Acquiring new customers is a key reason for expansion across both rapid-growth and developed markets.
Companies expand outside their home markets for six main reasons:
- Routes to market
- Access to resources
- Access to skills
- Access to technology
While the priorities of global and regional companies are similar, some differences are apparent.
Regionally focused companies recognize that they need to get the basics in place when expanding outside the region. They focus on building capabilities and resources – access to skilled workers, raw materials, low-cost labor and intellectual property.
Globally focused companies appear to have these capabilities in place and focus instead on new customers and technology.
Acquiring new customers
For globally focused Asian companies, acquiring new customers is the top reason for expansion across both rapid-growth and developed markets. Rapid-growth markets offer greater opportunities to capture sales and gain market share.
ZTE, for example, a telecommunications company based in China, finds overseas expansion critical once they reach a certain domestic market share.
Benefits of expansion into
Gaining access to resources and technology
When targeting developed markets, the rationale for investment is more complex and multi-faceted for both regional and global companies. Factors such as access to new technology and distribution channels figure prominently.
“Many of the top companies in China see little reason to look beyond their domestic market, but that does not mean that globalization will stop,” says Bing Xiang, Dean of the Cheung Kong Graduate School of Business in Beijing. “These companies will still need to leverage global resources in order to compete effectively,”
Between 2010 and 2020, the number of Chinese households with a disposable income of between US$30,000 and US$50,000 could grow from 1.5 million to 26 million. This creates unparalleled opportunities for Chinese companies, which will seek technology and expertise to serve the domestic market first, (see Innovating for the next three billion.)
Strengthening capabilities such as supply chain
Expansion into overseas markets (via organic growth or acquisitions) provides an ideal opportunity for a company to review its supply chain. The company can then restructure it from a country-centric to a truly regional operation. Through a full review of business-operations and alignment of the tax planning, companies can optimize the supply chain to deliver improved shareholder value.
Optimization must include speed and flexibility to respond to new opportunities or changes rapidly. Increasing flexibility involves making processes more agile, and this often means challenging traditional organizational structures to fit the new business realities. By acquiring companies with strong processes or a well-designed supply chain, investors can extend their reach and apply these capabilities across their business.
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