Cathay 2 Cents: Why Even Small Companies Should Go Global
March 24, 2021
Global
Global business is not just for large multinationals—there are many advantages for smaller companies.
At Cathay Capital, we have worked with a number of North American companies to expand their businesses to China and Europe, both through organic initiatives and international acquisition strategies. From consumer companies aspiring to build global brands, healthcare companies seeking to improve health outcomes in new markets, digitally-focused technology and service companies looking to scale quickly, to more traditional industrial companies aiming to distinguish themselves from competition.
With all the uncertainty in the world today, leaders of small companies may question if now is the best time to start international expansion. For many reasons, we believe the time is now to go global. The COVID-19 pandemic caused disruption in new and old industries, opening opportunities and highlighting the need to create more resilient, geographically dispersed businesses. If we learned anything, it is that diversification is key to managing through exogenous shocks and macroeconomic turbulence.
After a year that has been particularly challenging for companies of all sizes in the U.S. and beyond, we would like to share some key considerations for companies to navigate the opportunities and challenges of globalization and chart a smooth course into overseas waters.
Going Global May Not Mean What Companies Think
First, what does it mean to go global? Do companies need a physical presence on the other side of the world? Not necessarily, although it may make sense to gain more control of international business with local operations at some point in time.
The main factor is in recognizing the immense resources outside of every market that can benefit even small businesses on many levels. These resources might be on the demand side – selling, marketing, e-commerce, or management resources that can help a company sell into a foreign market; on the supply chain side with operations, manufacturing, sourcing or logistics that can help get product to the right place at the right time; or on the R&D and intellectual property side, tapping into innovation that can strengthen a company’s product offering and enhance differentiation, just to name a few.
The Top Five Benefits of Going Global
A company with around $15 to $20 million or more in annual revenue should seriously plan on pursuing global expansion as it can draw numerous advantages beyond adding to the top line.
Access to other markets and a diverse supply chain able to withstand shocks are just two of the primary benefits. Companies also get a window into overseas markets and the ability to cater to increasingly global consumers. The downside of not looking at the other side of the globe: foreign competitors are frequently focused on the U.S. market and can rapidly scale and challenge you on your home turf.
In summary, here are some of the top benefits for small companies that go global:
- Take advantage of unfulfilled demand opportunities abroad
- Withstand bumps in supply through supply chain diversification
- Capitalize on trends in different countries, especially trends with global potential
- Attract the best local talent from a larger pool, usually at lower cost
- Become far more attractive to investors, who see companies as more valuable if they are global or multi-continent
Avoiding Potential Pitfalls
As with all things business, the key is to harness the opportunities and steer clear of the pitfalls. In addition to setting up failsafe business operations and relationships, here’s a few major challenges small companies need to be wary of when expanding globally:
- Copycats & IP Theft: Small companies need to protect themselves against copycats and IP theft when expanding to other geographies. While having good intellectual property counsel is a good first step, IP theft risk can be further mitigated by having seasoned local partners who have eyes and ears on the ground to help discover and deter perpetrators and protect valuable IP assets, while also knowing how and when to litigate.
- Hiring Locally: Some companies underestimate the importance and the challenge of hiring locally, especially when it comes to senior management. General managers who are charged with committing the organization to a strategy and spearheading the effort need to be attuned to the customs, knowledge, and cultural norms of the local market. Talent management and recruitment is critical in any organization but hiring the right local talent outside of one’s home market is particularly nuanced.
- Building a Global Culture: Other companies fall into the trap of letting each foreign subsidiary become an island that fails to share knowledge and best practices across operations and markets. Having access to these unique market insights can be a huge advantage, as long as you build the global company culture and infrastructure to put it to use. Shifting from a siloed corporate culture (or even worse, an ‘us versus them’ culture across geographical subsidiaries within the same organization) to a one team / global team mentality can unleash incredible energy and enhance performance of companies big and small.
It’s All About the Mindset
In the end, international expansion starts with the right mindset and management must be ‘all-in’ in order to succeed. It is easy for companies to focus solely on the big, open market that is the U.S. Global companies, on the other hand, have a pioneering outlook. They know that on the other side of the globe, there is unfulfilled demand, new product development and supply-chain diversification opportunities, local management talent available, among others.
That mindset does not always come naturally for leaders in smaller companies. While they may know how to manage existing suppliers from Asia, they should also be looking into what other products and innovations these factories deliver to other markets, could they be brought to one’s home market or, conversely, could expansion to other geographies be possible? Could an international acquisition or joint venture catalyze the business to the next level? Once these questions are answered positively, how do you go about planning and execution?
A Final Word – The Time is Now to Go Global
For small companies focused on a single market, it is time to seize the opportunity to expand abroad. Companies can diversify their markets to stabilize revenue, expand beyond a saturated market, create more resilient manufacturing operations and supply chains, access new customers, tap into a larger pool of top talent at lower costs—the list is long.
And it’s our observation that while the benefits of globalization for small companies have only increased during the pandemic, the frictions of doing so are decreasing. Today, companies have discovered that they can accomplish more than previously imagined remotely. Collaboration and video conferencing tools have proven successful in helping people stay productive, efficient and will be instrumental for small companies scaling up their globalization strategies quickly. At the same time, the barriers of doing business face-to-face will decrease as Covid-19 vaccines are disseminated across the world, further reducing a friction that has hampered international business in general. Indeed, at Cathay Capital we see a bull market for globalization strategies and cross border transactions as we get into the back half of 2021.
The opportunity to build a more global and more valuable small business is ripe for the taking if companies can leverage the right resources beyond their home market. While many small companies may consider these resources to be out of reach, the right partners and investors who have a global view, deep knowledge of globalization strategies, and experience helping small companies grow internationally can make them attainable.