Conquering the USA
The world’s largest economy holds huge opportunities for Australian businesses. An initiative by UQ Business School in conjunction with the world-renowned Wharton School is helping companies to break into the US market. Here are some of the lessons the team have learned.
Particularly for firms with limited resources, the US needs to be treated as multiple markets, with one or two identified as the top priority regions.
With an economy worth over $17 trillion, more than ten times the size of Australia, the US is the biggest market in the world. It is also one of the most business friendly, ranked fourth out of 185 countries by the World Bank for ease of doing business.
However, despite sharing a common language, there are marked differences in approach which can make the USA a difficult market for Australian firms to penetrate. Companies may find that customers have different tastes and requirements than in Australia, and can be more demanding in terms of the level of service they expect.
It can take a long time to become accepted in the US marketplace, and there always seems to be a distribution chain involved which can push up costs and make products uncompetitive.
The Wharton Global Consulting Practicum (GCP) aims to help Australian companies to overcome barriers like these. The GCP brings together MBA students from UQ Business School with those from the renowned Wharton School to develop a US market entry or expansion strategy for an Australian business. Each project lasts around six months and culminates in a week-long practicum hosted by the Wharton School in Philadelphia.
The five companies which have participated in Wharton GCP projects so far have made more than $10 million executing the strategies developed for them – equivalent to a return of more than 25 times their original investment.
Dr Tim Kastelle, a Senior Lecturer in Innovation Management at UQ Business School who works with students on the projects, says the initiative has also been an invaluable experience for the students and the School itself, by helping to build experience in how to enter and expand in the US market. He has this advice for would-be exporters:
- Treat the US as a series of regional markets
With 50 states and four time zones, the US is a vast area with major cultural differences across the regions. “The key issue in all of the projects that we have done to date is that the US market is very large, and very complex,” says Dr Kastelle. “This means that there is no such thing as ‘entering the US market’.
“Particularly for firms with limited resources, the US needs to be treated as multiple markets, with one or two identified as the top priority regions. This is true even if the client is primarily operating through a website. If you try to cover all of the US, you will spread your resources too thinly, and you will fail.”
The market entry strategy for Lorna Jane, Australia’s leading active wear and sportswear brand for women, took this into account. The Wharton GCP team analysed several regions before settling on Southern California as the best entry location based on the demographic and financial profiles of the residents, and the similarity with the Australian lifestyle. The team then developed a detailed action plan including suggested locations, the best sequence to open stores, product line recommendations based on US customer surveys, and positioning.
Since completion of the project, Lorna Jane has implemented the plan almost to the letter. It now has 20 stores in California and is planning to open in a second state.
- Ensure the product and business model are right
Another Wharton GCP project involved a mining services business which had developed a new product which it wanted to launch in the US before extending into South America and Africa. The product had attracted high levels of interest from existing clients though fewer sales.
Research by the Wharton GCP team revealed that there was a poor match between the product and the features that mining clients sought. The team put together a promotional program and also recommendations for managing the business model for the new product alongside those for existing products – a challenge which the company had underestimated. Sales did increase, most likely because the work helped the company to address some key sources of management conflict.
Dr Kastelle says: “The problem that the client brings to the table isn’t always the one that is actually the most pressing – particularly when you’re entering a new market. One of the big advantages of doing projects over this long period of time is that the team has the time to work closely with the clients in order to identify the key issues, including those that might not even have occurred to them before.”
- It pays to build partnerships
Western Australia Indigenous Tourism Operators’ Council (WAITOC) – a body representing 120 tourism firms owned by indigenous Australians – wanted to attract more North American tourists to boost trade for its members. However, it was constrained by lack of staff and budget and it wanted solutions to be consistent with its cultural values.
The Wharton GCP team helped them develop a series of strategic partnerships with educational institutes. In order to achieve higher visibility overseas, the team also outlined a social media strategy and encouraged people to undertake multiple activities in one region – for example, for organizing a week of activities in the Kimberleys.
The strategy resulted in nearly a 400% increase in international participants for WAITOC members, while keeping it aligned with their values system.
- Be prepared for the unexpected
Entering an overseas market is not always without its pitfalls. A manufacturer which had entered the US in 2008 by acquiring a factory in Virginia found itself badly affected by the collapse of the domestic housing market. With its factory running at just 10 per cent capacity, it needed to find new markets for its product.
The Wharton GCP team identified a new use in modular housing. However, the company needed to adapt its business model and learn new skills. The team outlined the changes and steps needed to achieve them. Within six months, the business had secured a contract with one of the major modular housing firms and had the plant running at nearly 40% capacity. The turnaround in fortunes enabled it to sell off this particular division.
- Make the most of your connections
Personal introductions and contacts are helpful in any marketplace. Dr Kastelle says the Wharton GCP not only allows companies to tap into the expertise of MBA students, but also to benefit from connections in the US market: “In the case of the mining services company, it turned out that the Vice President of one of the major mining firms was a Wharton alum. The team was able to interview him – something the client had been unable to achieve through their normal channels. Wharton is one of the world’s top five business schools. The GCP gives clients access to its students, alumni and the Wharton network with all the benefits that brings.”
For further details on participating in the Wharton GCP, contact Rob Douglas on 07 3346 7111
or at firstname.lastname@example.org