Read the full script of Module 7, Episode 3 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 walk through how to make your own LPA.

The approach companies take in mapping out their localization premium can vary significantly. While all categories are essential, the importance of each category may differ depending on the industry. For instance, in the fintech and pharmaceuticals sectors, Admin. Premium, which includes navigating government regulations and compliance requirements, may play a more significant role than Org. Premium. The level of importance of each category can also vary between a consumer internet business and an enterprise software company.

In order to create your own LPA:

1. Get a clear understanding of the changes you will likely need to make to your business when entering a new market. You can do this through establishing a set of questions to answer relating to each of the localization premium categories.

2. Look back on your Localization Discovery process and local market insights (as previously discussed)

3. Identify customer benefits and potential ROI that come from the change.

4. Measure how different the new market’s model will be compared to your initial market (or whatever market you choose as a reference point) for each premium category in localizing and then plot the dots on the LPA chart.

Now, let’s look at How to determine the level of complexity

While there is some flexibility as to where you place a dot based on how different you feel the model for the local market will need to be, there is a mathematical formula that will determine your Localization Premium for each category and overall.

You need to take all the subcategories for a certain Localization Premium category and assign it a Premium of 0 to 5. Here is a breakdown of all the subcategories for each localization premium category:

• MARKETING PREMIUM: Target Customer, Competitor/Competitive Landscape, Use Case, Value Proposition, Branding, Advertising Strategy

• SALES PREMIUM: Sales Model, Customer Support, Pricing/Revenue Model, Distribution Channel

• PRODUCT PREMIUM: Product Functionality Changes, Customer Experience Changes, Physical Product Changes, Language Translation

• INFRASTRUCTURE PREMIUM: Supply chain, technology stack, payment processing

• ORGANIZATIONAL PREMIUM: Differences in business culture, hiring/team building, structures to support growth, differences in management practices

• ADMINISTRATIVE PREMIUM: Government Regulation & Compliance, Corporate Entities, Taxation, Intellectual Property Protection, Transfer Pricing

To come up with the Localization Premium category number, take the average of all the subcategories. So for example, for the Marketing Premium category, let’s say you give value proposition a rating of 1 because it’s similar to the value proposition from the current market, and competitive landscape a rating of 4 because it is drastically different than the initial market, and the use cases are similarly so that is a rating of 2, and advertising strategies would be moderately different, a rating of 3, - then you take the average of these numbers, which in this case would be 2.5 (a sum of 10 divided between the 4 categories) – this would become the Localization Premium rating, which you can then plot on the LPA, either putting it exactly on the fractional number or rounding up or down when appropriate to the closest intersection.

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Then, after you complete this for all 6 Localization Premium categories you add up the amounts from all 6 categories to come up with a total Localization Premium score that is out of 30.

After plotting all the relevant dots, connect them to visualize the total amount of adaptation required to successfully localize in the new market, which represents the total level of complexity incurred. The placement of each dot (i.e., how different the aspect of the business will be in the new market compared to the current one) may change as more information is gathered and as the company enters the market. It's important to remember that the LPA is designed to be flexible, allowing companies to adjust the placement of each dot as needed. Note that initial planning (dot placement) can differ from the level of localization required by the market.

How do you determine the level of complexity a certain localization strategy will require? And how should you determine what is or isn’t an acceptable level to incur?

One way is to think in terms of standard deviations. How many standard deviations is the model for the new local market away from your validated market (or markets)? What a standard deviation or two or three means will depend on your analysis, but directionally, it is best to think about how drastic of a change is needed to find traction. From a language perspective, is it translating everything into a completely new language (a large change) or is it slight, like changing the language to match a local dialect of an existing language? Does a whole new team have to be hired, or can the new market be managed by regional resources? All of these will determine the magnitude of the localization. To come up with the localization premium for each of the premium categories, map out the degree of change for all the sub-categories. So, for example, to get to the degree of change for Sales Premium, look at how different the pricing and revenue models are, how much of a change is needed to distribution channels, and how different customer service is. Then averaged out, this can determine an overall Sale Premium scale.

Important note: To avoid functional and personal bias, ensure that this is evaluated as a team. Bias can lead to wrong decision making and potentially companies picking the wrong markets to enter and hence, wasted time and millions of dollars for the business[5] 

Also, - While the default core of the LPA can be the proven model in an initial market - company-market fit in any other market can serve as the core as well. Since the LPA is also a comparison tool, the core can be changed to the successful model from any market the company is in as a reference point, and then you can see how much change would be required to get company-market fit in a new market.

Here is an example of how to fill out an LPA, using Talabat’s expansion into Oman:

As food and grocery delivery platform Talabat began planning its expansion into Oman, the team recognized that a number of aspects of their business needed to be changed to fit the market. Here is how they evaluated the localizations when entering the market and how it would be mapped out on the LPA:

●   Sales Premium - Plotted four levels from the center because the process of selling to restaurants was very different compared to Talabat’s initial market. They needed to hire an on-the-ground sales team to go into small towns to talk with individual restaurant owners. They also had a different revenue model for the country.

●   Product Premium - Plotted two levels from the center because there weren’t many changes to the product required. While other markets in the region preferred Quick Service Retail (QSR) restaurants, Omani locals preferred exploring new tastes, so the food images and descriptions in their mobile app and online platform were adapted to fit these preferences. Google Maps was not as reliable in more rural areas and often locals had different definitions of boundaries on a map than Google’s categorization. Given the importance of geofencing to Talabat’s platform, team members had to drive around in a car and manually draw their own geofencing for each region, stopping to confer with locals along the way.

●   Marketing Premium - Plotted five levels from the center because the marketing strategies needed to be hyper-localized for the Omani market. The team uncovered the importance of three key advertising channels that were very different from other markets the company was in. First, in Oman, social media influencers played an outsized role, the same role celebrities play in other markets. Moreover, these social media influencers were an untapped market since brands hadn’t engaged much with them.

This allowed Talabat to take advantage of an influential advertising strategy at a much lower cost than typical celebrity endorsements in other markets. Second, people in Oman are particularly engaged in social media, so Talabat saw the opportunity to create customized social media strategies. They executed on this by creating SnapChat filters and stickers to be used during the Muslim holy month of Ramadan when the local population fasts during the day. People used these augmented reality filters to share their thirst and hunger throughout the day.

Finally, a unique occurrence in the Omani market was a proliferation of micro-events that occurred where groups of people go together, often in compounds where different rooms had different themes, very different from other markets that more often had large-scale events. Talabat sponsored these events and got a strong ROI since this was also a low-cost channel.

●   Admin. Premium - Plotted one level from the center. Oman and Talabat’s HQ in the United Arab Emirates (UAE) are both within the Gulf Cooperation Council (GCC) or Cooperation Council for the Arab States of the Gulf countries. These countries share similar political and economic systems, meaning that the amount of premium incurred for this category is minimal.

●   Infrastructure Premium - Plotted one level from the center. As with Admin. Premium, since Oman and UAE are GCC countries, there is little premium incurred in this category.

●   Org. Premium - Plotted five levels from the center. Because of the country-wide government initiative that mandated certain job functions be filled by locals and a minimum percentage of the employee base be local (referred to as “Omanization”), it was harder to find the right skill sets, particularly in tier two and tier three cities. The company had to develop different hiring and training practices to build a strong team in the market.[6] 

Here is another example of an LPA, one that illustrates unanticipated Localization Premium in the Operational categories, under the surface of the Iceberg.

Apple’s expansion into Brazil

In 2014, Apple encountered localization premium when it entered the Brazilian market during a time when the company was establishing its early global retail locations. This caused the company to move away from its core company-market fit in the United States by several standard deviations. Apple had to make numerous changes to gain traction in Brazil, such as altering the layout and value proposition of its stores.

One major challenge was the high tariffs (Admin. Premium) that caused iPhones to cost over two thousand dollars in Brazil, compared to less than half that in the US. As a result, Apple had to shift its focus in retail locations from device sales to device services, such as the Genius Bar, requiring a redesign of the store layout to increase service stations and decrease inventory storage (Infrastructure Premium). The customer journey also differed, as some Brazilian consumers opted to purchase Apple devices through other channels or travel abroad to purchase them (Sales Premium). To accommodate Brazilian customers, Apple even hired Portuguese-speaking staff in its Florida stores to communicate with Brazilian customers who flew to the US to buy Apple devices, despite the travel costs being higher than the price difference.

Even small changes incurred a premium for Apple when launching a retail footprint in Brazil, one of the company's early global retail locations back in 2014. For instance, the Brazilian government required paper receipts for all transactions, which had to be printed on a specific type of paper called "nota fiscal." This posed a challenge for Apple as it could no longer use its paperless purchase transaction process, leading to an administrative premium that would have been discovered through the government regulation filter process in the BMLC discussed in the discussion of Stage 1 of the Global Agile Methodology. This is particularly notable for Apple since the company made an attempt to universalize its operational processes, which are different over a global footprint.

The Organizational premium was particularly high because the local team had to revamp its hiring and training processes and parameters. While Apple usually trains employees to have in-depth knowledge in a specific product area, the staff in Brazil need to have a broader understanding of the company's entire suite of products. Additionally, labor unions played a more prominent role in Brazil (and in other Latin American countries), so the company had to build local partnerships and work within these constructs to ensure that labor unions could be leveraged as partners instead of fought as foes. Furthermore, focusing on service over sales required the company to adapt its ROI calculations and break-even timeline to account for lower sales volume and a longer runway required to reach profitability.

These premiums, didn’t end after the company launched and found traction in the market. More recently, when the Apple team made a decision not to include chargers in some of their products, this conflicted with a local Brazilian law that states that all products must be sold with all the components needed for a customer to use that product - mobile phones, tablets and laptops, for example, are unusable without a charger, causing the company to have to decide between stopping the sale of products, paying fines, or adapting company policy to comply with local law.

After completing this step in the process, the company is in a position to make a truly educated Market Selection decision, considering Organizational Readiness, Market Readiness and Degree of Localization

Now let’s look at the LPA in practice, detailing some case studies from well-known companies.

LPA in Context/Practice

The analysis of the localization premium, its impacts, and the trade-offs it entails are essential components of both internal and external analyses conducted during the planning process for expansion. It is vital to include the concept of Localization Premium in any proposal seeking support for international growth, as it enables discussions about the necessary adjustments that must be made to the organization's operations in the new market. Understanding the changes that need to be made and the resources required to achieve a proper fit between the company and the market are fundamental elements of your expansion strategy and plan. When launching a business in new countries, there is a constant tension between the need to adapt to achieve company-market fit and the desire not to complicate operations with excessive localization premium. This tension is natural, and it is crucial to be aware of the sources of localization premium and work to manage them effectively.

In principle, you don’t want to stray too far from your core business. Aim to exhaust an existing target customer base, for example, before making a change that would take you an additional standard deviation away from your current product-market fit. Ignoring this creates a risk of being sidetracked in different directions. When a business expands, some level of localization premium will inevitably arise, as is the case with other complexities that come with expansion. For companies that target large enterprise clients, some degree of customization is often necessary to close deals and implement solutions. However, it is important to consider how much customization is acceptable in exchange for the revenue that enterprise clients bring, and whether it is applicable to other clients. To demonstrate the practical application of the Localization Premium Advantage (LPA), several case studies are presented here to highlight the complexities encountered by Global Class Companies during successful localization efforts in new markets.  

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 4 of the Global Growth Master Class.