Geographic expansion - how to make it work and not lose your shirt (4/5)

In our last two posts we covered the first two steps in stacking the deck in your favour for a profitable expansion into a new geography: preparing your company internally for expansion and selecting the right location to expand into. Once those are done and you have chosen a market, the next step is to prepare the market for entry.

You should never, ever go into a market cold and start from scratch there. If you've followed the previous step, you are following the money and will already have at least one long term client in the new location. But the new market needs more warming up before taking the big step of opening up a local capability. This usually means working local contacts and introductions from head office, so that the MD or salesman of the new office has a ready list of warm relationships before even stepping foot in the new country or region.

These salespeople must also be local with market relationships and contacts, and an intimate knowledge of the local culture. The ideal person will have spent time in your company already, and therefore already knows how you do things.

The MAC Group was a business advisory firm that sold itself for an enormous return in the 1990s to what became Cap Gemini. MAC's expansion followed a very deliberate path with three important steps always taken before entering any new country. First, MAC always followed the money in the form of local demand from long-term clients. Second, MAC's model was to work with business school professors in client projects, and MAC's senior partners always established and warmed up these academic contacts before moving into any new region. Third, MAC's new offices founders were sales-orientated country nationals. The result: MAC grew into a highly-profitable $250m business at the time of its sale.

The success of MAC's deliberate approach can be contrasted with an operational management consultancy that again we won't name for obvious reasons. This consultancy opened a US office on the basis of a very large one-off project for a client. But the company did no further market preparation, and sent in joint office heads that delivered the client project, but they had no sales skills and were not US nationals. After the client project ended, the two founders achieved no further sales and left the company after six months. They were replaced by a US national who had no knowledge of the company. This person in turn sold no further business and returned to the EU head office, with relocation for his family to be employed as a consultant at head office. The US office was closed on his relocation.

We hope these examples illustrate the importance of the third step in our apporach to geographic exansion: spending time and energy warming up a market before committing resources locally, and the likely perils of not doing so.

In our next post will will cover the final stage of profitable geographic expansion - committing yourself to the chosen geography.

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