Cracking foreign markets – these firms got it right

17 May 2016

When it comes to succeeding offshore, we should learn from the FMS industry, says Denis Odlin. From the what?

When it comes to breaking into international markets, one unlikely industry is beating the odds – Fleet Management Systems, also known as telematics. Other tech firms have much to learn from these quiet achievers, says Denis Odlin.

Odlin, a Business School doctoral researcher, wanted to know how competition had evolved in the country's small FMS industry as it matured. What he discovered about firms developing the technology – which is found in everything from logging and concrete trucks to urban couriers –surprised him. Although New Zealand's FMS market is just 1% the size of the FMS market in the US, it has fostered 10 firms that have internationalised – two of them growing to be among the top 10 in the US.

"Internationalising FMS firms have shown unusually high survival rates, with little evidence of the failure that might have been expected as the industry evolved," says Odlin.

He puts this down to three things: the trailblazing success of Navman's consumer GPS navigation products; the intensity of domestic competition which has encouraged constant technological improvement; and the ability of firms to co-develop applications locally that could be scaled for larger customers elsewhere.

Fleet Management Systems combine mobile hardware devices, cellular data communications, GPS tracking, telematics, and internet-based software to create integrated systems that enable the remote management of trucks and other high-value assets.

Distinct evolutionary, geographic, or economic factors in many markets mean that FMS firms must often adapt their strategy by focusing on a different niche, says Odlin. For example, fuel and labour are the largest costs for a New Zealand transport firm, but in the Middle East these are inexpensive and temperature monitoring of trucked chilled food is the priority.

"Because SMEs represent a sizeable portion of most economies, their ability to expand and prosper internationally is of particular interest. Yet their small size, lack of international experience, and limited resources compared with larger foreign competitors, makes internationalisation a risky process," says Odlin

"It contradicts the logic in globalisation that you come up with a product such as the iPhone and distribute it at scale. This is a business-to-business approach, where there is enough variance in the market that there is space for small firms to flourish."

Odlin says the success of New Zealand's FMS sector holds lessons for other tech firms wanting to internationalise:

  • Avoid the technology trap. When a firm has engineering at its core, it is easy to believe that better technology is the key to success. But, while innovative technology is important, success ultimately derives from sales and marketing strategy – in particular, applying limited resources to greatest effect on targeted customers. When SMEs enter a foreign country often they mistakenly assume that because the market is larger they can afford to be less focused. The opposite is true. Narrow targeting is needed to find a first customer willing to work with an unknown New Zealand SME.
  • Co-develop products with customers. Work with senior managers in the client organisation to develop technology that makes that client more competitive in its industry. Having achieved one successful customer reference site, then sell to other firms in that market niche. It is often this co-development skill, rather than technology, that becomes the differentiator.
  • Direct sell rather than using distributors. Internationalising demands frequent travel by an SME's senior managers to develop deep customer relationships and build co-development opportunities. The specialised nature of these opportunities implies direct selling, or at a minimum co-selling, rather than using distributors and resellers – who may already have been signed up by competitors, or be unwilling to commit to a small New Zealand SME. Local partners can help with logistics and regulatory clearances and provide first-level service and support, but will be of doubtful value as the main sales channel unless the SME already has a packaged, commoditised product.
  • Learn from international SME competitors. On entering a foreign market, it is easy to be distracted by what the big competitors are doing. But New Zealand SMEs can learn and apply more from similar-sized foreign competitors because they have similar resources and operational routines. They target the same niches, have established relationships, and understand how business is done in the country.
  • Export is not the only path to internationalisation. Yes, the leap from domestic sales to an international reference site is tough. And a capital injection is needed to fund establishing a foreign presence, localising products, meeting regulatory requirements, and supporting new foreign customers. But the alternative – signing a distributor and shipping products to generate an additional revenue stream – seldom works well because the revenue boost is often minimal or the support effort required is greater than was anticipated. SMEs with businesses based on technological innovation will find limited benefit in 'arms-length' exporting.
  • Hire the right managers. SMEs that hire middle and senior managers from larger multinational companies (MNEs) often find that many are unable to adjust their corporate perspective. As a result, they damage the nimbleness, flexibility, and entrepreneurial orientation that are the competitive strengths of SMEs. Instead, managers must tolerate chaos, duplication, and error as a trade-off for maintaining a firm's vibrancy and experimentation. SMEs will never out-compete large firms by mimicking them, and so may be better to promote from within rather than hire people who only know large-firm routines.
Denis Odlin

Denis Odlin is a Professional Teaching Fellow in the University of Auckland Business School's Graduate School of Management.

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