Will your competitive advantage work in other markets?
When building a business, the essential first step is to develop a strategy that resonates with your market. But once you’ve crafted that winning strategy, what does it take to successfully translate it into new markets?
When companies expand overseas, they often assume that the competitive advantages that made them successful in their home country will be seamlessly transferred to new global markets. And indeed, it can sometimes be the case. For example, Sequoia’s existing brand resonated well with Indian entrepreneurs, so its expansion into the Indian market required minimal adaptation. Likewise, Intel has made lucrative returns selling semiconductors to customers in China because its chip design and manufacturing technology is difficult for competitors to replicate.
However, not all competitive advantages translate so easily. through more than 100 in-depth interviews With leaders of multinational companies based around the world, my team and I have found that there are three main factors that determine whether a competitive advantage will be transferred to new markets: the local competitive landscape, local customer preferences and the extent to which a business is willing and able to adapt to meet these local demands.
1. Local competitive landscape
The first common barrier we identified was differences in the competitive landscape. You may have been able to beat your competitors in your home market, but that victory doesn’t necessarily translate to other markets, which may be home to other competitors with different strengths and weaknesses.
For example, despite its success in many global markets, Starbucks lost $143 million during the first seven years of operation in Australia, eventually forcing the company to close 61 of its 84 Australian stores. What happened? There were several factors at play, but a major flaw in Starbucks’ strategy was its underestimation of Australia’s rich coffee culture. Unlike other markets where customers were less familiar with coffee as a “lifestyle experience”, Italian and Greek immigrants had developed a vibrant coffee scene in Australia by the 1940s and 1950s. Starbucks entered the market, it was competing against a wide variety of independent coffee shops that offered more flavor at lower prices and already had strong brand loyalty among Australian customers – a very different landscape than the one to which the company was used to. at home.
2. Local Customer Preferences
Differences in the competitive landscape often go hand in hand with differences in customer preferences, as competitors respond to (and in some cases create) demand that deviates from a company’s home market. Therefore, a product that appeals to consumers in one market may be totally irrelevant in another.
Walmart ran into this problem when trying to expand into Brazil. The retail giant had been successful in the United States largely because it offered customers the convenience of a one-stop shopping destination for a wide range of products at low prices. But Brazilian customers were more likely to spend time actively seeking coupons, discounts and other promotions, and they used to go to several stores to get the best deals. As a result, Walmart’s value proposition was less relevant to them, and the company therefore struggled to gain market traction.
3. Willingness and ability to adapt
Of course, neither differences in the competitive landscape nor in consumer preferences are insurmountable challenges, but a company’s willingness and ability to adapt to these differences will make or break its success in a new market. In some cases, a company may be interested in changing aspects of their product or business model, but struggle to implement it. In others, a company may not be willing to make these changes, whether for moral reasons, cultural factors or other concerns.
Amazon executives we interviewed, for example, described a deep-rooted corporate value of always putting the customer first. This has helped the company achieve massive success in many markets, but it has also made Amazon extremely resistant to changing elements of its product in ways that could harm the customer experience.
Specifically, for each product listed on its platform, Amazon uses a complex algorithm to choose a single vendor to appear on that product’s “Buy Box” (i.e. the box on the right side of the product page where buyers can click “Add to Cart” or “Buy Now”), with all other vendors relegated to a list below the buy box. US sellers were used to dealing with opaque algorithms like this one, and they were willing to support it because of the smooth user experience it gave buyers. But Chinese sellers found the Buy Box concept complicated and inaccessible, and so they chose to sell on local e-commerce platforms without such restrictive systems, such as Taobao or JD.com Amazon received such feedback, and it certainly had the technical ability to remove the Buy Box or highlight other provides bear. But due to its fundamental principle of “customer obsession”, the company was unwilling to make these changes, as management was convinced that having only one supplier was what it needed. better for buyers. This ultimately limited its ability to attract sellers (and therefore buyers) to the Chinese market.
So how should leaders react when a strategy doesn’t translate in one of these three ways? The first step is always to recognize the problem. This is often easier said than done, especially if your company is tied to a product or business model that has been hugely successful in your home market, but you can’t improve your globalization strategy if you don’t first recognize its shortcomings.
Then, once you’ve acknowledged that something isn’t working, you can respond in one of three ways:
Adjust existing offers
In some cases, it is possible to make minor adjustments to an existing strategy to bridge the gap between your home market and local conditions. Starbucks, for example, has finally come to terms with the reality that its typical business model isn’t working in Australia. Instead of continuing to fight a losing battle with its direct competitors (beloved cafes that targeted local customers), Starbucks pivoted and began targeting international tourists in Sydney, Melbourne and other locations in popular holiday. These tourists were already familiar with the Starbucks brand, and before the pandemic, they represented more than a third of the Australian population, making it a large and much more promising clientele.
Similarly, Chinese smartphone maker Xiaomi had been successful in its home market largely by selling through online channels. But when the company expanded into Europe, it hit a wall, as the majority of European customers were used to buying cellphones in person. Once Xiaomi realized its online sales model wasn’t working, it in partnership with mobile operators and retailers and even opened its own physical stores to build sales channels that would be more effective in the new market. And this approach worked: Today, Xiaomi is the third largest smartphone seller in Europe.
Develop new competitive advantages
In other cases, a small adjustment is not enough. When a given competitive advantage simply cannot be transferred to a new market, it may be necessary to develop an entirely new approach. For example, executives at Indian mobile advertising company InMobi explained how they relied on its technological superiority as the main competitive advantage in its home market – but in China, internet giants with far more technical resources have made it impossible to compete on the technological front. Once InMobi saw this, it decided to shift gears and focus instead on leveraging its strong global reputation to build a large network of partner apps and advertisers. As a result, although local competitors quickly matched InMobi’s technical capabilities, InMobi was able to partner with over 30,000 local apps and ultimately become the largest independent mobile advertising company in China.
Korean automaker Hyundai encountered a similar problem and took a similar approach to solving it: the company found that Chinese automakers were able to design products at a similar level of quality to Hyundai, and at a lower cost. No longer able to rely on price or quality as a primary competitive advantage, Hyundai began to invest heavily in branding, striving to elevate its brand to Chinese consumers who still perceived cars made in China as less premium.
Leave the market
Finally, in some cases, the best decision is to cut your losses and exit the market altogether. Especially if you’ve already found a business model that works well in other markets, you might be better off focusing your efforts there, rather than endlessly trying to grow in markets that aren’t growing at all. just not.
Amazon, for example, realized that winning the Chinese market would require both huge resources and changes to its core product that it was simply unwilling to make. At the same time, it was already enjoying stunning returns in the many other markets in which it operated. As a result, Amazon’s final decision to exit China was likely the right decision. Similarly, Walmart’s annual sales in Brazil were only 1.4% of his total global revenues — so after seven consecutive years of net losses, Walmart made the decision to exit Brazil and focus its resources on more promising markets.
Developing an effective competitive advantage even in a single market is no small feat. Unfortunately, local success is still not a golden ticket to global domination. Even if you have developed a business model that works in your home, there is no guarantee that it will translate to other markets, as differences in local competition and customer preferences, as well as the willingness and ability adaptation of your own organization, can all influence your chances of successful international expansion. The good news is that if you recognize the problem, major or minor adjustments can be made to fix it. And if all else fails, remember that leaving and finding opportunities elsewhere isn’t necessarily a bad choice. Different markets pose very different challenges, and it’s up to each leader to identify the potential obstacles associated with a new market and chart the best path to overcome them.