scalable in other related markets, thereby increasing momentum and leading to faster penetration in multiple countries. This is the Linked Market concept discussed later in the module.

Troy Malone, former head of International for Evernote, suggests bucketizing each market based on the amount of localization premium market entry would incur into one of three categories:

●  Available Markets—Markets that would incur little premium to enter

●  Emerging Markets—Markets that incur more premium and would require overcoming some obstacles

●  Challenging Markets—Markets that are problematic and would incur extreme premium

Naturally, the criteria for how to classify each market is highly dependent on go-to-market and operational models and can vary wildly from another company’s classification.

Communication Tool

Visualizing and explaining the complexities of entering a new market and the necessary changes to the existing model can be challenging. However, the LPA simplifies the discussion by identifying the required changes within the context of the significant differences in the new country's business model. It serves as a high-level summary that encourages further discussions and greater buy-in. The LPA is particularly effective in providing a comprehensive yet straightforward description of the necessary localizations to senior executives and board members. This aligns directly with the Four Commitments for Successful Global Growth, particularly the commitment to communication and clarity.

Visualization of Risks

When it comes to assessing risks, executives and board members tend to consider various factors such as regulatory, reputational, political, financial, and security risks. By using the LPA, companies can identify and visualize the changes needed to enter a new market, which can in turn facilitate discussions around the risks involved in making those changes. This approach provides a comprehensive framework for evaluating risks and can help companies make informed decisions about whether to pursue a particular market.

Overcoming Myopic Viewpoints

If a company doesn't have a complete overview of all the necessary adaptations required to localize in a new market, the employees and executives may tend to concentrate only on the changes that affect their specific areas of expertise, such as sales, marketing, or HR. However, mapping out each premium associated with localization, minimizes bias toward particular roles, particularly in companies driven by a specific function, such as product development. It is crucial to communicate a comprehensive set of changes so that each team is given the appropriate attention and resources to carry out the necessary actions.

Road Map Alignment

The link between strategy and implementation is crucial. The LPA provides a clear overview of the necessary changes, enabling teams to understand their roles and responsibilities and incorporate these changes into their roadmaps.

Foundation for a Global Growth Playbook

The LPA, along with the findings from localization discovery, serves as the foundation for a Global Growth Playbook that can be continuously refined and improved by the global growth team.

Implementation Tracking

After launching in a new market, establishing effective feedback loops is crucial to success. The process of estimating localization premium not only quantifies the complexity a company must undertake but also serves as an effective tracking tool. Aside from forecasting localization premium, this exercise can be revisited post-launch to track the actual complexities incurred and compare them to the initial estimates. This helps set better expectations for future market entries and encourages consistency.

The LPA can also be a valuable tool for evaluating the complexities and localizations of markets where a company already operates, potentially revealing new success factors and criteria to consider when assessing future market opportunities. For example, BlaBlaCar's experience with cultural acceptance of hitchhiking in Russia because of the cultural norm of giving strangers rides during Soviet times when few people had cars, could be used to identify a new cultural criterion for evaluating potential new markets, in addition to other factors such as economics, demographics, government regulations, and market dynamics. By completing the LPA for existing markets, companies can gain new insights and refine their evaluation processes for future expansion opportunities.

The LPA can be used to demonstrate how a company is implementing different models across multiple international markets. This can reveal the number of distinct models the company is managing and identify opportunities to simplify operations and streamline processes. For example, the LPA can help identify best practices that can be shared between markets or optimizations to organizational structures that can better support the company's current and future global presence.

Linked Markets and Pattern Identification

Observing and tracking successful localizations in current markets can reveal useful insights such as emerging trends, best practices, and patterns that can inform future market selection and guide strategies for entering new markets. The LPA can be utilized as a tool to identify markets that are interrelated, where implementing an operational or go-to-market change can positively impact multiple geographies.

The Localization Premium Analysis Isn’t Just for Launching New Markets

The LPA is not only useful for entering new markets but also for companies with an established presence. In addition to providing insights for future market selection, maintaining multiple LPAs by local teams enables cross-border teams to have transparency into the changes made in each market. This allows for the sharing of best practices, and scaling of innovations, and creates the foundation for a Global Growth Playbook that can accelerate expansion initiatives.

Putting the Localization Premium Analysis into Context

After mapping out anticipated localizations on the LPA, the next step is to evaluate the quantitative impact of these changes. Other factors to layer on when evaluating new markets include:

●  Level of importance/priority to the business (because some localizations would take priority over others)

●  Level of scalability (because localizations can be used in other market expansions)

●  Core value and company culture alignment (because some localizations may challenge important tenets of company culture that can’t be compromised)

●  Implementation Stage (because not all localizations can happen at once and should be planned out over time during market entry)

●  Cost (the Total Cost of Entry Formula detailed later in the module helps determine the cost associated with each localization, providing a major data point that affects the level of priority and implementation stage)

The level of complexity is crucial, but including the information listed above provides a more comprehensive analysis that bridges the gap between planning and execution. Each of the five items listed affects the implementation of a localization strategy for a new market. To highlight it again what was mentioned earlier, it is important to involve multiple key stakeholders in the LPA process, rather than having a narrow-focused team operating in isolation. Collaboration helps to reduce bias, as there is a subjective element to determining the degree of complexity in each category. This process can be the foundation for creating a Localization Resource Team, among other structures discussed in an upcoming module.

All of this then (FINALLY) brings you to the Market Selection Step, where your team makes a decision on which markets to enter based on Market Readiness, Organizational Readiness, and the Degree of Localization Required to succeed in local markets (not forgetting about the long-term plan, reaching global scale and choosing the right sequence of markets to enter to build a foundation for global scale and expertise around international growth). We will review this process more, and introduce a more detailed analysis tool at the end of the course, the Global Growth Opportunity Matrix.

  
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 3 of the Global Growth Master Class.