International expansion: entering new markets without disaster

Why companies move into new markets

When a company succeeds in its home market, the natural next step is expansion. Russia has many mid-sized companies that dominate at home but face limited room to grow because the market is saturating. Neighbouring CIS countries (Kazakhstan, Belarus, Armenia) or more distant but fast-growing markets (Indonesia, the Philippines, the UAE, Saudi Arabia) offer enormous opportunity. For many Russian companies, this feels like unlocking a new level of growth.

Yet international expansion is one of the most dangerous strategic moves a company can make. The evidence shows that most expansion attempts fail outright or fall well short of expectations. The reasons vary: a misjudged market, underestimated regulatory hurdles, the wrong partner, undercapitalisation, a flawed entry strategy, a poorly built local organisation.

In this article I set out how to avoid these traps and plan an international expansion that actually works.

Choosing the market and sizing the opportunity

The first task is to pick the right market. The choice should be strategic, not accidental — not simply because you happen to know someone in that country.

The criteria:

Market size. Are there enough people willing to buy your product or service to make the game worth the candle? For B2B, the real question is how many companies of the right size and profile the country actually has.

Growth rate. Is the market growing? By 5%? By 20%? If it is shrinking, it is a hard place to expand into.

Competition. How many players are already on the field, how strong are they, and is there still room for you? A market that looks appetising from the outside often turns out to be a scrum where every elbow is already in place.

Regulatory risk. How easy is it to do business here at all — what licences are required, what is open to foreigners, and how much do taxes take?

Political and economic risk. How stable is the country and how predictable is the currency — two roubles to the dollar today and five tomorrow will kill any model. This layer is easy to miss behind the revenue numbers, yet it is the one that most often blows up.

Logistics and infrastructure. Can you physically get goods there, is connectivity in place, and are there competent logistics partners on the ground?

Culture and language. The wider the gap from the environment you know, the deeper you will have to localise — and language here is no trifle but a line item of its own, in both cost and misunderstanding.

The choice usually happens in two stages. First comes the quantitative analysis: you look at the statistics, market size, growth rates, competitors, regulatory requirements. This helps you narrow the field to a few candidates.

Then comes the qualitative analysis: visiting the market, meeting prospective clients, competitors, partners, regulators. This lets you test the hypotheses formed in the quantitative phase and understand the real conditions on the ground. After this work, a company usually settles on a single market for initial entry.

Regulatory risk and compliance

One of the most underestimated risks in international expansion is regulatory risk. Every country has different laws, regulations and licensing requirements. In some sectors — financial services, healthcare, telecoms — regulatory risk is especially high. Even in other sectors there are rules on hiring, tax, data protection and import-export that have to be observed.

We recommend hiring a local lawyer and accountant early in the planning stage. They can help you understand the requirements, the licensing processes and the risks, and help you plan for compliance. It takes investment — legal services can be expensive — but it saves far more down the line.

Localising the product and marketing

Another key question: how much localisation do you need? For some products, such as software, localisation can be minimal (translating the interface and meeting local regulatory requirements). For others, such as food products or services, far more localisation is required, because tastes, preferences and needs differ across cultures and countries.

A sound strategy is often "global platform, local variants". This means you have a standard platform that forms the core of your offering, but several variants of it tailored to different markets. If you are a bank, for example, your underlying account-management platform can be the same everywhere. But your products may differ: in one country clients may want savings products, in another trade credit. Your marketing can differ, your sales approach can differ, but your core operating platform stays the same.

Choosing the entry mode and the partner

A company can enter a new market in several ways: by exporting the product (the lowest level of investment), through a local distributor, through a joint venture, or through a fully owned operation.

Exporting works for goods, but for services — or for products that require after-sales support — it may not be enough.

A distributor is a local company that takes on the role of selling and supporting in its own country. This minimises risk, but it means you give up control. The distributor may be ineffective, or its interests may conflict with your company's.

A joint venture (50-50 or 60-40 ownership) is a compromise between control and risk. You share both the profit and the losses. But there is a risk of conflict between the partners.

A fully owned operation offers maximum control — but also maximum risk and investment. It is often the right choice when the market is large enough and strategically important.

The choice of partner is critical. The partner must have a strong local reputation, financial stability, an understanding of your industry, and an interest in a long-term partnership rather than a quick profit. Check references from other companies that have worked with the partner. Spend time meeting and negotiating. The wrong partner can wreck everything.

The organisation and the team

One of the most common mistakes is underinvesting in local leadership and team building. This cannot be a side project for someone already busy with something else. We recommend appointing a Market Director responsible for every aspect of entering the new market: market analysis, partner selection, setting up operations, recruiting and training the team, developing the entry strategy. This person needs enough authority within the organisation to draw resources from other functions (product, marketing, finance).

Beyond the Market Director you need a team on the ground that understands the market, the language and the culture. It may start with one or two people, but the organisation should plan to grow the team as the business develops. Many companies underinvest in the local team, and this often leads to poor performance. Someone sent in from Russia may be strong on operations but blind to local nuance. Investing in local talent usually delivers better results.

The organisation also needs clear success metrics. What does a successful market entry actually mean? What revenue? What profit? Over what period? Without clear metrics the team can get lost in day-to-day work and lose sight of the strategic goals.

An example: a Russian IT company expanded into the UAE. It sent in a COO who had been successful in Russia. But he struggled to find talent — he did not know the local labour market and had no contacts. A year in, the company hired a local head of HR who knew the market. Within 18 months the operation was thriving. That second move was the decisive one.

Or another example: a B2B software company expanded into Saudi Arabia. It assumed it could simply sell its European product. But once it entered the market, it found that the compliance requirements were entirely different. Local integration support was needed. It handed the work to a local partner, and the partner proved ineffective. The company spent a great deal of money and pulled out after two years. The problem was a poor grasp of the localisation requirements and the wrong choice of partner.

A success story: a technology company specialising in IT consulting expanded into Dubai. It found a local leader who knew the community. It focused on serving a growing number of Arab companies that were entering European and global markets and needed IT expertise. Within a few years its Dubai operation had become one of its top-performing markets. The decisive factor was the right choice of local leader and giving that person the room to run the market (with direction from headquarters).

Managing risk and planning the exit

International expansion carries risk. Some of it can be reduced through good planning, but some risk is always present. A company must be prepared for the possibility that a market entry fails, and have an exit plan. This is not pessimism — it is realism. Plenty of successful companies have tried to expand into new markets and failed. Better to be ready than to be caught off guard.

The exit plan should be drawn up before entry, not in the middle of a crisis. What is the maximum amount of capital the company is willing to lose in this market? Which indicators will trigger a strategy review? If revenue is not growing by 20% a year, what will you do? If revenue is growing but profit is not, what will you do? If a competitor enters with an aggressive pricing strategy, what will you do? It pays to think this through in advance.

Conclusion

International expansion can be a source of enormous growth for Russian companies. But it demands strategic thinking, rigorous analysis, the right organisation and a readiness to face risk. Those who take the journey with a cool head often gain a second engine of growth that pulls the whole business forward. Those who jump blind simply add to that grim statistic from the start of this article.