Sound Advice for Companies Looking to International Growth

Going global ain't all it's cracked up to be. That is the message from Bain & Company, a leading management consulting company helping companies decide whether and how to undertake global growth strategies, including business outsourcing.

Here is what Bain & Company is saying. This is good for economic developers to remember next time they fret about their local comapnies trotting off to foreign countries.

Bain & Company analyzed the financial results of 729 publicly traded companies from seven developed economies between 1996 and 2000, and came to a surprising conclusion: only one company in six achieves sustained, profitable international growth, even when the hurdle is relatively modest - growing foreign revenues and profits by at least the rate of GDP plus inflation for a five-year period. The mix of international and domestic revenues for these companies as a group barely changed over the five-year period. In 1996, foreign revenue as a percentage of total revenue averaged 33 per cent for the group, rising to 35 per cent in 2000. In addition, our research showed that operating margins earned by companies outside their home countries were eight per cent on average during the five years, often below and almost never above the margins earned at home.

Why is profitable international growth within reach for certain companies but elusive for the majority? Successful global growth companies excel at defining the boundaries of their businesses. They clearly understand whether the cost structures and customer profiles for their industries compel them to expand overseas, or whether they are better off viewing global expansion simply as one growth option among many. And they base their global expansion strategies on a rigorous understanding of how money is made in their industries, which guides their decisions to acquire foreign assets, build from a beachhead, or pursue strategic alliances.

What is the profile, then, of a profitable foreign growth company? Bain's research shows that industry, country and size are not good predictors of successful international growth. Neither is scale of operations overseas: International growth stars have the same mix of foreign revenue as the rest of the pack (an average of 36 per cent for both groups). Far and away the best predictor of success is starting with a strong core business in the domestic market. Over 90 per cent of profitable foreign growth companies built their international expansions from a solid core business at home.

Download the Bain & Company article here.