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The Go-to-Markets Premium is only a partial list of the Localization Premiums companies need to consider. The flip side of Go-to-Market Premiums, is the Operational Premiums, the part of the iceberg below the service that is just as important as the Go-to-market premiums in finding company-market fit. They are often overlooked and can cause delays and much-wasted money when not proactively managed.

Let’s take a deeper look at the Operational Premiums: Infrastructure, Organizational and Administrative.

Infrastructure Premium

Infrastructure Premium includes the essential components that enable the delivery of a product or service, consisting of often overlooked adaptations to fit a new market. If you are selling a physical product, Infrastructure Premium encompasses all aspects of your supply chain, including shipping, packaging, and labeling. 

Additionally, it may entail evaluating the supplier landscape and modifying the process and product to deliver a finished product to customers in a new market. For digital products, it involves tech infrastructure, data storage, and transfer. Differences in internet connectivity or mobile networks also fall under this category. Payment processing is another crucial aspect of Infrastructure Premium, which may vary across different countries. 

Companies that sell physical products have to comply with established shipping standards such as IATA numbers, as well as specifications set by major carriers like UPS and FedEx. However, when it comes to domestic shipping, there may be different requirements and standards imposed by local carriers. In the same light, software providers have to address data storage regulations, as some countries such as Germany, Russia, and Nigeria require that citizens' data remain within the country. 

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GDPR rules have driven more strict and unique requirements here in recent years. This often requires a company to stand up a whole new tech stack that is physically located in this new country, which can be a costly undertaking. Additionally, the location of the software's use may determine the level of Value-Added Tax (VAT) that applies.

Even things that you may take for granted, like the accuracy of Google Maps in other localization, can pose challenges that must be addressed. Talabat, for example, had to have team members drive all over Oman and manually enter the true boundaries of towns and locations of addresses since Google Maps was not accurate - what Google labeled as the borders of a specific area (neighborhood, town, etc) was not what locals considered to be the boundary - something that needed to be reconciled for search results within the food delivery app and for setting parameters for deliveries.

Organizational Premium

Organizational (or Org.) Premium refers to the expenses involved in building and managing a new team for a global expansion, which includes training, hiring, and team building. It also encompasses the resources needed to establish and manage new structures and processes to support global growth, as well as differences in local business culture. This may require the HQ team to allocate more time and effort to support the new region, which can affect their core responsibilities in the initial market. Additionally, Org Premium includes the structures and processes that a company must create to support global scale (something we refer to as "momentum builders" and discuss further in another module).

Companies with limited resources may face challenges in balancing global growth initiatives with other projects and markets. Additionally, different business cultures may require customized management tactics, which can complicate communication, coaching, and motivating teams. For example, hierarchical structures are more common in many Asian business cultures compared to American and European business cultures.

Org Premium can also include adaptations to management practices as well. In certain countries such as India and Japan, employees often expect more detailed instructions regarding their work, which may involve lengthy emails outlining specific details, particularly in Japan. Additionally, feedback mechanisms differ greatly across cultures. 

While direct verbal feedback may be common in American business, it may make employees in certain Asian countries uncomfortable, as they are more accustomed to receiving feedback in written form. These differences can impact not only management practices but also the methods used to foster autonomy and build trust within the workplace. Hiring and firing people can have vastly different local practices and related regulations, like in Korea or China where it is very difficult and costly to fire underperforming employees.

 The Org. Premium category encompasses more subtle and intricate factors, such as the cultural disparities between a company and a local market when setting up remote offices. Differences in time zones pose operational obstacles and can exacerbate these differences, as employees with varying work hours must collaborate asynchronously, which could result in delayed decision-making and feedback. 

Something as simple as scheduling meetings across different time zones can also be a recurring challenge

In addition, it is important to consider the unique cultural aspects and business practices of each country in order to achieve success. In Africa, for example, the amount of regional account management resources needed to support the same-sized customer base may differ from other regions due to the diversity of languages spoken throughout the continent (including French, English, Portuguese, Arabic, and Swahili). These complexities can create additional challenges when it comes to team building.

You can reduce Org. Premium by hiring Interpreneurs and establishing a robust Global Class Management Model, cultivating a strong company culture, and building momentum around global growth initiatives. Controlling Org premium is critical in achieving company-market fit and managing complexity in this category can determine whether a company will succeed or fail.

Organizational Premium’s Vast Reach

The Org. Premium category is of paramount importance as it significantly impacts other premiums. How you structure your team, manage it, establish an organizational culture, and implement communication and alignment structures can greatly enhance your chances of success in localizing, achieving product-market fit, reaching company-market fit, and achieving scale both locally and globally. 

Investing in the elements of Org. Premium can assist you in minimizing other premiums in the LPA. With a competent team, a robust management model, and a healthy culture, decision-making becomes easier and resource allocation can be optimized, leading to a quicker path toward traction and scale. These three aspects, team, management, and culture, are the main focus of part three of this book. 

Structures and processes established to facilitate market entry and growth may come at a cost of Org. Premium but are essential in generating momentum for global expansion and scaling. By reducing operational friction, the localization process can be accelerated, as localizations made in other premium categories can be easily adapted to other markets. 

Unfortunately, Org. Premium is frequently neglected at the start of global expansion initiatives until international markets begin to generate significant revenue. This often results in wasted time and money, as the necessary organizational infrastructure is not built in a timely manner.

Administrative Premium

The Administrative, or Admin. Premium category is often disregarded, yet it is the most complex of all the premium categories. It encompasses a wide range of factors such as government regulations, compliance requirements, payroll processing, taxation (including tariffs), customs regulations, licensing, legal structures, intellectual property protection, political considerations, corporate real estate, utilities, and communication services, and all the necessary measures for running a local office and managing employees, including human resource policies. Additionally, reputational risks, accounting differences, and other financial implications also fall under this category. Even company systems like productivity software can be considered part of Admin. Premium.

A number of overlooked elements fall under this category. Although Google Workspace may appear to be a widely used set of services, it may not be the case for all employees, especially in countries like China where government regulations prohibit the use of Google products. As a result, having a global workforce could lead to more complexity and additional costs in the Administrative (Admin.) Premium category.

When Zendesk was expanding into Brazil, the company found it difficult to set up a bank account and move funds into and out of the country. At one point, the first local marketing hire had to use his personal debit card to withdraw money to pay the office rent and would bring envelopes of cash in his luggage when returning from a visit to headquarters in San Francisco, until everything was fully set up.

Uber, for example, faced significant Admin. Premium costs due to complying with various transportation regulations in different cities where they launched their services. This category includes a wide range of aspects, such as government compliance, taxation, licensing, legal entities, and human resources policies, as well as other financial implications like reputational risk and accounting differences.

Amazon faced a significant Admin. Premium in India, where local law requires the company to have a 50/50 joint venture with a local partner for its core retail business. This led to delays in launching, as Amazon searched for the right partner and negotiated a complex partnership deal. Similarly, Slack incurred Admin. Premium when its EMEA HQ office kept switched regional HQ locations between Dublin and London. In many Asian countries, sending a QuickBooks invoice may not be feasible as they may still follow a paper-based approach, where contracts have to be physically signed and returned via mail.

With this understanding of the scope of localizations, let’s discuss how to evaluate the findings from your market research and localization discovery, to move closer to a set of hypotheses for how to operate in the new market.

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 6, Episode 5 of the Global Growth Master Class.