CONTENTS
1. Not adapting the 4 Ps of the ‘marketing mix’ to the target market
2. Ignoring regional differences or acting in the wrong state
3. Landing without the local support of experts in the target market
4. Acting without a subsidiary or choosing an inappropriate structure for it
5. Designing a complex and rigid business plan
6. Underestimating costs and deadlines
7. Underestimating the impact the US can have on the business
Introduction
The challenge faced by international companies and foreign entrepreneurs when trying to enter the US market is as great as the payoff obtained from succeeding. We are talking about a market of 330 million people with a per capita income of $65,000, which being 4.25% of the world population generates a quarter of the Gross Domestic Product of the planet.
In this article we explore the most common mistakes made in entry projects to this difficult and attractive market.
1. Not adapting the 4 Ps of the ‘marketing mix’ to the target market
This required adaptation is especially important for the 4 Ps of the ‘marketing mix’ originally identified by Jerome McCarthy:
- Product / service: Not all of the company’s products / services will be attractive in the target market and probably all need to be adapted to some extent. We often find examples of companies that end up creating specific products or services for the US market, derived from those they sell in other markets but adjusted to local consumer preferences.
Toyota sells minivans in the US that it manufactures in that country and that it does not sell in Japan or in most of its international markets
- Price: The sale price is defined by the local market according to the law of supply and demand. Sometimes, international companies find that they cannot be competitive in the target market because they compete with other companies that have managed to produce with lower costs. Other times, companies find that the market reference prices are higher than those of other international markets in which they operate and can offer their products or services at a higher price. It may even happen that the company decides to position itself differently from the way it does in other markets, as occurs on occasions when the international component of a product may justify the sale as a luxury or ‘premium’ product in the US if the client perceives this factor positively.
- Place: The optimal way to reach the customer may be very different from that used by the company in other countries. Here, aspects such as logistics, use of agents, distributors or wholesalers, electronic markets (e-commerce), support from local partners, etc. should be assessed. It is common for companies that have used direct store sales in their home markets to initially test their products in the US market through online sales to assess consumer interest before making large investments.
- Promotion: This includes everything related to the communication of the qualities of the product or service to the target customer through advertising, public relations, activity in social networks and sales promotions. This activity requires in-depth knowledge of the target market and the local culture. It is essential to adapt the message and not directly reuse what has worked in other markets as large errors can be made.
Swedish manufacturer Electrolux tried to sell its vacuum cleaners in the US with the slogan
«Nothing Sucks like an Electrolux»
The result of the campaign was regrettable. The reason? In colloquial American English, “to suck” means “to stink”
2. Ignoring regional differences or acting in the wrong state
The US is a market of 50 states and a federal district (Washington DC), each with different laws regarding many key issues for international companies, including company incorporation and registration, licenses business, taxation, civil liability, and others. Sometimes there are different regulations for specific counties within the same state.
The internal cultural differences found when taking into account the differences among regions, ethnic minorities, cultures, religions and populations in rural and urban areas are also significant. In each case, we will find radically different interests and people will respond positively to very different messages.
No less important are the availability and cost aspects of offices, human and material resources in each potential location, as well as access to potential clients and partners, or the support or tax advantages that can be obtained from local governments.
Therefore, it is important to know in detail the relevant aspects of the states in which the company plans to act, both for the constitution and for the operations of the company, which may occur in different states.
The choice of the optimal state or states for the constitution, operations and sale of the company’s products or services is a crucial decision that must be made taking into account the characteristics of the target market and the aforementioned differences. Incorporating your company in Delaware, for example, without understanding the many implications, can lead to serious problems later on.
3. Landing without the local support of experts in the target market
“But in all my experience, I have never been in any accident of any sort worth speaking about. I have seen but one vessel in distress in all my years at sea. I never saw a wreck and never have been wrecked nor was I ever in any predicament that threatened to end in disaster of any sort”.
Edward Smith, 1907, Captain of the Titanic
5 years before the most famous shipwreck in history
Using the right local experts, who have a deep understanding of not only the culture but also the target market and sector, can provide immense value in cost savings associated with inappropriate strategies that would have failed. On the other hand, they can avoid serious initial mistakes that can have a tremendous long-term impact.
International companies often send trusted personnel to the US with in-depth knowledge of the company and its products or services, and sometimes with international experience, but who are unaware of the peculiarities of US culture or the market they intend to access. Learning through trial and error as that knowledge is acquired can be extremely risky and expensive for the interests of the corporation, so it is highly recommended to rely on US agents who complement these executives avoiding unnecessary risks.
4. Acting without a subsidiary or choosing an inappropriate structure for it
It is possible to sell the products or services of an international company in the US without creating a subsidiary in this country and there are different ways to do so. However, there are multiple reasons to consider the creation of a local company, among which we can highlight the following:
- Easier ease of access to clients, suppliers, partners, and human and financial resources
- Legal and financial protection of the parent company or owners, derived from assigning the risks and responsibilities from operations in the US to the US entity
- Prestige associated with the existence of a subsidiary in the largest and most difficult market in the world
- Essential to facilitate banking operations, as we already discussed in the article How to open a company bank account in the US as a non-resident?
It is also necessary to understand the different types of entity that can be chosen (usually C-Corp or LLC are the options for international companies) as well as the advantages and disadvantages of each one. This is a topic explained in detail in our free guide:
5. Designing a complex and rigid business plan
Everyone has a plan until they get punched in the face
Mike Tyson
In an ideal world, the way to plan an entry to the US would be to acquire the necessary knowledge of the target market, design a successful strategy, estimate deadlines and budgets, define a business plan and implement it precisely to achieve the expected results.
The reality is that for multiple reasons this approach does not work well, some of them are:
- We are increasingly in a high VUCA environment (Volatility, Uncertainty, Complexity and Ambiguity), which prevents us from acquiring a high degree of knowledge and find the ideal strategy with a high level of confidence. This was true before the COVID-19 pandemic and much more during and after.
- That same volatility means that the ideal strategy can stop being ideal at any moment in the face of unexpected changes in the environment.
- Maybe we can correctly decide our first move, but it is difficult to foresee the answers that the competitors will choose which could lead to the failure of the selected strategy. This would require being able to make second and third order decisions like a chess player.
It is always advisable to carry out an initial feasibility study to determine the products / services with the greatest probability of success and focus on them, generating a first business plan from there. That said, it is advisable to work soon with an MVP (Minimum Viable Product or service) that has sufficient characteristics to be able to test the market in a short time and at a reduced cost.
This MVP will allow us to start the learning cycle as soon as possible, which will allow us to adapt the 4Ps of the ‘marketing mix’ mentioned above, redefine the strategy and update the business plan continuously. We must accept that failure is part of the process and that a flexible and dynamic attitude will be key to success, pivoting along the way if necessary, as startups often do.
There is nothing permanent except change
Heraclitus
6. Underestimating costs and deadlines
The planning fallacy is a widely demonstrated phenomenon that affects cost and deadline estimates made in projects of all kinds and was baptized by Daniel Kahneman (Nobel laureate in Economics) and Amos Tversky in 1979. It explains why tasks and projects tend to take longer than initially estimated and why their costs are typically higher than the assigned budget. It is a systematic cognitive bias that is difficult to correct.
The Sydney Opera House was expected to be completed in 1963. A shortened version opened in 1973, a decade later. The original cost was estimated at $7M, the final cost was $102M.
This bias is much more pronounced when we find ourselves with non-repetitive projects and when there are multiple unknowns or variables beyond our control, something that often occurs when entering a new and complex market such as US. The existence of “unknown unknowns” or factors of unknown magnitude that may affect and of which we are not even aware, makes it extremely difficult to estimate costs and times for a successful landing.
For all these reasons, it is essential to have the support of experts in the target market and to understand that the estimates will be associated with a high degree of uncertainty so they should be updated as the business plan is deployed.
7. Underestimating the impact the US can have on the business
BAE Systems, a British giant in the aerospace and defense sector, obtains 43% of its revenue in the US, its main market, where it gets more than twice the sales achieved in its own country
In addition, there is a factor that is sometimes underestimated and that can have an even greater value. It is the springboard effect that a presence in the US and the acquisition of reference customers can produce on the perception of the brand in other international markets.
When a company has a physical presence in this country, it can present itself as a US company in markets where the image associated with the corporation’s country of origin is less positive. In many industries, consumers in a wide variety of regions of the world perceive US companies as leaders.
If the company also has production centers in the US, it will be able to rely on the initiatives of the US government, as well as federal and state agencies that very proactively promote exports to other markets. Likewise, it will be able to benefit from the free trade agreements in force, such as the one with Canada and Mexico (USMCA) signed in 2020 to replace NAFTA.
All these factors should be taken into account when estimating the return on investment associated with a US market entry project.
CONCLUSION
Given the high degree of difficulty of US market entry plans, along with the high associated costs, it is essential to know and manage the risks, and choose the appropriate strategy to achieve success in a timely manner and with an acceptable budget for the company.
From Markentry USA we can assist with all the associated needs at any of the phases of the life cycle, including the incorporation and registration of a US company and the opening of a bank account. We can also provide the necessary local support for your management and participate in the recruitment of employees for the US subsidiary. Contact us to study your needs and discuss how we can help you from the US.