Where do companies go wrong when expanding to Asia?

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Where do companies go wrong when expanding to Asia?

Most companies see themselves as data-and analysis-driven yet many still end up making common international expansion mistakes when expanding to Asia.

These are the most common international expansion mistakes we have witnessed in our work:

Tips on how to avoid international expansion failures.

Every expansion will be challenging and costly. Rob Moffat, a partner at Balderton Capital, argues that when a business is going well in its home market, $1 invested in local growth typically increases # of users and revenue by more than $1 invested abroad. Meaning, you need to prove your market thesis quickly. To avoid international expansion failure, always consider what could go wrong, e.g., insufficient investment in the new market, starving the home market of investment, running out of cash before reaching milestones, etc.

Dropbox case study

Let’s take a look at Dropbox’s successful international expansion. The most foundational of these mistakes, says Wang, is jumping into international expansion without enough research and planning. How much is enough?

“At Dropbox we did tons of planning — maybe we even overdid it and could have gone earlier — but we talked to other companies, asking them these same questions about mistakes, and one that stood out was doing it too fast..." - Chen Li Wang, Head of Product and Business Operations at Dropbox

Expanding to too many markets at the same time

Imagine you planned to go global in 2021, and your goal is to be in Singapore and Hong Kong in Q1, Indonesia, Malaysia, and the Philippines in Q2, South Korea and Japan and Q3, and Q4 in China.

It's just too much at the same time. There are cases of companies that have gone global successfully when moving so fast, but most fail. It's hard to manage multiple regions, especially when they are quite different and require localization.

Not to mention all the legal hurdles that would come out of a multi-country expansion, think immigration visas taking longer than expected, waiting for various business licenses, commercial licenses, and other requirements for legal entity setups. All those examples illustrate potential setbacks that are completely outside of your control. You will be dependent on local vendors and governments. In early-stage companies, the founding teams will be overwhelmed. In more mature startups, your internal resources, i.e., HR, Finance, and Legal teams, will be overloaded with options, setbacks, and difficult decisions, e.g., how do you structure the right expat packages across multiple countries, what benefits expats get VS local hires? Your expansion will pull many internal teams in the process and require a lot of effort to find good answers on complicated but important answers.

Dropbox case study

“It's just like building a product. You have to go through one cycle to learn and iterate and then the next cycle to learn and iterate. Don't try to do five simultaneous experiments at the same time. If you try to launch five products at the same time you're going to run into the same issue as launching in multiple countries at the same time.” Chen Li Wang, Head of Product and Business Operations at Dropbox

Targeting harder markets first

Breaking into a foreign market is hard. Breaking into an emerging economy is harder. Going directly for a market like the Philippines, Indonesia, and Vietnam would be much more difficult than expanding to countries like Singapore and Hong Kong. Such countries are international hubs of many foreign businesses. They are well resourced with experienced legal firms and immigration vendors that can help you coordinate successful international expansion . The ease of doing business is great, and the population speaks English. Even if such markets are not your ideal target, having a "beachhead" market like that can help you coordinate expansion efforts across the entire region.

"Don’t fall into the trap of opening in a location where you can hire more cheaply or where you have a personal connection, as limited talent pools will cause problems down the line." Rob Moffat a partner at Balderton Capital

"Don’t fall into the trap of opening in a location where you can hire more cheaply or where you have a personal connection, as limited talent pools will cause problems down the line." - Rob Moffat a partner at Balderton Capital

Expand for the sake of increasing valuation

Many Southeast Asian startups expand across the region in an attempt to push their valuation. Valuations are a combination of many variables, and the number of markets where you have a presence is secondary to your traction, product, and unit economics. Adding another country would result in trade-offs, which could lead to international expansion failures. It's hard getting product-market-fit; it's harder when you have another market you need to manage.

"You should get to clear product-market fit before expanding internationally, as pivoting your product once you have expanded across multiple countries is exponentially hard. The common mistake here is deciding you have product-market fit too early — for example, because your U.S. competitor has raised a big funding round. The canonical example here is Groupon, which led to an international land grab by Citydeal, Dailydeal, and others. Some of these companies were able to sell out early, but others realized the hard way that retention (of both businesses and users) was a massive challenge. A more recent example was used car marketplaces such as Beepi and Vroom, imitated by the likes of Carspring but recently “sold for parts”." Rob Moffat a partner at Balderton Capital

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This article was developed as a part of a series of articles on the topic of how startups expand globally. The series will roughly go in this order:

*1: Factors to consider before going global
*2: International expansion strategy framework
*3: Research and build market hypothesis: Define / Refine your market and target audience key hypothesis
*4: Validation: Test key assumptions by outsourcing business development efforts on the ground
*5: Double down: Consider setting up a foreign representative office
*6: Market-product fit: Hire first people on the ground
*7: Global trade compliance: Company formation and licenses
*8: Global recruitment strategy: Focus on recruiting great talent, then secure an office space
*9: Repeat: Add all learnings to your playbook and focus on the next market
*10: Where do companies go wrong when expanding to Asia? Tips on how to avoid international expansion failures.

Subscribe to our newsletter to receive each post. If you are interested in learning how to put these frameworks into action on a detailed level, consider contacting our team at Greenhouse here.

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