After determining that you are ready to expand internationally and wondering how to choose countries to expand the business, the next step is determining which international markets to pursue, how to enter those markets, and which timeline works best for you. With 196 countries to choose from, the selection process itself can be overwhelming.
In this article, you learn how to choose countries to expand the business using a framework and a five-step process.
TAKE YOUR TIME TO MAKE THE DECISION
It can be tempting to skip the research phase and rush straight to international expansion. Startups from the United States typically expand into the United Kingdom first without exploring other options.
Many international startups are also trying to break into the US by default. However, countries that seem easy can be extremely competitive as well.
If you begin your expansion in such a market, you may be at a disadvantage. Ensure that you thoroughly research your options. Your goal is to expand into countries where you have both a strong ability to execute and scale your operations as well as an attractive market for your business.
In thinking about this decision and focusing your research, you can look through the lens of a 2×2 matrix, which allows you to clearly see that not all opportunities are created equal.
STEP 1: START BY MAKING A TARGET LIST
How do you begin populating your matrix? First, create a list of countries for consideration based on key variables that are relevant for your business. What are your must-haves and most important nice-to-haves?
For example, a B2B SaaS startup based out of San Francisco that relies mainly on an outbound sales model might come up with a list that looks like this:
- Market
- Presence of target customers
- Tech-savvy companies
- SaaS ecosystem
- Mobile
- Mobile/smartphone penetration
- Mobile/smartphone infrastructure
- Language and talent
- Can do business and sell in English
- Access to talent
- Macro
- Stable economy
- Exchange rates
- Inflation
- Institutional
- Ease of doing business and setup
A good mobile infrastructure, a big-enough SaaS ecosystem, and the right kind of target companies are essential for this hypothetical startup scenario.
The ability to conduct business in English so that they can test the market with sales teams from their US offices would be nice to have, as would favorable macroeconomic conditions and a friendly business environment.
Australia, Canada, the UK, Ireland, Belgium, and the Nordic countries, as well as Hong Kong and Singapore, may easily meet all criteria. Most startups are, however, willing to compromise on their nice-to-haves.
By compromising on language and macroeconomic factors (but not general market size), this startup may decide to target countries such as Japan, Korea, Brazil, Mexico, China, and India.
STEP 2: DETERMINE COUNTRY ATTRACTIONS
Once you have generated your list of candidate countries, the next step is to plot them on the first dimension of the 2×2 matrix. This is where you begin your research.
This can be described as a combination of country attributes or predictors of economic performance and risk, as well as industry factors such as market size and competitive landscape.
A country’s attributes can be categorized broadly into economic factors, culture, institutions, and technology or infrastructure considerations, some of which can be seen in the image below.
To get a better sense of how different countries compare against each other and where trade-offs could be, it can be helpful to rate them according to these factors.
STEP 3: ESTIMATE MARKET OPPORTUNITY
The next phase of your research is to calculate your total addressable market (TAM).
Depending on your preference, you can either follow a bottoms-up or top-down approach. The most difficult part of this exercise (frequently anticipated by VCs and boards) is finding enough data to perform the calculations and arrive at an accurate estimate.
Sometimes you can purchase industry reports from research firms, but in the absence of that, you will have to rely on other sources. You can use the following data sources to determine your TAM:
- Reports on relevant software markets in each country from industry and analyst sources
- Government reports on companies in your target size range or industry at the country or regional level
- LinkedIn searches for the number of companies and/or employees in a specific target segment
- Reports on keyword traffic and site traffic
- Identify the budgets/spending of target decision-makers that will buy your software by doing market research
- Price data to quantify the opportunity – what can you sell for? Talk to contacts, partners, and customers to gauge pricing
Startups make the optimistic mistake of stopping the selection process once they have calculated TAM.
Make sure you go one step further and segment the TAM by segments you can best serve – your segmented addressable market (SAM) – and be realistic about what percentage of that market you can actually access.
STEP 4: AN OUTLINE OF THE COMPETITIVE LANDSCAPE
For a true understanding of the countries you’re considering, you should research their competitive landscape.
As part of this process, you must examine the entire ecosystem, including your competitors (which may differ from your potential substitutes in the eyes of your customers), any existing or potential partners, complementary products and services, the type and availability of distribution and marketing channels, as well as the preferences and habits of your customer base in that market.
You’ll therefore want to look at:
- Local and global competitors, their size & market share
- Price, performance, and position of substitutes or alternatives to your product
- The competitors’ expected response to entry
- Competition’s marketing and advertising expenditures, distribution channels, customer support responsiveness, payment terms, etc.
- Any unique relationship that gives them an advantage, such as distribution or technology partnerships.
- Complementary companies that already sell similar products to your target customer base
- Concentration and preferences of customer types
- The ease of access to customers (e.g. through long-term relationships, lists you can cold call, etc.)
- Customers currently on the market
- You will need to educate your customers about your product or solution
- Cost switching from competitors or alternatives
- Budget sizes of customers
- Channels with the highest cost-effectiveness
- Ecosystem of the reseller
- The marketing ecosystem
STEP 5: EXAMINE YOUR ABILITY TO EXECUTE
We’re still missing one crucial step at this point, and you’re probably tired of all the research involved.
The most attractive country in the world might not matter if you can’t execute (as is the case when pursuing China, for example).
Is it similar to or different from your existing business that will make it difficult to execute well?
Do you have the managerial bandwidth and resources to enter and scale efficiently?
You should consider the following areas at a minimum:
Product:
Do we believe we have a good product-market fit or will we need to adapt our product to suit the market?
Talent:
Is it possible to find and hire the right people? Are we led by the right people?
Resources:
Does the functional team have the resources to handle costs (taxes, labor, etc.) and the time that will be required of them?
