Byron Pirola, Managing Director, was a panelist at the Australian Financial Review’s Business Summit in March 2018 and wrote this article for the AFR.
Global expansions rely on discipline, companies knowing their niche, and evaluating projects on their own merits.
Harvard professor Ken Rogoff told the Australian Financial Review Business Summit that the International Monetary Fund has predicted global growth forecasts will increase for the first time in a decade; a timely reminder for Australian companies to put international expansion squarely on their agenda.
Of course, it’s a myth that Australian companies cannot succeed overseas.
Port Jackson Partners research shows over the past five years more than twice as many companies in the ASX 150 grew their proportion of international revenue compared with those who reduced theirs.
Our experience suggests many successful international expansions by Australian companies share three characteristics: targeting global but niche markets, using appropriate performance metrics and deploying fit-for-purpose managerial leadership.
First, success comes when a distinctive capability, appropriately tailored, is deployed in an attractive market structure.
It’s no accident many of our success stories are leaders in high-value niches within broader global sectors. Few Australian companies have the physical or balance sheet capacity to quickly take substantial market share across a broad sector in the large markets of America, Europe or Asia – they simply can’t rely on exporting scale. However, Australian companies can identify their distinctive competitive advantage, and use that to build substantial positions in attractive high-value segments overseas.
Our most resilient global successes operate this way.
ResMed has taken advantage of its sleep apnoea technology to build focused leadership positions in a globally underpenetrated market within the broader medical devices market. BlueScope has built a leadership presence in the premium branded coated and painted steel products across Asia and even within the enormous Chinese steel industry.
Second, successful companies do not compare the performance of these emerging international businesses to the earnings and returns on invested capital of the mature home businesses.
Using appropriate metrics encourages the creation of international ventures that deliver on their true purpose as engines of long-term growth, not short-term earnings. Appropriate metrics reduce the risk of a premature exit based on the wrong frame of reference.
The right measures are even more important when joint ventures are involved because rigid accounting practices can wrongly drive performance evaluation through the lens of a share of earnings or even just distributed dividends, and not the potential value of future growth platforms.
As Alan Moss has pointed out, a number of Macquarie Group’s international units made no money, or almost no money, for their first five years. SEEK describes its success metrics for its online employment platform as first being operating metrics, then revenue and then earnings, noting that this approach will take five to seven years to generate high shareholder returns in any one offshore market.
Third, it has become a truism that businesses must be willing to assign their best people to give international ventures the best chance of success. BlueScope’s former chief executive Paul O’Malley would argue that you need to assign executives who also have strength in the skill set that is particularly important to succeed in each unique business culture.
Far from serving as simplistic playbooks, these three strategic markers underpin a way to grasp the compelling windows of opportunity presented by successful international expansion.
Success requires a business to be scrupulously honest and rigorous in how it deals with the hard questions these strategic markers pose.
Does a business really understand its competitive strengths? Are the markets a business wants to enter well-enough structured to sustain the costs of a lengthy beachhead? Is the business really committed to the time frames? What performance measures will it apply?
Australian businesses that find these questions confronting should have a long think about the consequences of going offshore unprepared. But many Australian businesses can answer these questions positively and honestly. There are more success stories that we give ourselves credit for and, while success requires discipline and commitment, it is within the grasp of many more.