Expanding Offshore - The Definitive Guide for New Zealand Businesses

Our guide outlines the global expansion potential for startups, the reasons to expand globally, the challenges and tips to ensure a profitable outcome.

Expanding Offshore (Guide for New Zealand Businesses)

Updated 16 March 2022

Summary

There comes an inflexion point in the lifecycle of most startups where a founder must decide whether to expand into new markets.
Maybe they've saturated the home market they sell into, or competition becomes too fierce. In addition, regulation may restrict certain industry operations, which has made the sector unprofitable.
For whatever reason – offshore markets present a blue sky opportunity for many startups to not only increase their customer base but diversify their business away from any geopolitical impacts that might happen as a result of only selling into one country.
However, launching operations into other countries too early or without performing the right due diligence can ultimately risk your capital, brand and potentially the entire company.
On the other hand, if you wait too long and competitors entrench themselves before you can expand, you'll lose out on chances to scale and build your brand.

This guide breaks down why companies expand offshore, the pros and cons for doing so, and the top tips New Zealand startups can do to succeed at international expansion. We cover:

MoneyHub Founder Christopher Walsh shares his comments on expanding overseas:

Expanding overseas is risky. Many successful New Zealand companies have thrived locally and died in similar markets like the UK, USA and Australia. The effects are often catastrophic, and a wrong move overseas can bankrupt the whole company.

There are many examples - Pumpkin Patch, Kathmandu founder Jane Cameron, and My Food Bag (which shut down in Australia in 2016) are just a fraction of real cases. Australia can be challenging (as this Stuff.co.nz article outlines), meaning the UK and the USA are likely even tougher.

As a background, MoneyHub started its expansion into Australia in late 2020 - by mid-2021, we're still to launch. Regulation, licencing and hiring the right team all take time. I believe even expanding into Australia without proper consideration is dangerous. To help, we've put together this guide so that business owners can avoid the mistakes of those that came before them.

Global Expansion Potential for Startups

Even if a startup is new and small, it can still have enormous global expansion potential. Here are a few common signs that this is the right time for your startup to expand internationally:

Global Focus

While your startup's initial target market could be in New Zealand, many problems that exist here will also exist in other markets (if not even worse of an issue – think healthcare, inequality or access to financial advice). If you think you will expand your startup internationally at some point, having a global focus allows you to deeply understand your new customer base. You can then tailor your initial strategies to make the transition easier once you get there.

Solid Revenue Base

If you decide to expand internationally, you will need money (and a substantial amount of it). While some startups raise capital from external investors specifically to tackle offshore markets, it can be a long and drawn-out battle to compete with existing incumbents that may have been around longer, have entrenched themselves or have more cash to fight with.

You may have a product you think offshore markets will love, but it can be more complex than initially thought to sell into a different consumer group. Not all countries are the same, and you may have to spend a significant amount of time and money to understand your new customer base.

Back-end Processes

Having the tools and foresight to make your back-end processes robust is essential. Expanding internationally has many different issues to think about. These can include navigating other laws and regulations, optimising products to suit the new market, hiring local sales teams, and solving problems such as recruiting, paying, and providing staff benefits.

Forward-looking fiscal planning

Make reliable budgets for international expansion is a critical step to succeeding in offshore development. Expanding efficiearly can help keep competitors from squeezing you out of offshore markets. If you're able to plan ahead and develop early before competition can entrench itself will help you to gain a leading edge in the market.

Why Should New Zealand Startups Expand Internationally?

International expansion for startups offers many opportunities and benefits. Here are a few of the advantages that New Zealand startups expanding internationally are likely to see:

Larger Profits

The top reason startups expand internationally is to extend their runway and increase their revenue. It's never been easier to research and understand an offshore market – with easy access to market research and analysis on competitors. Startups can map out their game plan and expand to the most prosperous countries. Successful international expansion can help startups continue their revenue growth and set themselves up for steady profits for several years to come.

Global Brand Recognition

Focusing on the New Zealand market involves less risk than international expansion. However, expanding globally can help to create a powerful global brand. When this happens, audiences everywhere around the globe recognise your brand, and this is where word of mouth can become explosive for your future growth.

Increased Long-Term Success

The increased growth that comes from offshore expansion can dramatically improve a startup's long-term success. While most startups don't grow to become billion-dollar companies, expanding internationally can help New Zealand startups to grow faster and improve the likelihood their company will survive for decades to come.

Access to Global Talent

Finding skilled talent is essential for any startup, but ,it is more complex than ever to find the best-suited candidates at a reasonable salary level in today's labour market. In addition, as business becomes increasingly interconnected across the planet, tapping into these new job markets will help establish a competitive advantage compared to your competition. Unfortunately, however, COVID-19 has severely restricted the amount of foreign talent that used to be able to be hired.

Biggest Challenges for New Zealand Startups Expanding Offshore

Expanding offshore is not easy. During international expansion, New Zealand startups can expect to face many different challenges detailed below:

Language Barriers

Language barriers when expanding offshore can cause several issues, such as miscommunication, loss of nuance and provocation during essential dialogues. While English is the primary language spoken in many countries and is common in most business situations, many international markets will not use English. These markets typically make up a significant portion of the offshore market (think Asia, Africa, or South America).

As a result, most startups will need to deal with local languages, whether that includes hiring your own talent that speaks the language of learning the language yourself. Try your best to communicate in the local language where possible - it shows that you care about and respect the local culture. Hiring professional translators and employees who are fluent in the local language can help to simplify conversations.

Cultural Differences

Successful global expansion requires that you pay attention to the organisation's culture — both the business culture of your startup and your new commercial partners that you're hiring offshore. The local social and cultural differences may significantly impact cross-border culture. International growth is probably going to affect your startup's business culture:

The vision, philosophy, and key objectives of your company will gradually evolve as you spend more time and energy building a global brand and creating products/services with a global reach.
Your overseas employees will tend to reflect the values of their local culture, which will help conduct business more effectively in those countries. However, it will also mean that you must ensure that your startup continues to hold a shared vision and a set of core principles across different countries.

A significant focus for startup founders should be to make sure that solid relationships can form organically within your new markets. Your goal should be to find meaningful and authentic connections that facilitate successful working partnerships within the local culture. Make sure you are doing your research by learning about the requirements of the local market (and the relevant values and habits of the local people). This will require translating your products and marketing messages into local languages and ensuring that meaning isn't lost along the way. It can help to get some local talent to help with this. Determining the extent to which foreign markets expect your business to adapt to local customs and values is also essential.

Logistical Challenges

Initially, the logistical challenges of expanding internationally can be daunting. Startups will need a reliable way to move their products (if they sell physical items) and strategies for navigating bureaucratic and legal processes like taxation, rules and regulations and banking.

A large number of developing countries have less robust legal processes, and corruption may be something you have to deal with. It's essential to research and understand what each potential country is like before expanding there. Additionally, startups may not always have sufficient staff to tackle these challenges – but ensure you can hire a relevant, experienced and knowledgeable team to handle situations like this – this will set you up the best to tackle global markets.

Inexperience

It can be helpful to have at least one person in the startup to have experience in starting and running companies. Veterans of the startup world can offer crucial advice on various parts of offshore expansion – including specific target markets. While this isn't a hard prerequisite, it's a good idea to seek assistance from seasoned mentors and founders – and this is where being part of specific startup communities can help immensely.

Marketing

Marketing issues in international markets are often closely aligned with language and cultural barriers. Techniques that work great in one market can seem overbearing in another, or the values that a marketing strategy is trying to appeal to may not work in other markets. Marketing research is essential in international markets where language and culture differ from those within the home market. Marketing research allows startups to tailor their strategies to the unique requirements and desires of their new audience.

Failing to Find Product Market Fit

One of the main things preventing firms from succeeding abroad is wrong Product Market Fit (PMF). So many founders work hard to create perfect products for their home markets, only to realise that they do not translate well to other markets with entirely different consumers.

In contrast, if startups develop more generic products to appeal to many consumers, the products may become commoditised in the home market as they're not differentiated enough compared to competitors. Startups can help themselves resolve this paradox partially by performing market research and determining which potential markets share common traits and needs.

Staffing Challenges

Staffing an offshore startup office comes with its own set of challenges. Startups expanding globally will need to deal with recruiting, onboarding, training, payroll, benefits and terminations – all while trying to devote their focus to core areas like sales, marketing, and research and development.

One method to tackle this challenge is to accumulate the required knowledge and skills to handle international human resources. It is typically cheaper to do all of this in-house, but both can be a drain on your time. Outsourcing this task and partnering with a local HR manager can be an effective, reliable, and cost-effective way to staff offshore offices and allow you to focus on what you may be more effective at – building the business.

Top Tips for New Zealand Startups Going Global

Start Small

When you first start expanding your startup into international markets, it can be tempting to draft big, ambitious growth plans and to take over the world in two years. However, it is often better to take a few small, measured, manageable steps first — perhaps by experimenting with a few offshore sales clients before opening an enormous office in the new country.

Staffing a new office involves many logistical challenges – from coordinating with remote employees, working across different time zones, and negotiating other management practices and rules. It's likely to be best to start out with a few employees first so you can learn and iterate the best techniques you'll need to scale before hiring more substantial staff offshore.

Conduct Initial Research

Expanding overseas requires taking a comprehensive look at your target marketplace, and you're your startup could sit within it.
This means looking at factors like:

Your business's strengths and weaknesses within the specific region.
The various strengths and weaknesses of the competition in the region.
Product differences will need to be made to support international customers.
The total available market (TAM) vs the serviceable available market (SAM).

The main reason for conducting market research is to get an accurate picture of what demand is tangibly there for your startup - this means thoroughly utilising every available avenue to learn about your target market and competition. The key ways to conduct global market research are:

Online Databases
While you can pay for paid research, a wide variety of comprehensive databases are available for free. You can never have too much information – your ultimate goal is to find all available public input on a target market to understand what your competitors do deeply, their main competitive strategies and what they're likely to do if you enter their market. Some critical databases include Pitchbook, Factset and Bloomberg.

On The Ground Research
There is no substitute for getting up close to your target market and doing in-person research. Meeting face-to-face with the customers, you would like to sell to can provide invaluable feedback on how you would potentially modify your product or adapt your international expansion strategy. Cultural values, innate preferences and social protocol can vary widely depending on the country. Without a strong understanding of your offshore target market, you allow an outsized margin for costly mistakes. Once you've got an idea of product-market fit, begin communicating your expansion strategy to the broader team.

Choose Your Target Market

Once you've narrowed down your options, it's time to choose the first offshore market you'd like to break into. Often, tech startups start with a larger market that has enough of a Total Addressable Market (TAM) to justify expansion. Popular countries that fit these criteria are usually the UK, the US, Canada, Australia, France, Germany, and Japan. With that said, many other countries that have specific niche consumers are also popular. In contrast, The BRICs (Brazil, Russia, India and China) have a reputation for being more challenging to expand into than others.

Ultimately, countries that have the following will (generally) make good markets:

Strong mobile penetration
Stable political environments
Accessible payment infrastructures
Favourable regulatory and tax laws

Understand the Specifics

Most offshore expansion plans run into problems when unfortunate oversights happen during the initial planning phase. Each country has its own flair when it comes to investment, legal, marketing, and other factors.

It is vital to plan for all potential courses of action (regardless of probability) when planning for international expansion. The founder should be asking questions such as:

What will your supply chain and logistics look like?
Are you looking at a neighbourhood within a city, a specific country itself, or multiple countries?
How much capital will you need for marketing, translation, redesign and legal work?

Consulting with experienced international startup advisors or other New Zealand founders who have successfully expanded offshore and who can support you through the design process from start to finish. Check out the top New Zealand startups resource page here to find companies that may have expanded offshore.

Protect Your IP

Another critical player you'll need to support your international expansion strategy might be a lawyer. Local representation in your target country can guide you through the paperwork and help lay the groundwork for a seamless launch – whether that's in regards to setting up your company offshore, dealing with litigation issues or protecting your unique IP in that market.

Understand Team Strategy

It can help to determine what new hires you'll need to make for offshore expansion and in what capacity (or which team members will focus on the latest market or relocate to a new country). If your startup sells physical goods, you'll need significantly more team members in the new region to handle manufacturing, distribution, and warehousing.

It's an added benefit if the individuals you hire will fully immerse themselves in the local culture and can speak with overseas partners and customers. This is one of the core reasons why it is so important to visit a particular country and spend time making face-to-face connections.

Study the Local Culture

Understanding the nuances of the local culture is one of the most critical steps on the road to international growth success for your startup. Different cultures have different ways of working, communicating, and interacting – learning how to adapt your management techniques to meet their preferences is crucial for maintaining a happy and effective global workforce. Training your international team leaders to deeply understand their workers' unique cultural differences is a great way to show you're a startup that cares for its employees, helping to make a culture of unity and dedication.

Understand the Local Rules and Regulations

Laws and regulations in your target market are likely to be intricate, complex, and different from the system you're familiar with. Taxes will also differ, and if you fail to understand the local tax codes and regulations, you may face severe penalties and bad PR. Getting help from knowledgeable, experienced professionals who can navigate the regulatory frameworks is crucial to success.

Learn From Your Mistakes

When it involves offshore expansion, some bumps in the road are to be expected, especially for early-stage startups. When things fail, try to remain optimistic and flexible. Frame mistakes as opportunities to find out and grow – you will always come up against tough challenges as your startup ages. By doing this, you'll help shape your company into a more resilient organisation with the adaptability and know-how to succeed internationally.

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