Earlier, expanding overseas used to be an option only for big companies, who could invest the time and money needed to succeed in a foreign country. Entering a new market meant researching local regulations, identifying the competition and travelling to meet potential partners.
However, technology has redrawn the business landscape over the past 20 years, making it easier for companies to enter overseas markets at a relatively early stage. We are seeing the rise of a new type of business—the “micro-multinationals”.
The internet has brought down many barriers. It is easy for companies to research online and network across borders. Entrepreneurs can then make a presentation to a potential client in a different continent and time-zone from the comfort of their own office.
At the same time, efficient logistics have reduced the cost of transporting goods, in particular benefiting medium-sized businesses with a turnover of $50-200 million.
Another trend for micro-multinationals is to look overseas once they are “forced to”, either due to an already dominant position in the domestic market or stagnation of industry or as their clients want their services in other parts of the world—i.e. following the clients once they are a preferred supplier to global companies.
Industry and sector also play a key role. In India, many FMCG companies are happy to keep expanding locally, given a strong and growing local market as well as the effort required to recreate a brand. On the other hand, software and IT services companies tend to be international in their approach, given the needs of the industry.
Yet another reason is the desire to access technology. Today, smaller and medium-sized businesses can harness new technology to compete for market share, given that they do not have legacy systems to come in the way. The popularity of social media means that a single low-cost video which goes viral can attract customers in a way that would once have been possible only with a major advertising campaign.
Micro-multinationals typically have a simpler management structure, meaning they can take advantage of new opportunities more quickly. They don’t want to add complexity to their organisation. Instead, they spend time doing the necessary due diligence on new marketplaces and understanding local regulations and business practices—and each step is a disciplined process. Some make a virtue of their streamlined structure, innovating swiftly to keep up with market trends. Rather than aping the larger players, these smaller disruptors are likely to hub operations out of their home market, keeping tight control over their overseas operations.
Meanwhile, the ability to sell to a much broader audience can make it cost-effective for businesses to focus on a specialised product. Some micro-multinationals have found a niche producing a tailored component or service—such as a mobile phone aerial, or logistics tracking system—for other, bigger businesses.
However, while it has undoubtedly become easier to expand overseas, there are some challenges.
For instance, companies seeking to establish overseas have to decide whether to do so alone or with a local partner.
Navigating new markets successfully calls for specialist skills, whether acquired through nurturing internal expertise or recruiting employees with the relevant experience. Indian companies are increasingly seeking to retain existing management structures when they buy companies overseas, rather than imposing their own management in markets they don’t fully know and understand. And understanding the needs of overseas customers, employees and partners remains as crucial as ever.
Fortunately, help is at hand. Micro-multinationals can tap various sources of advice, including local chambers of commerce, government export services and specialist consultants. Banks, as well as offering financing and insight into new markets, can introduce entrepreneurs to other companies that have overcome similar challenges. In fact, micro-multinationals have different conversations with their banks. It’s not just a case of ‘hello, I need a bank account and some funding’, instead they want to use finance as a competitive tool. A fast-growth company wants an in depth conversation on all aspects of ‘smart financing’ from working capital management to increased cash flows and visibility over these flows.
The earlier companies seek advice, the sooner they can get a feel for the risks and challenges, as well as the potential rewards of expanding overseas.
The world is continuing to shrink as technology becomes widespread. For those with ambition and a global mindset, it could be a huge opportunity, whatever the size of their business.
The author is MD & head, Corporate Banking, HSBC Commercial Banking