Expanding your business into a new market, especially an international one, is an exciting, yet tricky undertaking. There are many benefits to growing your business globally including reaching a new set of customers and a new geographic market. At the same time, success does not come easily. You must grapple with regulatory challenges, cultural differences, and country-specific dynamics. One wrong step and your time, energy and resources may all be wasted.

How can you ensure your success?  Matt Craft, Vice President of Capstone addressed these issues in a workshop hosted by the International Trade division of the Virginia Economic Development Partnership (VEDP) in Charlottesville, Virginia.

In his presentation, Matt explained that success begins by considering which customers you want to reach and what markets they will be in. Next, you select the right market for your business by looking at those that have a healthy, stable demand for your products and services now and in the future. A careful analysis of future demand is important to growth. You don’t want to spend lots of effort entering a market only to find that it is shrinking. Your new international market should support your company’s long-term growth goals.

Learn more about market entry strategy in our special report: “Markets First – M&A the New Way.”

Photo Credit: Kevin Gill via Flickr cc

How do you find the best market for your product or service?

Capstone Project Manager Matt Craft answered this important question on the Market Selection Panel at the Virginia Conference on World Trade in Richmond, Virginia on October 30.

Hosted by the Virginia Economic Development Partnership (VEDP), this is the state’s largest international trade conference and is focused on expanding international business with participating representatives from the Middle East, Australia, Canada, Brazil and Mexico. The 250 businessmen and women who attended and heard Matt came from various industries that included engineering, manufacturing, professional services and IT.

Matt discussed how to go about selecting the right market and the importance of using tools for prioritization and good decision-making. As a critical step in following future demand, selecting the right market begins with thinking about which customers you want to reach and what markets they will be in.

Market selection isn’t always about geography, Matt explained, but could also mean deciding between vertical markets such as healthcare, retail, or industrial products. The idea is to select a market where you see a growing demand for your business’s services or products. By entering a growing market you can position your company for long-term growth.

In more than ten years as a Virginia Leaders in Export Trade (VALET) Program Partner, Capstone has advised many companies on the market selection process.

Learn more! Free special report:  “Markets First – M&A the New Way.”

Expanding internationally can provide numerous opportunities to grow your business using acquisitions, joint ventures or strategic partnerships, but before you can decide which market to enter, you’ll need to do some research.

The data sources you use for your research will vary depending on location and industry and the specific information you are seeking. We’ve listed a number of helpful resources we use in our research of international markets and companies.

Kompass – Kompass is a business to business directory and is a great resource for finding privately held, international companies.

Trade Associations – Just like U.S. ones, international trade associations can be very helpful if you know which industry you want to focus on. They typically conduct their own research or have access to in-country market research.

US Chamber of Commerce and the US Embassy Business Consulate Office – The in-country offices will have plenty of information for you. The Chamber of Commercial usually has commercial information while the Embassy will focus on the government.

Region Specific Sources – For example, we’ll use Companies House in the U.K. or JETRO in Japan.

Using these secondary sources are just the first step in your research. Once you’ve conducted your secondary research, you’ll most likely want to conduct primary research in order to gain a deeper understanding of the markets and companies.

Capstone again participated in the VALET Program Partner Roundtable, a program that helps companies throughout Virginia expand their international business. We have been selected as a partner for this award-winning program for more than 10 years.

VALET offers a powerful combination of capital resources provided by the state along with professional services from expert, private-sector partners.

Our efforts at VALET are spearheaded by Managing Director, John Dearing. As a program partner, Capstone offers pro-bono consulting services and free educational webinars to active VALET participants.

Capstone worked with three of the 11 participants from VALET’s most recent graduating class, reflecting our knowledge and expertise in corporate growth strategies in a wide range of manufacturing and service industries.

Mike Melo, CEO of ITA International and a VALET graduate, acknowledged Capstone’s help in defining strategy and direction for his global support services company. The strong relationship between Capstone and ITA developing in the VALET program will continue; we are actively working on projects together.

Because our mission at Capstone is helping our clients achieve their dreams, it is particularly rewarding to see the continual growth of the companies we’ve served. Even as some of our clients graduate out of the VALET program, we’re excited to continue our relationship beyond VALET.  We also look forward to working with and supporting the incoming VALET class.

It’s no secret, especially in Washington, that sequestration has hurt many businesses in the defense industry.

A high-level defense official reported that military-related M&A deals have stalled due to the uncertainty. Brett Lambert, Deputy Assistant Secretary of Defense for Manufacturing and Industrial Policy, said banks are unwilling to lend to smaller defense firms over doubts such companies will remain in business, and be able to pay off their debt.

Their concern is warranted. Smaller firms are less able to recover from the loss of a contract than larger companies that can spread the costs and leverage economies of scale. Unfortunately, most defense cuts will be smaller contractors as opposed to large weapon programs, says Frank Kendall, the U.S. Undersecretary of Defense for Acquisitions Technology and Logistics. In addition, many small firms are research and development driven, and with cuts to the R&D budget the military will be unable to fund their research or buy their innovative products.

In any business, there are circumstances that are beyond your control. Changes in demand, competitors, disruptive technologies, new regulations and market conditions are a few of the factors that can affect your success.

For those in the defense industry, sequestration is an unforeseen circumstance that would have been difficult to predict before the financial crisis.

So what can you do if you find yourself in this situation? How can you thrive when markets are saturated and demand has decreased?

The key is to remain proactive and seek out opportunities for growth. At my firm, we often use the Opportunity Matrix to focus on future demand and evaluate the best options for growth. Future demand, after all, is key to company success.

The Opportunity Matrix can be used to find the optimum market where future demand will be the strongest. The grid (pictured below) allows you to assess both existing and future demand.

The Opportunity Matrix

Capstone often uses the Opportunity Matrix to focus on future demand and evaluate the best options for growth.

In light of sequestration and the expected cutbacks across the industry, many are choosing to leave the defense industry. A firm faced with declining revenues might choose “Distribution,” bringing products or services to new markets.

The most obvious choice for many is to expand to new geographic markets, and in fact firms are going overseas to sell to other governments. The Virginia Economic Development Partnership has even put together a “Going Global” Defense Initiative to help Virginia defense firms get a foothold overseas.

Another equally valuable, but less obvious opportunity is expansion to new vertical markets. By this I mean marketing your existing products in a new industry. Can your defense products be used in another industry such as oil and gas, construction or healthcare?

While you can’t always control external factors, you do have the ability to study your options. By being proactive instead of reactive, you open the door to growth, regardless of your circumstances.

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* Guest post by Paul Marin, Research Analyst at Capstone

Did you know twenty of the fastest growing economies are in Africa or Asia?  William Blair reports in the first quarter of 2013, the Americas invested $7.0 billion in Asia-Pacific in cross-border transactions, a 4.6% increase from 2012.  This means many of the opportunities for growth may be abroad.

International expansion can be a rewarding and exciting way to grow your business and find new markets.  You may be competing in a highly saturated domestic market with diminishing growth prospects. Seeking new foreign markets is a natural response to your company’s domestic stagnation.

Markets in developing countries look particularly appealing. Not only are they growing rapidly, but they also lack well-established players that can compete vigorously.

Even problem-ridden mature regions like Europe offer great opportunities. In fact, the European Union’s middle market companies attracted the most foreign investors in the world in the first half of 2012.

It is not hard to see why M&A in the European Union has attracted investors. The recession and uncertainty triggered by the European debt-crisis have deprived companies of customers and financing forcing them to turn to alternative sources of funding to survive. In other words, structurally great middle market companies are selling at a discount.

Opportunities for strategic partnerships also abound. Despite the European Central Bank’s efforts to lower interest rates across Southern Europe, a liquidity crunch is squeezing usually successful firms. As the Financial Times reports, this has made Spanish companies partner with former rivals that have more plentiful access to financing and low interest rates. Such arrangements are not only mutually beneficial but can also be highly lucrative.

One way to take advantage of these international opportunities is through acquisition. The right acquisition can mitigate some of the risks inherent in venturing internationally

The key advantage of an acquisition is that it is a “ready-made” solution that can help you navigate unknown foreign business territories.

Companies that expand internationally are faced with a host of problems including cultural differences and language barriers that can derail promising deals. Political risks such as corruption, arbitrary enforcement of regulations, or outbursts of nationalism cannot be adequately dealt with in absence of deep local knowledge.

A well-executed acquisition brings an experienced team that understands the local market. The acquired company already has an infrastructure for business in that country: regulatory approvals, facilities, relationships with customers and suppliers, and an understanding of the local markets.

Although international expansion can be an exciting opportunity for growing your business, venturing abroad is no silver bullet for curing domestic market funks. Your plan for bringing your business overseas must be strategic and carefully planned. No matter how good an international market may seem, without a strong strategy, your plan may fail. But, with the right strategy, a carefully planned acquisition or strategic partnership can help your company gain a global foothold.

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