Ian Clough, CEO, DHL Express U.S.
For most small and medium-sized business owners and chief executives, the international question looms large, in business plans, strategy sessions, and in late-night calls with anxious investors. For some, the decision has already been made: products are now shipping overseas, and services have taken flight. New sales figures and lead volume data have either validated the decision to go global, or illustrated the need to work harder. In some cases, the metrics may simply have confirmed fears that the time for new frontiers was not yet ripe.
According to the National Small Business Association, about two-thirds of small businesses would like to start selling overseas. But for those organizations that have not yet pulled the trigger, and for those still determining the best plan of attack, the question remains: how can the feasibility of expanding business into the international marketplace be accurately assessed?
As a company that specializes in international, it’s in our best interest to not only encourage businesses to seek a global path to success where and when it makes sense, but also help current customers seek new sources of revenue in the world marketplace. Thus, we commissioned research with findings that suggest three key factors that may help small and medium-sized enterprises (SMEs) remove some of the uncertainty and arrive at an international strategy that will work for the long-haul. By analyzing these factors, and by understanding several basic principles of global expansion, companies still on the fence can get off — and get moving in the right direction.
Before we examine some of the specific criteria for global success, it is important to understand the more general arguments in favor of pursuing new international markets. Let’s take a look at the facts: global logistics and broadband communication have forever altered the international trade equation. Once, only the largest corporations could compete on a worldwide scale; today, of the more than 300,000 U.S. companies doing business abroad, 98 percent are SMEs with less than 500 employees. These firms account for more than 30 percent of the goods exported from our shores. Clearly, experience suggests that the international marketplace is open for business for companies of all sizes.
When you consider that 95 percent of the world’s consumers live outside the U.S., and that the International Monetary Fund projects that almost 87 percent of global economic growth will occur beyond our borders, the case for engaging internationally becomes stronger by the moment. The fact is, shipping and communication advances have reconfigured our sense of operational space, and Brazil and Russia are becoming closer by the moment to Boise and Reno.
Still, international markets may not be right for every company, or they simply may not be right at the current moment in time. That is where our study comes in: conducted by Dr. Donald R. Lessard of MIT, our research uses a newly-developed capabilities test to examine several companies that took the international plunge. The model that Lessard has employed is known simply as the “RAT Test,” because it assesses a company’s international prospects based on qualifications and capabilities that are relevant, appropriable, and transferable (RAT).
Simply stated, assessing a business – and its products and services – based on these three criteria can help determine prospects for global success. For instance, a U.S. company looking to bring its products to market in certain South American countries must first determine if its offering is relevant to the target locations. Next, the company must assess whether the products are appropriable; in other words, can the products capture the value they create by overcoming in-market competition, imitation, or lack of value chain partners? Finally, the business must decide if its capabilities are transferable, in the sense that they can be launched in the foreign target location without excess cost, including undue expenses in the areas of transportation, logistics or in-market staffing needs.
Dr. Lessard’s research included an analysis of a 10-year old insulation business. This company passed the RAT test because its product was universal and technically superior (relevant), protected by trade patents (appropriable), and easily transported due to its high value of weight to volume ratio (transferable). Additional information and examples are available by viewing the research paper at www.simplydhl.com/TakeItGlobal.
Many leaders of small and medium-sized businesses here in the U.S. know that going international could be a game changer. They know it based on anecdotal evidence, hard market fact, world demographic trends, and intuition. As a global organization reaching all corners of the world, in 220 countries and territories, we see it every day, and we know they are right. To minimize the risk that comes with such a significant strategic decision, SMEs looking to shepherd their fortunes abroad should consider starting with the RAT Test. And then, after careful planning and regulatory research, if the time is right, let the internationalization begin.
About the Author
Ian D. Clough is the Chief Executive Officer, (CEO) of DHL Express U.S, the specialists in international shipping. Ian is responsible for all aspects of the country’s International Express business. Prior to assuming his role as CEO, Ian served as Chief Financial Officer with DHL Express U.S. In this role he was responsible for all aspects of the controlling, accounting, costing, billing and collections operations for the company. Learn more at dhl-usa.com.