Going Global - Getting Started
Looking to grow outside of your home market? Here’s the minimum you need to consider.
International expansion is an objective of most ambitious scaling, growth firms in all sectors – including fintech. The revenue and market share rewards are well known. The challenge, however, is that international expansion can be difficult, time-consuming and expensive – often accentuated by a lack of expertise and/or experience within scaling firms.
To get started, here are just a few of the key criteria that should be considered when evaluating new market opportunities:
Market size – both the absolute value as well as the market’s growth rate are important. Choosing markets that are significant but also growing ensures long-term growth opportunities.
Competitors – evaluating competitors past and likely future moves has long been on the agendas of Boards and executive teams. Understanding your competitors’ decision-making when it comes to international expansion can provide executives with practical insights into market dynamics, customer expectations and lessons on success vs failure.
It’s also worth noting that fast followers – i.e. firms that follow a competitor into a market can take advantage of lower barriers to entry. Much is written about first mover advantage, but we shouldn’t forget that cost advantages exist for fast followers. Letting a competitor be the first to educate the market can be
Mode of Entry
There are several common approaches for entering new markets including:
1. Strategic partnerships or alliances which allow new market entrants to reduce the cost and risk of new market expansion. It also allows the new entrant to be viewed as ‘local’ increasing trust, acceptance and market penetration. Strategic partnerships need to be carefully considered – including cultural differences and the end of engagement.
2. Acquisitions are often used for new market entry as buying an existing local player can enable speed to market, provide a known brand with high trust as well as local operations, talent and knowledge. Acquisitions comes at a high cost and without proper integration – culture, technology, systems - can create legacy issues which limit future scalability and growth.
3. New Wholly owned subsidiaries give maximum control and for mature markets with mature regulatory environments are often the entry mode of choice for fintech firms. The downside can be high cost with significant unknowns. In addition, it takes time to establish the legal and regulatory set-up.
For fintech firms, additional considerations are also important – not least, the regulatory environment. Considering whether you’re able to become regulated in your chosen market is the first consideration. Not all financial regulators are ready for all innovators. Where the appropriate regulation exists for the business and product proposition, choosing a regulator that is reputable, open to innovation and transparent is important for long term success. Where the regulation doesn’t exist yet, businesses can consider other modes of entry: modifying products and services to fit within the regulation or partnering with local firms for distribution.
All of this is easier said than done. It takes expertise, experience, perseverance and grit to grow internationally. Firms must commit to analysis, resource and time in order to deliver the short term and long term wins that new market expansion can deliver. Choosing the right advisors, support and experience to guide and deliver should feature on every agenda that includes international expansion.