International expansion is an inevitable ambition for ambitious tech companies, but the route abroad is fraught with dangers, from legal risks to cultural hazards.
Even video-streaming juggernaut Netflix had a bumpy road overseas. The company launched its service into more than 130 new countries in January 2016, but its stock soon slipped as a result. A lack of local content, language barriers, underdeveloped payment processing and broadband infrastructure and pricing that wasn’t significantly altered to match the local economy were named as major barriers by Wall Street analysts Jefferies.
Netflix sailed into the largest quarter of net additions in its history within a year, but continues to lose money from its overseas expansion for now. For smaller companies these pitfalls could have already proven fatal. Different international markets all have their own potential potholes around investment, trade, accountancy, logistics, legal and marketing issues.
Techworld was on hand to pick the brains of the mentors at the inaugural three-hour workshops at techUK's central London headquarters.
The workshop begins
There are ten tables arranged along the walls of a large meeting room, where around a dozen different mentors and tech company bosses stand in the middle.
They already know each other on paper. Before the meeting, the organisers drafted a briefing document for each company based on an analysis of the business makeup and key objectives of their overseas expansion plan. This is then shared with the mentors, whose details in turn are given to the companies.
To ease the personal introductions, everybody present briefly introduces their company and their individual role and goal.
The mentors on the day include tech company lender Silicon Valley Bank, PR agency Harvard Communications, the Department of International Trade, location strategy experts Hickey & Associates, global accountancy group Moore Stephens, law firm Lewis Silkin, and the Mayor of London's international business programme.
They’ll advise tech businesses that range from a photographers-on-demand platform to a drug discovery company. The handful of successful applicants were selected from 50 applications after the GTM Global team analysed the businesses and how they fit with the mentors.
The mentors then take their seats on one side of a table and wait for the companies to approach them.
Among them is Wouter Schuitemaker, EMEA managing director at Hickey & Associates. His company provides local knowledge on international labour markets and advises assessing the long-term prospects of a site's suitability. Plans should depend on the size of the company and its operating model, the specific roles required and its principal objectives.
"If it’s an established market, in ten years' time, what will the wages be?" he asks. "Will it be a saturated market? Is the supply of labour going to be there in the long-term?
"What are the challenges you’re going find in the existing centres, like operational costs? And if cost is no issue for you, what is the main driver? Is it logistics? Is it access to Europe?"
[Read next: Eight examples of high-tech innovation in China]
It's worth investigating less immediately obvious locations. Hickey & Associates produces a report that ranks cities around the world by site selection suitability based on five criteria: quality of life, socio-political environment, infrastructure, business climate and labour profile. There are plenty of surprises alongside the predictable destinations, including at the number one spot: Copenhagen.
The point is echoed in the opposite corner of the room by Alban Remy, technology and life science specialist at the Mayor’s international business programme.
"Be curious," he suggests. "Very often the most obvious market is not the right one for your company. In the US there's a lot more cities for expansion than just San Francisco.
"For healthcare and life sciences, China may be an option. Diabetes is growing really rapidly in China, so companies working in diabetes should consider China. The reward behind it can be huge, and because it's a bit more complicated there's a lot fewer companies going there.
"Explore them. It's a big mistake to think you can just use a model that works in the UK and it will work there. Spend time on the ground. Understand the location and the culture."
On the table to Remy's right sits Pete Marcus, the group planning director of Harvard Communications. His company specialises in helping tech companies understand how to market their brand and what makes it unique in different international markets.
"Let's cut your story down to its absolute core and sharpen how you think about it," he recommends. "You have to have a really sharp story to tell. That applies even more when you’re expanding overseas. It’s even more unforgiving and you have to consider cultural differences as well. And because you’re not face-to-face you can’t make up for it in a meeting.
“The different products should appeal depending on the sophistication and maturity of that sector in that country. The fundamental thing is just spending time there to get your story right straight away."
In another corner of the room is Silicon Valley Banks' head of accelerator and growth Sonya Iovieno. She provides fast-growing British businesses with the financial advice and banking services to help them grow globally.
"Particularly in the US, one of the things clients have fed back again and again is to go-in cautiously," she warns. "It's a big market. Get involved in incubator programmes and develop a network. Once you've decided that the US is the market for you, adapt. Think about doing your written material in US English, your contracts in US terms.
"The employment market is very different over there. It's very equity-focused in terms of contracts and very collaborative, and they're not so worried about holidays."
GTM Global goals
The event organisers sit at the top table observing, ready to provide any assistance required.
"The idea is that it's not like a seminar where you have someone didactically standing up in front of a whiteboard and a screen and saying here's my opinion," says GTM Global founding partner Mark Stimpfig.
"One size doesn't fit all, and if you're going to export you need to look at this in a measured way. You need to not just look at the marketing. Are you going to do this virtually or are you going to do it physically? Are you going to look at one particular country or are you going to look at multiple countries? What's your supply chain logistics like? Have you got enough money?"
"It's a two-way discovery," says Stimpfig's business development partner Ian Collins. "We look at your business, challenges and visions, and try to find points of alignment. It's like marriage brokering – connecting the right companies to the right mentors."
The two met when Collins acted as a mentor for another event on global expension that Stimpfig ran with the Mayor's office. The former was previously helping businesses based abroad come to the UK, while the latter was doing the opposite.
Their model eschews the traditional elevator pitching and strict timings with mentors in favour of preparatory profiling and extended conversations tailored towards individual needs. There are no time-limits, but they may "give someone a kick under the table" if a discussion seems to never end.
"The deal is that commercial partners have to give good advice and free advice and give up their time, but ultimately they're in on a conversation that could hopefully work for them too," says Stimpfig.
Evidence is promptly provided that it does indeed work for them. Two employees of accountancy firm Moore Stephens are engaged in a deep discussion with one of the companies when promptly the three of them stand up and leave the room. Half an hour later the accountants return. It looks like they've just secured a new client.
"The biggest thing is planning planning planning," says innovation and technology group consultant Shilan Chandi, himself an entrepreneur. "You should start it at a very early stage."
Moore Stephens helps companies structure their financial strategies in multiple tax jurisdictions, including those who have outgrown their current accountancy firm, such as their potential new client.
"Financial modelling is massive, especially when you’re pitching to investors. If your numbers are wrong, they'll destroy you," says Chandi. "Try also to pitch your ideas in very simple terms than an investor will understand."
The legal nous to complement their financial expertise can be found directly opposite the duo, where Timothy Leeson sits, a corporate partner at commercial law firm Lewis Silkin focused on technology clients. He warns companies to be careful to avoid any tedious but crucial administrative mistakes.
"[My job] is increasingly about counselling companies, forewarning people about consequences of agreeing to something that could hurt you moving forward," he says. "You might forget how many shares you've issued, or what promises you’ve made on options, or whether you’ve got a share register."
Neglecting legal details can be fatal when negotiating an exit. If a minority shareholder is needed to join in the sale of the company, for example, that has to be resolved before an acquisition is completed.
"You can't do these things during a transaction," says Leeson. "You've got to think about them in advance."
With that, the three hours are up. The successful first event has made the organisers optimistic about their plans for more sectorally focused future editions.
Next up is a pair of US eCommerce Growth Workshops taking place on 28 and 29 June in London and Reading respectively. Confirmed mentors include representatives of the Department for International Trade Californian digital marketing agency Lucid Fusion, sales tax management disruptor Avalara, and enterprise ecommerce platform Shopify Plus. There is potential for many more events to come.
"We could be doing a fintech one in London or a healthcare one in Cambridge or Oxford, or maybe something around the northern powerhouse in Manchester or Leeds, and working with trade partners like the Department for International Trade but also with commercial partners," says Stimpfig.
In the long term, they also want to flip the concept and establish an inward investment event, running workshops with brands based abroad in Los Angeles or Hong Kong that are looking to come to Europe and help them find a soft landing in the UK.
"It's about how you can get companies who think they are not big enough to trade globally to realise they are, because a lot of global trade now is collaborative," says Stimpfig.
"The rules have changed because technology is much more collaborative now, it's much more open and we don't have to be physically constrained by having to seek just our nearest neighbours in Europe. Trade is a global enterprise now, both from a political point of a view and a practical one too."
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