Unlocking International Markets – watch your steps
Jussi Lehtinen
There are certain key steps that every software company considering international expansion should take – in addition to hiring a good consultant (and tax advisor, the correct structuring of operations is a beast!)
The first thing is to consider what actually is the objective of growth? Are we following customers, seeking to boost growth as the core market is maturing, or aiming for scale to share development costs?
It’s important to carefully consider your objective, as it also affects the level of investment. How crucial is international expansion for the company’s overall strategy? This also relates to the company governance model. How will we manage and lead the international business? As a separate business unit or part of existing ones, through financial KPIs only, or with joint sales and operational metrics?
Once you know your objective, the second consideration is to select the product / technology that will be the spearhead. And yes, it’s usually better to select one or a few than go with the whole shebang.
For companies with only one product, this is of course simple. For those blessed / cursed with a more diverse portfolio the question is more complicated. Again, there is no clear-cut rule, but my experience is that in general, industry-specific products work better than industry-generic ones. If you’re solving a clearly defined problem and have the references to show, it matters less to the customer whether those references are from Gothenburg or Tampere. And as a nation of engineers, we Finns have a tendency to build software solutions for issues which in some other geographies are handled with paper / excel / ERP, creating an opportunity for expansion.
The third item is to decide on the geography. From my vantage point, Sweden seems to be the first point of expansion for about 80% of Finnish software firms. Geographical and cultural proximity make it a relatively easy place to start – and the ferry from Stockholm to Helsinki is a good place to celebrate success or drown sorrows.
However, Sweden also has drawbacks as a market. It has roughly similar (and gasp, even more advanced in some areas) markets as we do, which means that in most domains there, competing solutions already exist. Also, the ample availability of risk capital has led to a proliferation of software firms and rising valuation of potential acquisition targets. So, when selecting a target market, it makes sense to also look beyond Sweden. Different regions have different advantages: the UK has a large construction and professional services industry, the DACH region provides a large pool of small and mid-sized manufacturing firms, Norway has a similar industry structure with Finland, and the CEE region provides a supply of talented workforce and strong connections to Western Europe.
Last, it is not self-evident that the same channel that worked for you in the domestic market is the optimal approach. There are a number of alternatives. You can start small with a beach head (or remote) salesperson / team and target direct sales. Or aim for local channel or integration partners who provide customer contacts and implementation. Or go on a spending spree and acquire a local firm to gain access to customers (and hopefully a useful product).
However, in all of these options there is a trade-off of time vs. money. The expansion can be done either quickly or at lower cost but not both. And it should be noted that expanding with your customers who have international presence is a plan often made but rarely successfully executed.
Is the reward worth the risk?
There is no question about it: international expansion is difficult. But it can also be highly rewarding. In most segments the market opportunities within a 2-hour flight radius are already 10-20 times bigger than in Finland. And, for those of us who care about such mundane items, there is also a clear valuation boost enjoyed by firms with international presence. After all, if they’ve done it once, they can likely do it again.
