On occasion I have suspected that (business) people’s egos are getting bigger. But perhaps the problem is that the world is getting smaller. In any case, I have developed a fascination for opinionated business-people who are convinced that the solution to their business challenges is to hop on an airplane and go across the world.
I was offered hours of free amusement last weekend at a dinner party as I listened to two fellows boosting one another’s egos to billowing heights over their international business conquests. They didn’t need any other participants – the audience was just fine thank you – so I was free to listen and wonder where on earth (could be anywhere, I realized) they came up with their ideas.
I can’t remember for the life of me who said this, but SOMEONE important said “You don’t have to be in China unless you’re GE.” Now this is a solid business idea. Better than an idea, it’s a reality.
The smartest way to grow a business is to imagine your business is a pebble dropped in a pond. It should grow outward from the center, in concentric circles. The reasons are obvious. It’s less expensive to serve the customers closest to you, and you can build the strongest relationships with those customers with whom you can spend more time. It’s not sexy, you don’t earn many air miles, but it will make you money.
Retail principles are founded – indeed, grounded – on this principle. The highest paid staff at both Wal-Mart and McDonalds are involved in real estate transactions and management – they understand the importance of building a business in the middle of the best prospects. But if you think this principle is only relevant to retail, you’re missing an important point.
It works for consulting. When I decided to return to my consulting practice, I decided to move from a very small city to a very large one. Why? Because I could build a solid practice right in my own neighborhood. By saving airfare and travel costs and time, I will have more time available for producing value. It works for distribution and manufacturing. The closer your customers are, the lower your delivery costs will be. Even if your business is in internet sales, your delivery costs will be lower to your closer customers – giving you the opportunity to give them lower delivery costs, or gain higher margin on the shipping, or both.
But don’t get the idea that I’m saying you shouldn’t sell to people in other states or other countries. This is a marketing and sales force focus issue – not a business constraint issue. Marketing and sales dollars should be spent on the close-in market first, then radiate out from the business. As each market is saturated, marketing and sales dollars should be spent on the next market. Marketing gets more expensive as you reach out to broader and more distant markets, but presumably you have the sales to justify those larger marketing expenses.
The theoretically pure example would involve a business that marketed heavily to their town. Customers from other towns, states or countries may seek out the business, but the marketing would stay focused on the town. When the market in that town was nearly saturated, but before sales growth was at risk, marketing would expand to the county or the state, then the region, then the country, then internationally. The key to this model is that the near-in market is nearly saturated prior to pursuing a more distant market with marketing dollars and sales force attention.
When it comes to international expansion, proximity considerations can be lingual or geographic – it just depends on the complexity of your marketing and sales strategy and your access to language resources. English may be the international language of business, but business decisions are made by individuals, and most people prefer to work in their most comfortable language.
Are there exceptions to this rule? Of course there are, as there are to every rule. However, you should start by proving why you are an exception, rather than trying to prove that this rule doesn’t apply. If you can’t own your local market you should be very concerned about the implications. Marketing and selling to people far away isn’t easy and it isn’t cheap. Before you start fantasizing about being an international player, you might want to evaluate how much opportunity for growth still exists close to home. The money you save will be your own.
(c) 2007, Andrea M. Hill