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August 9, 2000 Event
Everybody Wants to Rule the World: The Challenges of International Expansion One of the biggest dreams of the new economy is that of a truly global marketplace: the vision of a network where the transcendence of geographical boundaries provides a seamless connection to a world full of merchants, partners, and customers. Yet the globalization efforts by most domestic e-businesses have been pretty under whelming. While over half the people with Internet access reside outside America, nearly two-thirds of leading U.S. companies publish their Web sites only in English. Meanwhile, our foreign brethren have seized the day - either through their own innovation or by shamelessly copying the models invented by web pioneers. While the reward of going global may be immense, the difficulty of building foreign offerings and distraction to parent companies make international expansion for startups a risky and challenging proposition. If running a new e-business is difficult in the U.S., with its developed infrastructure and mature industry, imagine what it is like in the rest of the world. Creating an international website requires companies to globalize their strategies and technological infrastructures to conduct business across the globe, including localization of content, products, and services for each separate country. In reality, there are very few success stories of American-born Internet startups expanding overseas. Most have simply mimicked their domestic counterparts in all the wrong ways: high cash burns and unclear paths to profitability. In addition, competition from foreign-born dotcoms is fiercer than ever. The risk aversion mindset and rigid educational systems of Asia and Europe have given way to a culture of capitalism where everybody wants to be an entrepreneur. What is behind the explosion of overseas movement? The vast potential of a global Internet has resulted in an unprecedented influx of capital into foreign markets by gold rush crazed investors. Yet those same folks seem to have ignored the mistakes of the U.S. boom. Recently struggling global markets confirm bouts of irrational exuberance. Amidst all this chaos, how should domestic startups expand overseas? It makes sense to start by targeting specific areas and then build a global offering over time. Clearly it is better to get things right in a few key markets than to get things wrong everywhere. However, saying no altogether to the global urge must be considered. While the price for a lack of foreign expansion may be high, pouring too much effort into building an ancillary offering abroad may lead to the demise of the business in one's own backyard.
Key Learnings
TO EXPAND OR NOT TO EXPAND? - THE OLD RULES STILL APPLY
Too often, the opportunity to create an international presence is believed to be enough of a justification for creating one. International expansion has become dangerously tied as much to Silicon Valley ego as the pursuit of viable business opportunity. Companies should pursue international expansion only to the extent that their industries require it. The promise of the internet to create new international industries has not yet been fulfilled, and facilitating overseas transactions amongst individuals and businesses already doing international business is not a significant step. The significant step will come when overseas transactions create opportunities where none existed before.
INTERNATIONAL COPYCATS -- YOU SAY TOMATO, I SAY TOMATO
The copycat phenomenon is not new or unique to the international sphere. Rather, it is an element of doing business on the Internet. From the blatancy of business model duplication to competitive lifting of features, design and functionality, domestic copycatting has become so rampant the industry is blind to its own underpinnings. Knowledge about overseas copycats simply takes longer to penetrate the domestic competitive mindframe, affording overseas copycats a respectable first-mover advantage. The secrets to competing with copycats are not unlike the factors that granted domestic companies the compliment of international copycats in the first place: focus, innovation, and speed.
KEYS TO SUCCESS - BRAND, TECHNOLOGY, PEOPLE
"Megabrands" seem obvious candidates for international success. With broad appeal, a respectable domestic audience, and ample resources, for such players international expansion is but another bulletpoint in between wireless and the annual Christmas party. Megabranding, however, is not requisite for international success. Technological innovation can play a key role in international expansion plans as knowledge exchange and competitive technological advantage combine to create real opportunities for interested players on both sides of the table. Whether a technology advantage can break a brand advantage overseas remains to be seen. However the indisputable international advantage seems to have less to do with branding or technology and more to do with obtaining and retaining high quality human capital that understand local market nuances.
BEST PRACTICES - DON'T GO IT ALONE
Young domestic companies should not be spending their revenues on international expansion. For early stage companies, international and domestic expansion are mutually exclusive -- expanding internationally consumes precious internal resources that otherwise could be dedicated to growing domestically. A number of internationally experienced players have emerged that can offer younger companies partnerships which reduce the risk of international expansion. Joint ventures with experienced international players (e.g., CMGI, Softbank) are becoming the lower risk, higher reward strategy of choice for companies who have not yet established domestic dominance in their space. Alas, even Yahoo! has not ventured into Japan’s international waters alone but rather favored a minority stake in a joint venture with an experienced partner to ensure it international success in the long term.
QUOTES OF THE NIGHT
"How can Internet companies expect international success when they can’t ensure domestic success?"
"Nothing's changed! The Internet creates only an incremental increase in international business, as did the telegraph and the telephone. It's not a whole new world."