THE ABC’S OF U.S. MARKET ENTRY FOR INTERNATIONAL COMPANIES
By Paul H. Grossman, Jr.
The U.S. is the world’s largest market with a GDP of $19.52 trillion, which is 60% larger than the second largest economy (China) and five times larger the third largest economy (Japan). It is also the world’s largest importer, consuming 13% of total global imports. Thus, it is no surprise that many international companies desire to sell their products and services into the U.S. market. Indeed, some business pundits go so far as to say that a company can only truly be considered global if it is successfully doing business in the U.S.
Why is it then that most international companies that try to do business in the U.S. fail? Why do most smaller international companies never obtain even their first sale in the U.S? And why do companies simply trying to export into the U.S. fall short? While there are certainly many reasons for market entry failure, my experience has revealed the following three basic rules when entering the U.S. will greatly increase chances for success.
The ABC’s for successful entry in the U.S. market for international companies:
“A” – Acknowledge that you will not “enter the U.S.” The U.S. can be described as a collection of regional markets or as 50 states bound by a national framework. But, most certainly, the U.S. cannot be described as one market. Regional differences are pronounced, state regulations differ and, most telling, economic bases in states and metro areas are different enough to require individualized approaches to each sub-market. An international company that states it is “entering the U.S. market” is setting an unachievable goal.
Lesson Learned: International companies would do well to set more geographically limited market entry goals to avoid immediate disappointment. A goal of entering the “mountain states,” or the “Boston market” is more achievable and, if attained, will lay the foundation for continued market expansion into other U.S. markets. International companies all too often set unachievable metrics that result in short term failure; in short, they quit the marathon before they have successfully run the first kilometer.
“B” – Take your budget allocated for U.S. market entry, double it, and add a 0. International companies persistently underestimate the monetary costs of developing business in the U.S. An example: compensation for U.S. staff is higher than for European staff because Americans have higher health care premiums, retirement costs that they must fund individually, and younger hires typically carry university loans. A position that might cost $45,000 in Europe will cost $60,000 or more in the U.S. Another example: because of the differences within the many U.S. submarkets, marketing costs are higher. A public relations campaign that might be conducted in the UK for $100,000 will require $250,000 in the U.S., and still be confined to a submarket.
Lesson Learned: International companies should budget at least three (3) years of business development expenses, at U.S. prices, before committing to a U.S. market entry strategy. The advice given above is a bit of hyperbole, but not much of one. Only 37% of small foreign-owned firms investing in the U.S. between 1990 and 2016 survived. Increase that potential for success by engaging local U.S. experts
“C” – Confer authority on your U.S.-based staff. International companies often find it impossible to let their U.S. staff make the decisions necessary to develop business in the U.S., preferring instead to micro-manage every decision. International companies tend to assign their U.S. market entry strategy to a member of its senior leadership who has had some experience with the U.S., e.g., having done business in the U.S. in the past, having studied in the U.S., etc. However, a passing knowledge of U.S. business practices is just that, something that should be passed over, and is often outdated and out-of-touch.
Lesson Learned: This is the single most damaging mistake that international companies make when entering the U.S. market. An international company that refuses to confer management authority to its U.S. staff – for market selection, market messaging, business development, hiring, etc. – is an international company that would do better to not enter the U.S. market at all.
Paul Grossman, in coordination with IBG Global LLC, coordinates a group of international business development professionals dedicated to assisting overseas companies to successfully enter the US market. He recently retired as Vice President, International for the Virginia Economic Development Partnership where he was responsible for the global promotion of Virginia companies’ products and services. While there, he managed seven (7) programs serving 320+ companies regularly producing $650 million in annual export sales. He transformed Virginia’s trade mission program that resulted in 1,000+ Virginia companies travelling on 225+ missions worldwide. Paul also served as Managing Director of Virginia’s international business recruitment program (FDI), resulting in $3.8 billion in capital investment into the U.S. and the creation of 15,425 jobs there. Most recently he served as U.S. Director for OCO Global, a UK-based international trade consultancy of 120 staff located in 12 countries.