Moving your Tech Company into International Markets

26th May 2016

Digital platforms (including on-demand and cloud-based services), have allowed companies to build millions of dollars in revenue, while using teams based around the world. This basically means that tech companies are now “going global” right from day one.

Take Canva for example, which was available for users around the world from the day it launched and had grown to 2.5 million users within just two years. Spotify is another good example of this, amassing a huge 10 million users in the same amount of time.

Barriers that once prevented tech companies from outsourcing their back office functions are now falling, including tax, legal, compliance, bookkeeping, HR and even language barriers as we see the maturation of cloud-based support services.

It’s no secret that tech companies have a bit of an obsession with being first in their niche to launch a particular product or service. It’s rare to find many users that would switch from one ground-breaking product to a copy-cat later on, especially if the original has all of their information.

This means that choosing a platform is one of the biggest and most important considerations for tech companies. The potential pros and cons must be carefully considered for usability, decisions about research and development, and expansion plans.

Netflix has moved into Canada and Latin America, and in 2012 launched in Ireland and the UK, along with Denmark, Norway, Sweden, Finland and the Netherlands. It’s anticipated that it will expand into China, although it’s currently focused on Europe and its performance in countries like France and Germany (both already with competitors) will be key when it comes to breaking into China.

New Relic launched in Silicon Valley in 2015, and chose Dublin as the first international location for expansion since business is similar to the US, real estate and labour is less expensive than other places in Europe, and a young, educated workforce makes Ireland a country seeking new technology.

Significant barriers still in place for tech companies wanting to go global

While it continues to get easier and easier for companies to go global, there are still significant barriers for tech companies to deal with. These include organisational, legal, cultural, and social issues, and Uber and Airbnb are two companies facing these issues, and dealing with significant outcry from the taxi and accommodation industries.

Another key issue facing growing tech companies is infrastructure. If companies don’t invest both resources and time into making this more efficient- getting rid of redundancies in systems, processes, and the operating structure, they’ll be left facing huge costs down the line.

One answer? Hiring a strong country manager as soon as you plan on entering a new territory. However, while these managers may understand your target market, they may
also be new to the industry or business.

That means finding a way to balance both company and local knowledge, and potentially rotating people from headquarters into the new organisations.

There are four main ways to approach any market, each with different levels of risk, control, and margin protection:

1. Building Local Offices

This is the most common and traditional option and involves setting up mini offices locally-the exact way Facebook has done it. These offices have marketing, sales and legal functions, and everything else is controlled from head office.

This option lowers legal risks and allows companies to better tailor their products to these local markets, although it’s also the most costly in terms of both money and time.

This is a good option in Asia, where many governments offer foreign businesses awards and sponsorships backed by the government if you’re employing local people.

2. Finding a Local Partner

For companies wanting to move quickly, finding a local partner willing to resell products can be an effective approach. A good example of this method is Apple, which has local partners in a number of companies where it’s not actually established. Instead, they’re “premium resellers”.

The problem? Customers don’t differentiate between the real Apple and a reseller-particularly when they see the Apple logo. This means that if their products have problems overseas they often cannot easily get replacement parts or use their AppleCare through the resellers, which means that Apple is risking alienating their customer base.

Establishment costs may be low, but profit margins usually are too, and you may risk confusing or annoying customers.

3. Using a Virtual Presence

Why have local offices or representation at all if you’re building an app? This is a good way to maximise your profit margins, however, risk is also increased.

Uber, is a good example here, and the company is assuming that legislation will adapt to the way it operates. However, it also may find that it ends up facing legal action within the next few years.

4. Merging or Acquiring

This is often more costly than other strategies, however it means that you instantly have a local business at your fingertips. 2014 saw the highest level of tech merging and
acquisition since 2000, and it’s showing no signs of slowing down.

It’s also possible to use a blended approach here by using a number of the above options. Smartphone company Xiaomi has done this well, with different entry models for different countries in Asia.

In China, it has its own e-commerce platform while in the Philippines and India there are existing offline retail distribution networks and third-party online marketplaces that allow it to have better market penetration as these economies are much more cash dependent.

They key is to travel to the country before you expand into it, and spend time learning as much as you can about local customs, laws, and customers. Having the right people on the ground is critical here, so recruiting for both talent and knowledge is a must.