Psychic Distance – knock once for “yes”!
The Government tells us “The demand is out there. You should be too. The UK market for your products and services might seem big enough. But think bigger. The payoff could be considerable…”.
With intense pressure in all markets from globalisation and uncertainty caused by the Brexit vote, ambitious SME’s will inevitably be considering casting their net wider to attract customers from far flung places, in markets such South America, Africa and the Asia Pacific region.
Although these opportunities are exciting, we must remain mindful of the real challenges that UK SME’s face in exploiting those opportunities successfully.
As well as the obvious challenges such as language barriers, red tape and protectionist Government policies aimed at artificially aiding domestic business, there are other practical challenges that must be carefully consider when evaluating a new overseas strategy, including:
- Psychic Distance & Cultural barriers
We may want to start with countries that have a short ‘psychic distance’ – the closest fit in terms of culture, ethnicity, language, social norms and importantly the way business is conducted. So the US and Europe for us here in the UK.
Lengthening this ‘psychic distance’ increases risk and challenges faced as the way things are done and the expectations of overseas customers and suppliers, may fundamentally differ from our own, often frustrating attempts to communicate effectively and secure buy-in for our products and services.
- Political instability
Political environments ‘can alter rapidly’ as Johnson et al (2011) remind us and you only need to look as far as Russia or the Philippines, to see how well this point is made! So an important question to ask is how big is the risk of political change that could undermine our investment? Could the proverbial door be slammed in our face at any moment?
- Corporate Social Responsibility
Some countries have very poor records in terms of Human & Employment Rights, environmental impact, fraud and theft, regulation, financial reporting and generally fraud and dishonesty (e.g. abusing trade marks). How far are you prepared to compromise on your organisation’s own ethical, social and environmental stance? Do whatever it takes or turn your back on a potentially huge customer base?
UK SME’s often lack experience of navigating this sensitive and complex area therefore reputational damage remains a real risk as does criticism from disgruntled customers who value good CSR.
- Access to finance & appetite for investment
Entering any new market isn’t cheap and inevitably involves some risk. Adequate investment is needed to identify, reach, retain and meet the needs of new customers and this can include developing infrastructure, skills and other processes to bridge the gaps.
The perception of many SME’s about the size of the challenges and investment means they are often reluctant to put in the ‘risk capital’ needed believing the costs outweigh the benefits.
However, technology works to substantially reduce the challenges of reaching overseas markets and there is always more than one way to skin the proverbial cat. Risk can be reduced by considering joint ventures with overseas partners, franchising (although I am not a big fan!) and of course developing new ‘international market’ skills through recruitment or training.
So forearmed is forewarned and therefore we guide our clients to develop effective strategies that will embrace the opportunities but address the potential risks, whilst ensuring adequate resources (e.g. cash, skills, technology) are available. As Ken Allen, CEO of DHL Express says ‘SMEs in industrialised economies need to review their approaches to emerging markets and identify new strategies that will help them to compete internationally in the future’.
Jonathan Timmis is a Business Consultant at nxo and a expert in helping SME businesses move from survive to thrive. Contact Jonathan on 01772 887885.