How to Choose Countries for International Expansion

Once you’ve established that you’re ready to expand internationally, the next steps are figuring out which international markets to pursue, how to enter those markets, and which timeline is most appropriate. But with 196 countries to choose from, the selection process in and of itself can be overwhelming. This article gives you a framework and a six-step process to help you create a prioritized list of target countries.

INVEST TIME IN MAKING THE DECISION

It can be tempting to short-change the research phase and jump right into international expansion. Many US-based startups first expand into the United Kingdom, without exploring other options. The reverse is true as well — many international startups try to break into the US by default. However, countries that seem “easy” can also be extremely competitive. You might be at a disadvantage by starting your expansion in such a market. It’s worth the effort to research your options thoroughly.

Your goal is to expand into countries that are attractive markets for your business but where you also have a strong ability to execute and scale your operations. One helpful way to think about this decision and focus your research is through the lens of a 2×2 matrix, which allows you to clearly see that not all opportunities are created equal.

1-CountrySelection

STEP 1: CREATE AN INITIAL TARGET LIST

How do you begin populating your matrix? First, create a list of countries for consideration based on key variables that are relevant for your business. What are your must-haves and most important nice-to-haves? For example, a B2B SaaS startup based out of San Francisco that relies mainly on an outbound sales model might come up with a list that looks like this:

  • Market
    • Presence of target customers
    • Tech-savvy companies
    • SaaS ecosystem
  • Mobile
    • Mobile/smartphone penetration
    • Mobile/smartphone infrastructure
  • Language and talent
    • Can do business and sell in English
    • Access to talent
  • Macro
    • Stable economy
    • Exchange rates
    • Inflation
  • Institutional
    • Ease of doing business and setup

For this hypothetical startup scenario, the presence of the right type of target companies, a big-enough SaaS ecosystem and good mobile infrastructure are their must-haves. Nice-to-haves might include the ability to do business in English so they can test the market with sales teams out of their US offices, as well as favorable macroeconomic conditions and a friendly business environment.

Australia, Canada, the UK, Ireland, BeNeLux and Nordic countries as well as Hong Kong and Singapore might easily meet all criteria. However, most startups are willing to be flexible on their nice-to-haves. By choosing to compromise on language and macroeconomic factors (but not general market size), this startup might decide to add countries like Japan, Korea, Brazil, Mexico, China and India into the mix.

STEP 2: DETERMINE COUNTRY ATTRACTIVENESS

Once you’ve created your list of candidate countries, the next step is to plot them on the first dimension of the 2×2 matrix. This is where your research starts! Country attractiveness can be seen as a combination of country attributes or predictors of general economic performance and risk; and industry factors like addressable market size and competitive landscape.

Country attributes can be broadly grouped into economic factors, culture, institutions and technology or infrastructure considerations, some of which are outlined in the image below.

3-CountryAttributes

It can be helpful to rate each country along these factors to have a clear sense of how they compare against each other and where the trade-offs might be.

4-RatingCountryAttributes

STEP 3: CALCULATE MARKET OPPORTUNITY

The next phase of your research is calculating your total addressable market (TAM).

You can use either a bottoms-up or top-down approach. The hardest part of this exercise (frequently expected by VCs and boards) is finding enough data to perform the calculations and arrive at a good-enough estimate. Sometimes you’ll be able to buy industry reports from research firms, but in lieu of that you’ll have to rely on other sources. Included below are some ideas for data sources you can use in figuring out your TAM:

  • Industry and Analyst reports on relevant software market in each country
  • Country or region-level government reports on target companies in your target size range or industry
  • Searches on LinkedIn for potential number of companies and/or employees in a specific target segment
  • Reports on keyword traffic plus traffic on your site
  • Use market research on budgets/spend of target decision makers that will buy your software
  • Pricing data in order to quantify the opportunity – what can you can sell for? Talk to contacts, partners, customers to gauge pricing

Many startups make the optimistic mistake of stopping the selection process once they’ve calculated TAM. Make sure you go a step further and narrow TAM down by the segments that you can best address – your segmented addressable market (SAM) – and be realistic about what percentage of that market you can actually gain access to.

5-MarketOpportunity

STEP 4: OUTLINE THE COMPETITIVE LANDSCAPE

The last step in truly understanding the countries you’re considering is researching the competitive landscape. This means looking at the entire ecosystem, including your competitors (which may differ from your potential substitutes in the eyes of your customers), the presence of current or potential partners, the existence of complementary products and services, the type and availability of distribution and marketing channels, and of course the preferences and habits of your customer base in that market.

6-CompetitiveLandscape

You’ll therefore want to look at:

  • Presence of local and global competitors, their size & market share
  • Price, performance and position of substitutes/alternatives to your product
  • Competitors’ expected response to entry
  • Competitors’ marketing and ad expenditure, distribution channels, customer support responsiveness, flexibility of payment terms, etc.
  • Any unique relationships that offer them an advantage e.g. distribution or tech partnerships.
  • Presence of complementary companies that already sell related products to your target customer base
  • Customer type concentration & preferences
  • Ease of access to customers (eg. via long-term relationship building, existence of lists you can cold call, etc.)
  • Current customers present in the market
  • Level of customer education will be required about your product or solution
  • Switching costs from competitors or alternatives
  • Customer budget sizes
  • Most cost-effective channels
  • Reseller ecosystem
  • Marketing ecosystem

Similar to your assessment of country attributes, you can combine the results from this research with the figures from your market sizing exercise to evaluate all the candidate countries.

7-IndustryFactors

STEP 5: TAKE A HARD LOOK AT YOUR ABILITY TO EXECUTE

At this point, you’re probably tired of all the research involved, but we’re still missing one critical step.

A country might be incredibly attractive, but that means nothing if you can’t execute (a common problem when pursuing China, for example). What similarities or differences with your existing businesses will make it difficult to execute well? Will you have the managerial bandwidth and resources to enter and scale efficiently?

At a minimum, you should ask yourself about the following areas:

  • Product: Are we confident there is enough product-market fit, or will we need to adapt our product to serve the market?
  • Talent: Can we find and hire the right people? Do we have the right leadership to own this?
  • Resources: Do we have resources to handle costs (tax, labor, etc.) and the time that will be required from existing functional team members?

9-AbilitytoExecute

STEP 6: PUT IT ALL TOGETHER

At this point, you have everything you need to populate your 2×2 matrix and make a decision. The risks and trade-offs involved in pursuing certain countries versus others should now be clear. That’s not to say you should only pursue those in the upper-right quadrant exclusively. Remember this matrix isn’t static. You might foresee that your ability to execute in certain countries will improve in the short-term or that expected regulatory changes will increase the market size. As a result, you might choose to strategically ignore your limited ability to execute today in favor of getting started making in-roads in a larger market.

10-CombiningItAll

How many countries you’ll end up selecting, and in what timeframe, will depend greatly on the goals you need to achieve and the resources you have available. At the very least, this process will help you create a prioritized list of countries to target.

In fact, simply going through these steps will deepen the knowledge of potential markets for you and your team members and help you better determine if you’re operationally prepared to take the next steps toward international expansion.

Luciana Baigun

Luciana is the Head of Marketplace for Argentina at MercadoLibre, the largest e-commerce and payments platform in Latin America. She previously ran international at DoubleDutch and Quidsi, an Amazon subsidiary. Before switching to tech, she worked in seven different countries in applied game theory consulting.

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