As world trade moves into a general recession, paradoxically this may be the best time ever for entrepreneurs to look for new markets. Growing Business analyses the key factors for success when moving operations overseas

When Jamie Borwick started making electric vans in Coventry six years ago, he predicted selling 2,000 a year and was delighted when Tesco became his first customer. Now his company Modec produces 5,000 a year, but domestic sales have been disappointing.

“The growth of our business is almost all overseas,” he says. “Of the last 100 orders taken, only 16 are to be delivered in the UK, and in every case the decision to buy was taken abroad.”

The zero-emission commercial vehicles have been taken up in Europe by global operators like FedEx and UPS, who can’t get enough of them. That wasn’t the plan and took Modec by surprise, creating the enviable problem of supporting sales in key markets like Spain, Germany, France and the Netherlands.

“To expand abroad, we have to sell 10 or 15 in one country, so we are setting up dealerships in different markets,” explains Borwick. “We’ve just taken a substantial order from a distribution company in France and will be appointing a dealer now to service it.”

That a British vehicle manufacturer is successfully developing a new product and selling it abroad shows that, “companies with niche products and services can still find buoyant markets around the world,” as Sir Andrew Cahn, chief executive of UK Trade and Investment (UKTI) told Growing Business in an exclusive interview.

The export lifeline

There are two ways a business can react to recession: go into lockdown and wait for it to go away, or look for the opportunities that still exist and the advantages it throws up. Foreign exchange may be one of these, as British goods become cheaper as the pound’s value falls. “For many companies exports are going to be a lifeline,” says Cahn. “I am not saying exporting is easy or a silver bullet, but there are more opportunities around the world than there will be in the home market.”

So what questions should entrepreneurs ask themselves before they invest time, money and energy in overseas marketing? The key to success is doing your homework and preparing thoroughly. While the rewards may be tempting, exporting is riskier than selling into an established home market.

Route finding

There are two reasons firms expand internationally, says the director of European management school ESCP-EAS, Davide Sola: either they are looking for cheap labour and natural resources, or searching out new markets. Either way, the objective will be to grow revenues, so they should ensure that going abroad is the best way to do that. “It’s costly to set up in a new market, so you need to ensure that you have exhausted possibilities at home, such as selling more to existing clients or cross selling.”

The next priority is to decide your market entry strategy, and it’s vital to consider all the available routes, including:

Greenfield investment – Opening a subsidiary by a direct investment of the firm, this normally entails 100% ownership with full control
over its management.

Acquisition or merger – Purchasing a majority share of an existing company gives instant access to the resources you need, but carries
a high risk of failure.

Strategic partnership – This is anything from an agency agreement to a joint venture, where both parties bring one or more business assets to the table that will help the other, such as production facilities, sales network or greater general knowledge of the local business environment.

Micro-climate

The decision on how to enter the market usually depends on local market conditions, according to Sola. “First, what’s the market growth in that country? Is it stable or mature, high growth over 20% or less than 5%?” he says. “Then there’s the degree of consolidation. How many players cater for the top 80% of your market? Then consider your product fit and the level of adaptation it needs.”

Finally, Sola points to the political, legal and economic context of the target market. This refers to your ability to choose your options. In some countries, for example, there are restrictions on the maximum amount of shareholding by foreign-based investors.