Main
Internationalisation strategy for software companies
Planning to take your software business international? Preparation is key.
Get all the insights, download the whitepaper
Planning to take your software business international?
Preparation is key. Guidance from those who have succeeded before is vital in choosing among different strategies for internationalisation.
Successful international expansion is not something to be taken for granted. Whether a company is successful in expanding its operations abroad depends to a large extent on the quality of its internationalisation strategy.
Indeed, because software is, typically, easily scalable there is significant potential for internationalisation for many companies. But success still depends on if and when the right steps are taken. There are many pitfalls. Most can be easily avoided with the correct preparation.
Why, what and where?
How to create an internationalisation business strategy? The first questions that need to be addressed are:
- Why is international expansion a good idea for your company?
- What or which products do you want to take abroad?
- Which country or countries do you want to target (and where are you likely to enjoy success)?
The very first thing that needs to be done is to decide whether or not international expansion is fundamentally a good idea. The answer to that question is not found in overseas markets, but at home.
Now is the time
Company strategists should ask themselves: how strong is the company’s position in its home market? How much low-hanging fruit remains from a sales perspective? How strong is the team? If sufficient opportunities are available in the home market and there is limited capacity to expand internationally, it might not be the best time to start an operation abroad. However, when your product or service offering is competitive and the company is ready for rapid growth, perhaps then is the time for international expansion?
The next thing to consider is what product or service to launch in which country? A mistake that is often made is to assume that when a product is successful at home it necessarily would be successful internationally. Different rules and legislation, but also cultural differences, must be taken into account when picking a country for international expansion.
Total Addressable Market (TAM)
To a lot of software entrepreneurs, the United States are the most promising and highest potential market – because of its sheer size (often described as TAM, or total addressable market – 100 per cent of the market that could theoretically be served by a product or service).
What is sometimes overlooked and is especially evident with the United States, is that cultural differences can be a huge factor. Also, the competition is usually fierce, with heavily funded start-ups and large corporations – both with a solid knowledge of local markets – battling it out.
Figuring out this puzzle, is part one of a solid internationalisation strategy. The second big question to be answered is: how are we going to do this? Main Capital Partners (Main) has created a hands-on whitepaper focusing on the international expansion for software companies. In this whitepaper you will find internationalisation business strategies and international strategy examples, explained by software leaders.
Strategies of internationalisation for software companies
There is more than one way to approach setting up operations in a different market. Main adopts three strategies for internationalisation:
- The remote model
- The partner model
- The local model
Each model has a unique set of characteristics – each tailored for a different type of software company and for companies in different stages of their own development. In the whitepaper, these three internationalisation strategies are described at length.
Let’s go over the main characteristics.
The remote model
Every once in a while, a visionary entrepreneur comes along and develops a software product that is almost truly universal and therefore extremely scalable. Think Microsoft Word and Excel, think Google’s web search module, WhatsApp’s messaging platform or Adobe’s PDF suite.
For this kind of product or service – with few or no barriers to entry when it comes to both culture and / or local rules, the remote model is ideal. This kind of product or service can be sold from basically anywhere, keeping the investment low, both in terms of time and money. But there are (obviously) not that many opportunities like this out there. And when a new one arises, copycats (sometimes with deeper pockets) generally are quick to the party.
The partner model
In the partner model, a local partner is needed that is responsible for the distribution of the software. The disadvantages are obvious: commissions can eat into margins, and there is little control over the performance of sales representatives.
However, when executed well, the partner model has a lot of advantages. Local partners have deep knowledge of the local market, alongside their local contacts. Once a local partner is found, businesses can be deployed quickly and without big investments. Perhaps even multiple markets can be targeted at the same time.
A key advantage of the partner model is that it allows you to focus on the continued development of your product.
The local model
So, when a partner model has such potential, why look any further? There are a couple of reasons as to why one would consider doing so. By opening a local office or even by acquiring a company abroad companies can start building their own networks and become less dependent on partners.
This comes in handy in a couple of situations. For example, when a market shows so much potential that it seems worthwhile to invest heavily. Or when a certain market needs a lot of focus, for example in developing the software.
However, building a local office is obviously an expensive move and is time-consuming. One needs to make an investment in real estate, hire staff, provide office hardware and supplies, etc. Careful thought needs to be given to such a commitment.
Acquiring a local company
Another way to circumvent the slow start that comes with building a local business from scratch is by acquiring a local company. This can be an excellent way to get a foot in the door for companies that wish to build local presence in a fast-developing market.
Acquiring a local company has multiple advantages besides speed and integration into a new market. Potentially it also brings in new products, technologies, markets and capabilities.
Acquiring a local company is not easy, of course. You need a network, the capacity to scout for potential talent candidates, experience with transactions and funding. Main often partners with portfolio companies in the opportunity to expand internationally through the acquisition model, provided the right capabilities and capacity can be met. In January 2022, Main had more than [50] active add-ons under management for [30] portfolio companies.
The local model, remote model and partner model are the three main strategies for internationalisation. Which one is suited for each company, depends on the nature of that company, and also its plans? Preparation is therefore key.
Internationalisation strategy examples
Want to know more? Main has broken down all the steps to a successful internationalisation strategy for software companies in its recent whitepaper. We discuss the three key questions that need to be addressed before developing a strategy (why, what; and where and how?). In the whitepaper, you will also find internationalisation strategy examples and cases from leading experts in the software industry.
- Christof Majer, CEO for ChannelXperts and former VP for Board and Qlik, shares his experiences with opening local offices in new markets around the world.
- Gerard Mulder, CEO from AI software company Textkernel will discuss the pitfalls from acquiring a company in the USA to strengthen the global market position.
- Laila Danielsen, CEO from Elliptic Labs, gives her insights about opening up new markets in Asia and the USA, as well as her experience with working with partners.