Stellar Geographic Strategy
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Primary Components of a Stellar Geographic Strategy
A successful geographic strategy should be constructed and operate like a solid investment portfolio, stressing diversification. Sure, it’s difficult, but typically quite rewarding.
As the international markets evolve, while also expanding in influence and power, emerging nations can become major sources of new revenue streams. Companies wanting to take advantage of these opportunities must create and execute a winning geographic strategy and identify and accept the factors and uncertainty influencing new markets.
Attractive Geographic Markets
In the 1990’s, the “BRIC” markets were “hot.” Brazil, Russia, India, and China proved lucrative to U.S. companies employing aggressive geographic strategies. They remain strong outlets for many products and services.
The 21st century has added some interesting new geography to the expansion strategy menu. Joining the list of attractive emerging markets are South Korea, Egypt, Malaysia, Indonesia, and Mexico. C-level executives building geographic strategies should evaluate how their products and services might fare in these economies.
All geographic strategies, like all growth-based action plans, have at least one constant component or reality. The key factors that maintain and sustain growth are quite different from those components that carry the first growth rush. Therefore, designing a sustainable geographic strategy should include both an initial entry strategy as well as a modified plan that targets maintaining solid growth and success over time.
Analyzing potential new geographic growth targets should include more than just potential consumers, as other important factors exist that will influence your decision to expand or take other action. Unlike the U.S. and the U.K. markets, which remain strong and stable (even during the recent recession), emerging markets can present evaluation challenges due to lack of historical information and/or unstable economies or governments.
Careful evaluation of the key factors in identifying new attractive markets helps senior management compose successful geographic strategies. Understanding and rating the key components is challenging, but also highly rewarding as your operating results will show.
Primary Components of Winning Geographic Strategies
1. Talent. You must assess the availability of workers. Key to a useful analysis is combining your knowledge of the skill levels you need and matching this with the apparent availability of this talent in the geographic location you are targeting. For example, some of the emerging markets may be strong in other key components, but found lacking in some skill areas. Adjusting your geographic strategy to compensate may still indicate a “go” decision. In other situations, this factor alone may cause you to shift geographic targets.
2. Capital. The availability and cost of capital are critical factors in your new geographic strategy. For example, the local (new) capital markets might indicate strong availability of funds, but the cost may be prohibitive. Similarly, local capital may be in short supply, but the cost might be very attractive. Only when capital availability is high and costs are low (or, at least, reasonable) is this component fully satisfied. If the local capital markets are soft or expensive, Wall Street and London still remain good sources of working funds.
3. Resources (Natural and Otherwise). Local sources of fossil fuels are an important, sometimes critical, factor in designing a stellar geographic strategy. Emerging and viable new energy sources in prospective markets are beginning to appear. While the classic evaluation of needed local natural resources remains important, augment your analysis with consideration of alternative energy options that new target markets may offer.
4. Innovation. Often overlooked in geographic strategies, innovation (or lack thereof) in potential growth markets may change a “go” to a “no go” decision or vice versa. Evaluate the new market’s spending on research and development, their support of university, scientific, and medical research, and the recorded data of the number and quality of input and output dollars and results. Ask yourself, “Is innovation ‘pervasive’ or ‘selective’ in both public, private, and governmental organizations?” Is the market consistently turning knowledge and research into new consumer and scientific products and advances? Or, are a relatively few organizations displaying innovation, while most others sit on the sidelines? The answers to these questions will help dictate your commitment to a new market.
5. Consumers. The number of potential consumers is only part of this component. Their ability and willingness to spend discretionary income is just as critical as their statistical numbers. Another sub-component, no longer underestimated, is your accessibility to the consumer base of the potential geographic market. The best example of potential problems that may appear is the experience of the U.S. and Japan. When both countries agreed to opening their markets to the other, the U.S. allowed Japanese products to flow freely to a welcoming American audience. However, the Japanese government placed so many tariffs, taxes, and restrictions on U.S. products that companies found it difficult, sometimes impossible, to market their goods and services widely in Japan.
The results of your evaluation of these five key components of a winning geographical strategy should help structure your plans. While difficult to find markets that score high in all components, adjusting strategies to compensate for shortages might still lead to a successful geographic strategy.