Over he last few months, several companies that had not commercialized their products in their domestic markets asked me about entering one or another foreign market.
Normally, I tell them that’s probably not a good idea. The reasons behind my statement are straightforward.
Entering a foreign market is more difficult than addressing your domestic market.
First there is the issue of distance. Entering a market requires you to understand your customer. Being geographically removed from your target market makes that much more difficult. It’s easier to drive or fly domestically than it is to visit a foreign country to go meet a customer. And, if your target market is an a very different time zone, it becomes even more difficult to communicate with your customer. Feedback from your foreign client will probably come much slower than from a domestic customer.
Second you must cope with cultural differences. A US company that wants to enter the Chinese market must understand the intricacies of the Chinese market. For a company to learn about these cultural differences and adapt the organization accordingly will require time and effort – money. If your company is like most other companies both will be in limited supply.
Third, different countries have different regulations. What meets domestic regulations may not meet the regulations of a foreign country. You must learn about a foreign country’s regulations and how they are interpreted by the foreign governments overseeing agencies. Not an easy task.
All of the above challenges can be overcome, but not easily. For instance, using a third party to sell your products into a foreign country, removes you from the customer, weakening your connection to the market. You could set up your own subsidiary, but in many countries that translates to a long term costly commitment. You may not have the resources to do so.
But sometimes, entering the foreign market first, is the best way to go
Sometimes going for the foreign market fists makes economical sense. The past 10+ years, many US Medical Device companies choose to enter the EU market before applying for FDA approval. Obtaining CE approval in Europe tended to be so much easier than obtaining FDA approval. Not that FDA approval is impossibly hard. But because getting CE approval was so much easier and faster to obtain that companies would be able to start selling their products so much quicker. The benefits from being able to enter the market faster and more easily outweighed the expense of dealing with the obstacles and difficulties associated with entering a foreign market.
As the EU regulations covering medical devices are changing, I expect that US Medical Device companies will no longer enter the EU first. Instead I wonder how EU companies in the sector will respond. In the past, several EU companies told me they were “afraid” of the FDA. But, going forward, they may start to consider the FDA process to be very acceptable as compared to meeting the new tightened CE regulations.
Make an informed decision
Still, cases like above require careful planning and understanding of the foreign market. Learn about obtaining the CE mark, the different reimbursement schemes of the different EU countries and the various country market sizes and distribution channels. Then before making a decision, choose what countries to enter and when, and layout the expected cashflow against a timeline. Now do the same for entering the domestic market. Only then can you determine whether the benefits will truly outweigh the associated costs. Expect that making this determination will in itself be a costly endeavor.
Either way, entering a foreign market is not easy. Doing so before you build a domestic market is very risky. You should not do so unless there is a really good reason. Gaining faster and easier market access because of regulation can be a good reason.
But, entering a foreign market because a product does not gain traction domestically is not a good reason. If it is hard to build a product that meets the domestic customer’s needs, it will be so much harder to build a product that meets the foreign market and customer requirements.