Expansion  Into  the  US  Market  –  Risks,  Benefits,  and  Keys  for  Success  

U.S. Small businesses drive the American economy and have done so throughout the years. However, many traditional small businesses and online start-ups fail within the first three years due to severe resource constraints early on. Given that fact, how can international start-ups looking to expand to the U.S. market succeed when many American businesses have difficulties expanding within their own market? What are the risks associated with establishing a presence in the U.S.? What are the general elements that must be in place to ensure success? This paper will examine the aspects of going global and expanding to the U.S. market, assess the risks and the benefits associated with this move, and provide an analysis of the key factors for success.

Start-Ups and the Current State of the American Market

It is no secret that the years 2008-2010 have been very tough on all businesses, both small and large. As a result, it should come as no surprise that just about everybody is interested in fomenting economic development, which will create jobs and drive economic growth. This is where entrepreneurship plays a significant role.

How big is entrepreneurship in the U.S? The Kauffman Index of Entrepreneurial Activity found that entrepreneurial activity was at a 14-year high in 2009, which is encouraging data for all. The Index, which measures new business creation as one that is “engaging in significant business activity at the individual business owner level,” found that about 558,000 new firms were started per month in 2009, a very high number that reflects the idea that the economic downturn had also a positive effect, as it encouraged many entrepreneurs to start new ventures. The report suggests that when it comes to U.S. job growth “start-up companies aren’t everything. They’re the only thing.” The study reveals that new firms add an average of 3 million jobs in their first year, while older companies lose 1 million jobs annually. This means that the growth of the American economy depends on the inception and growth of new businesses, hence making this a very exciting time to be an entrepreneur.

   

 

Can we compare this trend to another time in history when we saw similar circumstances? Absolutely. After the 1991-2 recession, it took a while for the economic recovery to kick into gear and start feeling like the economy was on a sustainable upswing. But by the end of the decade, things had really taken off, due, in large measure, to the maturation of some of those 1996 startups.

Now that we are watching the establishment and growth of so many startups, it is only a matter of time before some of them become successful. Even those that don’t turn out to be high growth companies will be generating new economic activity, some of which will be in relatively new markets like renewable energy, and others which will develop new technologies and business models we have not yet see

The Time Is Now

The launch of many new businesses is perhaps the best news for U.S. economic recovery we’ve seen so far. The challenging economy motivated many individuals who had been laid-off to become their own employers and future job creators. There is no doubt that it’s the entrepreneurs who drive the economy these days.

   

 

This is also exciting news for international entrepreneurs, who are looking to launch or expand their companies into the U.S. market. It is much easier to bring your business to a territory where the atmosphere is positive and open to new ventures. The U.S market is at a better state for creating new business and for innovation than it has been during the last two years. In addition, there is a current understanding worldwide that it’s the role of everyone to advance the success of start-ups and small businesses. The international organization OECD — which helps governments tackle the economic, social and governance challenges of a globalized economy—added to its agenda the identification of how universities, research institutions, start-ups and existing small businesses can take intellectual property to the marketplace in a fast growth process. Other organizations and private companies, both large and small, have joined the discussion. Everyone now understands: the road for recovery depends on innovation, and start-ups are the ones to lead the way. It is a fact that small business will lead the way out of this recession, and international companies and entrepreneurs can and should play a large role in this process.

The Risks of International Expansion

Going global can be an exciting and rewarding process for growing companies. When done properly, it will lead to higher profit margins, wider recognition of the company's products and, ultimately, a higher market value for the enterprise. But, along with the potential come a variety of risks that need to be carefully measured before deciding to move forward. Many companies make a variety of mistakes that prevent them from finding success in expansion initiatives. Common mistakes in expansion execution:

1. Lack of clear entry strategy - The first step in developing an international plan is to determine which markets to enter and the most effective way to reach them. Lack of clear strategy leads to poor strategic decisions, the wrong allocation of resources and poor allocation of management attention.

2. Underestimated risk – Being a champion at home doesn’t necessarily promise you will be one

abroad. An overestimation of current competencies, born of success in the home market, leads to an underestimation of the risk and effort needed to cross the chasm to a new strategic target

3. Lack of linkage between strategy and actions – The strategic plan has to speak to the mission and the strategic intent of international expansion. The relationship and transition from the vision and mission of the company to its strategies and actions needs to be clear and explicit.

   

 

4. Poor balance between what’s critical and what’s not – There needs to be an alignment between the company’s resources, its operation, its people and the targeted results in order for the expansion to be balanced.

5. Poor review system – Key projects must be reviewed and reported to the management team so there are no surprises. The reviews should focus on risk management, ensure ongoing alignment with the business and that projects are consistent with the vision and mission of the company.

6. Poor overall alignment between strategy and structure – Organizations that have better alignment between its human talent and the business they serve perform better and create exceptional results.

Keys for Success:

Beyond the aspects mentioned above there are other general obstacles for global expansion, ranging from cultural and language differences, to how business should be conducted. These differences are risks that can become hindrances to success in establishing a company in a foreign market within the necessary timeline and budget. So, while the decision to go international must be made carefully, it need not be an intimidating one.

When it comes to expanding to the U.S. market, or forming a local base here from the start, there are a few steps that entrepreneurs and companies should implement before and during the process.

Key steps for expanding into the U.S. market include:

1. Establish market presence before moving to US

• Understand the market – travel to the U.S., meet potential customers and partners, have a company representative help with setting up meetings and create the right platform for the company to operate.

• Generate demand – show your product/service to potential customers, provide them with a free trial, look for pilot projects.

• Become a member in the business community – attend networking events and get a feel for the American culture and for how to do business here.

2. Determine the best location for the company to operate

• Time difference with headquarters – The home base has to be able to communicate with the U.S. branch on a daily basis. Will East coast be better than the West coast for your company or vice versa?

• Proximity to VC funds – If you are in need of another round of investment, you should look for an office located near the right VCs and the VC community at large.

   

 

3. Build a local team – This is a crucial part of establishing your presence in the U.S. It includes:

• Having a small team in the beginning that can work with the development team and the customers. • Marketing & Sales teams must be Americans, as they will have the best knowledge of how this

market works.

4. Align Home and U.S. teams – Each of these teams will have different cultures and methods of operation, so effective communication is a critical key for success. Communication can be improved through regular meetings between the marketing/sales teams, R&D teams and the management teams in each office. With the variety of video conferencing sites available today, the obstacles of geography and time can be minimized.

5. Customer commitment and feedback - Knowing your customers' reactions to your products early on is critical in understanding how to improve your product to better meet customer needs and expectations. It is about getting your customers excited about your product, as they will become referrals and generate more revenue for the company.

In Conclusion

Expansion to the U.S. market is a big milestone for international companies and entrepreneurs. While it might be an intimidating step, it can and should be a rewarding one. In addition, the current economic climate in the U.S. favors and supports the establishment of new companies. Hence, the expansion of international start-ups will strengthen the idea that these companies are the engine that will drive the economy in years to come.

Like anything in business and in life, the more you are prepared for a task, the better your chances are to succeed. So before you make this big move, do your homework, align yourself with local experts, find a local partner who can help you make the first steps, put together a well-thought plan, and make sure that you are be able to execute it.

For more information about how your company can plan a successful expansion contact: Eyal Bino Eyal@born-global.net T: 646-884-3442