If you are a SME, you are a proud member of a business minority of which only 40% survive the first 7 years. And just like in Led Zeppelin’s song, you can probably sing “good times, bad times, you know I’ve had my shares”. Remembering what you have been through during your international development, you may even boast, like Christina Aguilera, that “I wanna say thank you, ‘cause it makes much stronger, makes me a little stronger, makes me that much wiser”.

Yet, if you have thrived so far as a company, it is certainly because, like us, you know that preparation is the key, that no past success is guaranteed to be repeated, and that each new market is its own different challenge.

And, since you know that there’s no bitterer words than “I told you so”, you make a point to learn from your experiences and those of others, so that, like Carrie Underwood in Lesson learned, you too can sing that:

“Life gets that much harder, it makes you that much stronger,
Oh, some pages turned, some bridges burned,
But there were, lessons learned.”

It may be reassuring to know that size is not correlated to success as far as international development is concerned. This means that, whatever the dimension of your business, there is a niche in a new market in which you can thrive. It also means that, as we will now see, large international groups are not strangers to failure, and that there are lessons you can learn from them, even as a SME.

Shortlist of 9 main reasons why companies fail their international development

1- Expansion for the Wrong Purpose: Expanding for the wrong reasons, such as simply chasing trends or imitating competitors, sets companies up for failure. A clear and well-defined purpose aligned with the company’s core strengths and competencies is fundamental. This purpose should stem from a thorough understanding of the target market and how the company’s unique value proposition can address specific needs there. This is the first step in your preparation.

2- Wrong Expansion Strategy and Lack of Market Knowledge: Diving headfirst into a new market without thorough research and a well-defined strategy is a recipe for disaster. This includes inadequate understanding of the local market dynamics, competitive landscape, regulatory environment, and cultural nuances. Conducting comprehensive market research, including competitor analysis, consumer behavior studies, and legal compliance assessments, is crucial to developing an effective expansion strategy.

Case Study – Target in Canada: Target’s failed $4.4 billion expansion into Canada in 2013 serves as a cautionary tale. Their strategy involved simply replicating their existing US model, which did not resonate with Canadian consumers’ preferences, and which was way too optimistic in terms of return on investment. They bought existing Zellers stores, which required costly expansion and refurbishing. Their poor location led to low traffic and problems of supply chain, so much so that their shelves were half empty. Finally, they failed to meet their public, since they could not offer the same discount prices as in the US. All these problems ultimately led to their withdrawal from the Canadian market two years later.

The lesson here is: Preparation is key. Moving slower at first to gather information and align all your dominos is not a waste of time. It may actually guarantee a faster growth once you’re ready to push the first one.

3- Insufficient Marketing & Sales Budget: Underestimating the financial resources required for marketing and sales activities in the new market is a common pitfall. This includes costs associated with advertising, promotions, building brand awareness, and establishing distribution channels. Failing to allocate adequate resources to these crucial areas can significantly hinder the company’s ability to reach and engage potential customers.

Case Study – Tim Hortons in the USA: Despite 30 years of investment and the opening of 800 locations I the country, Tim Hortons failed to get traction in the US to make it a profitable market. This can be explained by their decision to use the Canadian angle for their marketing, which didn’t work with their American public. This, added to insufficient resources dedicated to communication, led to their brand being underexposed and to their market shares to remain limited in the US.

The lesson here is: What worked before on a market, may not work again. There is no recipe for success that is guaranteed to be repeatable. Treat every new market as if it were your first international expansion, and dedicate adequate resources to grow in it.

4- Undercapitalisation: International development requires substantial financial resources to cover not only initial investments but also ongoing operational costs. Insufficient funding can restrict a company’s ability to adapt to unforeseen challenges, invest in marketing and sales activities, and maintain a presence in the new market. Securing adequate financial resources through investors, loans, or other means is crucial for long-term sustainability.

5- Spending Money Needlessly on Activities that Can be Outsourced: While some aspects of expansion may require internal expertise, others can be efficiently outsourced to local partners or service providers. This includes tasks like prospection, market studies, recruitment, legal compliance, accounting, and marketing activities specific to the target market. Utilizing local expertise can help SMEs save resources, navigate complex regulations, and gain valuable insights into the local business environment.

6- Not Recruiting the Right Team: Building a team with the necessary skills, language proficiency, and cultural understanding is critical for success. This includes recruiting individuals familiar with the local market dynamics, regulations, and consumer preferences. Additionally, cultural sensitivity and the ability to understand and navigate the nuances of the local business environment are essential assets for the team.

Case Study – Best Buy in China: Best Buy’s initial foray into the Chinese market faced difficulties due to having the wrong team in place. After buying the local chain Five Star, they finally decided to open their own stores under their own brand, only to close them 5 years later. Why? Because they primarily relied on US expats unfamiliar with the Chinese market, leading to challenges in understanding consumer preferences, in managing the local teams and implementing the development strategy, and navigating the complex retail landscape.

The lesson here is: Contracts may be signed between entities, but business is done between people. The best internal processes, tools, SOPs, company policies, and so on, cannot compensate for an inadequate team on the ground. They are just meant to support a good one.

7- Failure Due to Challenges with Legal Compliance: Navigating the legal and regulatory environment of a new market can be complex and challenging. Failing to comply with local regulations can lead to significant legal and financial repercussions, hindering the company’s ability to operate and jeopardizing its expansion efforts. Seeking legal counsel and guidance from professionals familiar with the target market’s legal landscape is crucial to avoid such pitfalls.

Case Study: Google in China serves as a further example of the potential consequences of inadequate legal compliance. Google faced significant challenges operating in China due to conflicts with the country’s censorship regulations and data privacy laws. Their inability to fully comply with these regulations ultimately led them to modify their search engine and restrict access to certain content, creating controversy and impacting their user base.

The lesson here is: Even global companies have to comply with local laws. Better not to count on advocacy or lobbying to remove obstacles during your international development. It takes years and usually never works. So, it is important to check thoroughly specificities of the local legal framework to avoid bad surprises.

8- Cultural Insensitivity: Ignoring or failing to understand and adapt to cultural nuances can lead to marketing blunders and difficulty connecting with the target audience. This includes aspects like communication styles, product design, and marketing messages.

Case Study – Pepsi’s “Come Alive with Pepsi” Campaign: Pepsi’s “Come Alive with Pepsi” campaign in China, which translated to “Bring your ancestors back from the dead,” serves as a cautionary tale of cultural insensitivity. This unintentional translation blunder caused confusion and offense to many consumers, in a culture where respect to ancestors is central, highlighting the importance of cultural awareness and sensitivity during international expansion efforts.

The lesson here is: if they don’t get it, doesn’t mean it necessary their fault. International companies have to adapt to the local culture if they want to sell products. Not the other way around.

9- Ignoring Local Competition: Underestimating or failing to adequately research the competitive landscape in the new market can lead to significant challenges. This includes understanding the existing competitors, their market share, strengths, weaknesses, and pricing strategies. Ignoring local competitors can put your company at a disadvantage and hinder your ability to gain traction in the market.

Case Study – McDonald’s in India: McDonald’s faced challenges when entering the Indian market due to their initial menu offerings, which included beef and pork, clashing directly with dietary and religious taboos of a large of the local population. They thought that offering a different menu than their competitors would give them an advantage, and they failed to understand why no other chain proposed these products. McDonald’s finally understood that they had to adapt their menu to include vegetarian and chicken options, and had to spend much more financial resources on communication and advertising than anticipated previously in their budget, in order to rebuild their image and attract consumers.

The lesson here is: If nobody else is offering a product, it doesn’t mean that they are dumb or less innovative. There might be a good reason for it.

All these examples and case studies should serve as lesson learned when you consider expanding your activities in a new market.

Fortunately for you, at Artemis Business Care, we understand the challenges and complexities of international expansion. We are here to share our 25 years of experience in 3 regions in international development, our understanding of local cultures, and our business networks, so that you avoid all these pitfalls and thrive globally.

Click here to learn about the tailored solutions that we offer companies in their international development.

So, don’t wait, contact Artemis Business Care. Because “Chance favours the prepared”.