The best time to take your business abroad

In the last few years, we have seen many Kenyan corporations expanding into other African countries, especially in East Africa, with the likes of UAP, KCB, Equity Bank, Uchumi and Nakumatt going regional.

In the retail industry, Nakumatt has made profits from its overseas expansion, but Uchumi has not. Over the last five years, Uchumi’s outlets in Uganda and Tanzania made up only 4.75 per cent of its operations, yet accounted for over 25 per cent of operating costs, draining the parent operation. This has prompted the retailer to close these loss-making operations. If Uchumi is closing shop, did it make the right choice going abroad?

For Kenyan corporations thinking of regional expansion, is your extra shilling worth taking abroad or should you keep it in the home market?

Deciding when to go global is a tough call for many firms tempted by the opportunities in hot markets like Uganda, Tanzania, South Sudan or Somalia. But many risk venturing abroad before they’re fully prepared.

While selling overseas extends a company’s reach, it is not prudent to move into international markets too soon and use the resources you need to continue growing in your home turf.

Here are eight key questions Kenyan firms need to first answer before expanding beyond the borders.

1. Have I built a solid foundation at home? Your home success to a larger extent determines your overseas success.

2. Do I have the bench strength for international expansion? You will need to assign one or two senior employees to your international efforts. You will need to determine if you can afford to move people from their current responsibilities, as well as if they bring — or can quickly develop — the necessary skills for overseas sales and marketing.

3. Will I find the talent I need in another country? Finding local talent can be a challenge. Some countries, like Somalia, simply do not have enough skilled labour. You also will be competing with established companies that know where to find talent and how to recruit local candidates. One potential source could be local educational institutions, such as engineering or business schools.

4. How will I need to adapt to the local culture? This is one of the challenges Kenyan companies are facing in countries like Tanzania, where many Kenyan managers tend to be considered rude. For East African nationals, you usually need to teach them one thing: Kenyans need to be taught humility, Ugandans need to learn Swahili and Tanzanians need work ethics.

Even your company strategy needs to adapt. That may mean customising your product or service to meet local customers’ tastes. At the very least, you will need to put your marketing message in the local language and make sure the meaning translates correctly.

5. Do I understand the cultural implications of the sales process? Closing a deal abroad can be a vastly different experience than you are used to. Some cultures struggle to say, “No, we aren’t interested” in a product or service, which means you can have an extremely long and costly process that never leads to a sale. To avoid this, look for customers who have bought similar items or services in the past.

6. Have I sized up the local competition? Understanding your competitors abroad can provide insights into how — and whether — to expand. Spending time abroad and speaking with potential customers can help to prevent costly mistakes.

7. Do I need an international partner? For many firms, it is critical to find a local partner when expanding overseas. Partners can help facilitate sales, while keeping costs down. Forming a partnership takes time — often a year or longer — and requires plenty of due diligence to find the right fit.

8. Am I financially able to sustain overseas expansion? Expanding internationally requires a start-up-like period that is longer than many entrepreneurs anticipate. You have to expect to lose money for a while, so you not only need enough capital to make the initial investment, but should also have a long-term financial plan in place.

I hope other firms will learn from this to avoid Uchumi’s predicament.

The writer is senior lecturer, strategy and competitiveness, and academic director, MBA programmes, at Strathmore Business School.

fogola@unendeavor.com