The Press, April 2011
If you are over 40 years old you probably remember it.
The then New Zealand Tourist & Publicity Board (now the less quaintly named Tourism New Zealand) ran an advertising campaign imploring “don’t leave town until you’ve seen the country.” It remains good advice for tourists, but is also sound for businesses looking at their export marketing.
For those over 40, the advertisement’s main character is embarrassed in various locales around the globe such as New York and Paris about his ignorance of New Zealand’s famous places. Failing to make the most of the beauty of his own country before venturing abroad was the message being sold to Kiwis.
Of course it was a radically different time back in 1984. The Exponents, then known as The Dance Exponents, were the top band, and their front-man Jordan Luck the country’s leading vocalist. Video games were what you played in the local burger bar, not on Playstation or the Internet. The Labour Party were in government and were wildly popular. Stubbies were the height of sartorial elegance and we didn’t obsess constantly over the Rugby World Cup, because there wasn’t one.
The advice from the classic advert is however enduring. As Kiwis we are quick to go travelling offshore and as exporters, particularly from the technology sector, we start exporting prematurely.
We are of course a nation of exporters. Maori were also aggressive exporters from the time they encountered Europeans, and the settlers sent our produce around the world almost from the time they landed. Today our economic fortunes are largely dependent on earning foreign exchange.
It is critical for most New Zealand businesses to go offshore to achieve scale, but too many fail to build their base well enough first.
The 2010 Market Measures study of New Zealand technology companies, conducted by Concentrate and PricewaterhouseCoopers, showed that local technology exporters embody the nation’s pioneering spirit. Almost all sell locally, but they start exporting very early in their growth cycle.
Around 70% of companies with an annual turnover of less than $1m had already started to export and 100% of companies with revenue greater than $5m were selling overseas. Overall 77% of companies were exporting.
The most common market for technology companies to sell into was Australia, then the USA. UK and Western Europe were the next most popular. Asia didn’t really figure, even though three of New Zealand’s top trading partners overall are China, Japan and South Korea.
Brave pioneers is the best description of many of these entrepreneurs, but going offshore too early can be problematic for several reasons.
Most obvious is the financial challenge of funding an Australian or US campaign on New Zealand cash flow. If you are only turning over a few hundred thousand dollars per year, and don’t have substantial capital backing, your funds are going to be depleted quickly.
From a product perspective, being confident that your offering is well proven in your relatively safe domestic market is important. Not so much the core technology, which is often of high quality, but all those other things that make up the product – technical support, implementation processes, user documentation and so on. It’s easier to make a few mistakes in your home town than thousands of kilometres away.
Being battle hardened in a sales and marketing sense also helps. Selling particularly is a lot harder in markets like Australia and the USA; a bit like moving from domestic to international rugby, everything is that much faster and more aggressive. Companies need a well proven sales pitch and sales process.
It’s also worthwhile having the opportunity to test out various promotional tactics, experimenting with pricing models and trialling partner relationships. Sure things will be different in Sydney or San Francisco, but at least you have a proof of concept you can work with.
Wellington-based accounting software company Xero seems to have done this well. After launching here in 2006, they built an early-adopter user base and then completed a successful initial share market listing in 2007. Using this experience and capital, Xero setup in the UK and Australia in 2008, and have recently taken on the big market: the USA.
It wasn’t that Xero were making huge profits and had saturated the market in New Zealand prior to exporting, but they had proven customer demand and trialled selling strategies (like partnering with accountants), established steady cash flow and raised capital prior to setting up the overseas office.
Kiwi companies looking to export should do their homework before rushing off. In some cases companies will have to go offshore almost immediately to find a big enough market opportunity, but for many there is plenty of opportunity to exploit locally.
According to the Kompass business directory website, they list 15,000 New Zealand businesses, so it’s likely there is an initial domestic market for most products.
Any business should be asking themselves a couple of questions about the local market before going further. Ask them of the New Zealand market opportunity and then of the next best export market possibility.
- How attractive is the market opportunity? What are the key attributes such as size, shape, profit, competitiveness, location, language and regulation?
- What ability does your company have to execute in this market? In terms of resources, skills, knowledge, reference sites, market share, product competitiveness and partners.
Unless you can answer these with some confidence, put the passport away in the draw. You have to leave town to grow. But make sure you have had a good look at the country first.