Read the full script of Module 5, 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 answer the question What are things I definitely shouldn’t do when evaluating and selecting new international markets? And in the process discuss how to avoid making these costly mistakes. 

Because of the familiarity of market evaluation for many teams, it is easy to fall into the common pitfalls that can lead to not conducting a thorough market readiness assessment and ultimately selecting the wrong markets to expand into. Here are risky ways of thinking about or approaching market selection:  

Outsourcing Market Selection

Some companies will attempt to fully outsource market selection to a consulting firm or market research firm, looking to them for direction or validation. While these firms can provide value, they shouldn’t be thought of as a substitute for the market readiness assessment the internal team directly does.

First, no one understands the company’s internal context, capabilities and priorities better than team members. Second, the market research conducted tends to focus on higher-level metrics about the market and rarely digs deeper into the full scope of cultural considerations. 

Finally, the work consultants are hired to do almost never involves traveling physically to the market and experiencing it first-hand to truly understand the local context. Just like with customer discovery, this is a process that shouldn’t be outsourced. It must be done by local teams so they truly understand the market and have a better basis to figure out how to localize the business to get traction in the new market.

Here is an example of the perils of outsourcing the market evaluation and selection process

Mercari, one of the few Japanese technology companies considered to be recent global success stories, was looking to expand the business into Europe. 

With a few target countries in mind, they hired one of the leading consulting firms to help lead the research and market analysis, with the intention to provide a set of recommended countries that Mercari should expand to. After this analysis, the hired consulting firm gave the Mercari executive team the green light to prioritize targeting the German market, the largest market in Europe.

However, the team at Mercari didn’t want to just rely on market data research and so they decided to travel all the way to Germany to conduct their own market due diligence, in other words, localization discovery as described in the earlier module. After spending some time in Germany to analyze the local competition, and distribution networks and conducting user interviews, the team discovered an important issue that would be foundational to their success in the market.

Being a C2C e-commerce platform, Mercari needs a way to capture payments in the platform, but many users, they realized, bypassed the payment walls when purchasing items on other local competitor platforms by circumventing the platform by paying for sold items via PayPal instead of directly on the platform.

Instead of outsourcing this process, be intimately involved, creating a structure to evaluate markets and involving a number of internal stakeholders to ensure alignment.

Whale Hunting

As briefly referenced in the module introduction video, many companies focus on very large markets, often not giving proper consideration to the degree of localization required to actually enter the market and succeed there. This risky strategy, which we refer to as “whale hunting” can lead the team to take on a challenge the team isn’t ready to take on (the organizational readiness may be too low, as evidenced by a low Global Readiness Score - which we discussed in the Organizational Readiness module).

It is natural for companies to target large markets like China or the US to expand into because of the market size and potential, masking over serious considerations. In China, for example, intellectual property protection is a concern that companies should consider upfront. Because of government regulation in certain industries, the US market can operate more like 50 separate countries (each of the states) because of stark differences in state laws. It is for these reasons many more than you can probably count on 1 hand the number of companies who have found success in both China and the US. 

Instead of focusing on the Total Addressable Market, TAM, it’s better to think about global growth as building a muscle that needs to be built over time, and market prioritization should support this reality. If you attempt to lift 300 kilos, or 650-plus pounds right away, you will fail (and your arms may fall off in the process). Start with lighter weights, markets that require less localization first to build organizational readiness to prepare the team to take on bigger challenges, markets that require more localization.

It’s important to create some structure around how you evaluate and categorize countries you are looking to expand into

But, don’t think of markets as a prioritized list based on market size.

Finally, Instead, map countries out on a spectrum where those with similar cultures, government regulations, and operating models are closer to your initial market (left side of the spectrum), and others that are different are listed farther to the right side of the spectrum. Companies who are successful in reaching global scale often understand the importance of taking baby steps, selecting markets that aren’t as drastically different, to build the muscle around localization and expansion in smaller ways before taking on more drastic changes to operating models.

Blindly Following Organic Growth

It’s always motivating when you see new customers using your product or service, especially when they are in new geographies that you haven’t invested any effort into. Every company loves it when current customers ask for more of their solution, and when customers want it in new countries you don’t serve it creates an excitement that even more opportunity lies in that far-off land.

It’s also important not to over-index on organic growth. Some companies will see some organic growth in a country and assume that is the best market to expand into. As we will discuss in future videos, there are a number of go-to-market and operational factors that must be considered. Moreover, just because a small group of early adopters in a country like your product doesn’t mean there is mass market potential there. More importantly, it also doesn’t mean that the localization you do to attract this narrow segment of customers will translate to the mass market there.

The consumer version of this is when all of a sudden orders come in from customers in new countries, for an e-commerce business, for example, and then it makes the company think that is just the tip of the iceberg of opportunity in that market. For consumer apps, it is incorrectly thinking you are global because you have downloaded in 100+ countries, when in reality you have a few hundred or few thousand users in a country of millions.

The business-to-business version of organic growth often occurs when an enterprise client that is headquartered in your initial market wants you to serve their employees and offices in other countries. It should be assumed that their unique use cases are representative of the bulk of the market. Again, the localization required to serve this customer may not be what the mass market of enterprises needs. Moreover, it may take way more effort to localize for this customer, which may only net limited revenue than if that resource and effort were focused on localizing for another market where the revenue potential is much higher.

Instead, layer on both the degree of localization and mass market opportunity in that country before selecting a market based on organic growth.

Over-valuing Personal Bias

In our research, we have heard some wild reasons why companies choose to expand into certain countries - “one of our executives studied abroad there and thinks there is an opportunity,” “we have an advisor there who sees strong interest for our solution” and so on. We saw one well-known software company decide to open an office in Melbourne, Australia because they had an investor who lived there, only to learn afterward that Sydney would have been a better office location for the region. We even heard the story of a European founder visiting Madison, Wisconsin in the US, visiting a bar there, and liking it so much that he decided to open an office there. 

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Often those with the loudest voices, strongest internal relationships, or most authority have an outsized influence in market selection. Selecting a country because a company founder studied abroad there or because a company investor is located there are NOT adequate criteria to merit prioritizing that country, and we are confident that would not be on a list of objective criteria you would list out for evaluating the market readiness. Having an objective (and weighted) checklist for each of the specific criteria, however, can help make sure that bias is taken out of the equation

Familiarity Bias

This one is one of the most common mistakes that we have seen in companies looking to expand to new international markets. Companies will often select a country to expand into because people there speak the same language there as in the initial market, or because the country is geographically nearby. The American version of this is when a company headquartered there says, “Let’s go to the UK, Australia, and Canada because they speak English there.” One of our American clients expanded to the UK and Canada, then made plans to enter the Australian market, and set its sights on New Zealand. Nothing against New Zealand, which is one of our favorite countries to visit, but there are a number of markets across the world that should be entered before a nation of 5 million people - it was a great example of familiarity bias, and to a certain extent, fear of having to communicate in a different language.

The Latin American version of this is deciding to enter other Spanish-speaking countries in the region, or even going to Spain because of the consistent language. It’s also important to note that there is an oversimplification of language. Because of local dialects and cultural differences, Spanish spoken in one country may be very different than in another - the way people speak and write in Spain is very distinct from the Spanish in Latin America, as there are nuances in each country or region among Latin America itself.

The issue is that this ignores the scope of localization required to succeed in an international market. Language often gets assigned an outsized importance because of how foundational it is to communicate, it’s on the surface, easily observable. Language, however, is just one part of localization, and often it’s a small part - in our framing, language is a sub-element within one or two of six different aspects of a company’s operational and go-to-market model (which we will discuss in the next module). It may likely be the case that doing language translation may be much easier than having to change core elements of the product or operating model to succeed in a new market.

This same can be said, for geographic proximity. Just because a country shares a border with a market your company already operates in doesn’t mean it’s the right market to enter. There are times when it does make sense to blanket an entire region enter neighboring countries, but it often makes sense to pick and choose countries, giving priority to more important criteria than geographic proximity.

One Function Driving Market Evaluation & Selection

Market Readiness assessment is a group exercise, however, it is typical for people from a specific function to lead the effort, overly emphasizing their function and criteria they consider important. When we started to engage with one of our clients we found that the head of international products was conducting all the stakeholder interviews, making all the visits to the country, and tracking all localizations required to succeed in that market - while this was great dedication on the part of this one executive, it as setting the foundation for future issues.

First, it’s natural for people to prioritize the needs and considerations of the product, it was also hard for him to properly investigate and understand the scope of localization required for all the other elements of the operations and go-to-market models. Then, when it comes time to have to get the team aligned on which markets to enter and how to enter the market, it is more difficult for that functional lead to make their colleagues understand the market since they haven’t experienced it first-hand. 

This is especially common between go-to-market and operational functions. It is more common for people from the product or sales team to do the market discovery, often not uncovering the various operational localizations required for that market because their colleagues in other operational functions are not as involved in the process.

It’s important that all functions (not just customer-facing ones) have visibility into (and are involved in) market evaluation and selection.

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 5, Episode 3 of the Global Growth Master Class.