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August 01, 2010

DSA News

Key Questions on International Expansion

by Adolfo Franco

For direct sellers, going international is a bit like taking your first dive into the pool. It is something you really want to do, but it takes time to get over the trepidation.

Here are the facts. Direct sales worldwide totaled US$114 billion in 2008; the United States’ share of these sales was $29.6 billion or 26 percent. Although the United States is the largest direct selling market in the world, the growth potential in Asia, Europe and Latin America is enormous. In addition, emerging markets, unlike the American marketplace, are often untapped and are fertile ground to build a strong global salesforce.

As the first decade of the 20th century draws to a close, we are now well beyond the cliché of “everything is global.” In an increasingly borderless world and with financial uncertainties in one market and opportunities in another, direct sellers simply can’t afford not to expand to new markets in order to succeed. Of course, solidifying a market in the United States and having the financial wherewithal to enter new markets is a prerequisite to success. With the advent of the Internet, more businesses are finding it easier to test and, ultimately, enter foreign markets without the capital outlays that were required in the past. Nonetheless, there are some important factors to consider before launching an overseas presence.

When should a direct selling company start planning to expand internationally?

Although content with a growing domestic market, a company should think about international expansion early. There’s an old business adage that still rings true: When times are good, plan for the bad, and when times are bad, plan for the good. The same holds true for international market expansion. Having a vision early on sets the stage and expectations for your team and cascades through the organization from the outset. This usually leads to a second question: Do I have management who are sufficiently expert to expand internationally? Your team might be experts at working the domestic market. However, do they possess the skills, understanding and background to comprehend the complexities of foreign market operations—be they in Asia, Latin America or Europe?

All these implications should be understood early on well before any commitment to international expansion is even considered. Commit internally, and have the human and financial resources to get the job done. Just as direct sellers work through the challenges of the domestic market beyond launching a business venture, having thought through the planning process early on is a vital part of building a platform for successful international expansion in the future, even when international markets are not immediately on the horizon.

When should a direct selling company start to implement an international strategy?

The most critical component to consider when implementing an international strategy is financial resources. In reality, international strategy implementation means marketing and sales. If the decision is made too soon, there may not be the financial resource base to sustain a vibrant growth for the direct selling company. This requires some planning and market research, as well as a close examination of the regulatory climate. Don’t assume anything—there is no substitute for research and a solid knowledge base.

Strategies need to be flexible and closely monitored to incorporate required changes. Don’t assume because “we do this domestically” that the same concept can be implemented overseas. Marketing and compensation plans, which are key to any direct selling company’s success, often need to be adopted to conform to local laws or customs. In addition, the legal status of direct sellers and ensuring that the salesforce is properly classified as independent contractors is no small detail to be overlooked. That’s why understanding the risks involved and having the ability to recover from setbacks is crucial. Learning by experience is a mistake. It’s best to learn from others’ experiences. Planning and research may cost some time and money, but it’s money well spent.

As a direct selling company contemplates a move overseas—just as in the case of the domestic market launch—it should do the market research, evaluate the potential customer base, identify potential distributors, evaluate costs and conduct market tests. Getting plentiful expert advice from the Direct Selling Association, foreign direct selling associations and other industry executives is an ideal way to learn about demographics, industry trends, regulatory hurdles and emerging market opportunities. There are direct selling executives who are experts—have been there and done that—and often bear the scars and have the successes from which you can learn. Armed with these resources and knowledge, you’ll be ready to dive in without fear.

Adolfo FrancoAdolfo Franco is Vice President of Global Regulatory Affairs for the Direct Selling Association.