International Business: MIT's Prof. Donald Lessard on Best Practices for Expanding Your Business Abroad
Donald R. Lessard, the Epoch Foundation Professor of International Management at the MIT Sloan School of Management, is a widely recognized expert on international business expansion, having researched and written on the topic for over four decades. Lessard is also a Senior Fellow of the Fung Global Institute, a Hong Kong-based think tank that researches global trade, and serves as a senior adviser to the Cambridge, MA-based Brattle Group, an international consulting firm.
Lessard has written extensively about how U.S. middle-market companies can effectively expand into global markets. His report "Should I Take My Business Global? A Simple Test for Small and Medium Enterprises" outlines his approach. Lessard has developed what he calls a "RAT test" for internationalization that focuses on the relevancy, appropriability, and transferability of a company's competencies.
By relevancy, Lessard means your product or service needs to be "valued by customers in the target international market" who can also pay the cost for it. Appropriability means your "competencies allow for the capture of the value they create," meaning your offerings won't simply be copied or stolen by competitors and/or partners in the international business market. Transferability means your company can afford to internationalize without needing a hugely expensive global footprint. The NCMM recently visited Lessard at his MIT Sloan office to talk about global expansion strategies for middle market companies.
NCMM: What trends are driving global expansion for middle market companies?
Lessard: Improved, lower-cost logistics and broadband communication are big drivers. In the new global economy, middle market firms can become global without a deep footprint abroad. But there's also a global dispersion of cutting-edge demand. The action today is in multiple places. But there are clear advantages to being in an advanced country like the U.S. with its strong innovation and its culture of collaboration.
NCMM: How should middle market companies begin the process of developing a global expansion strategy?
Lessard: Internationalization begins at home with understanding who you are and what your capabilities are. You need to know what's distinctive about you and what you do and how that translates into value for your local customers.
When you internationalize your capabilities, you need to analyze and systematize your business model. You can't be casual or intuitive about your capabilities. Only then should you begin looking around to see if how you do what you do is relevant, appropriable, and transferable abroad.
NCMM: Can you offer an example of how a middle market company effectively expanded globally?
Lessard: There's a Massachusetts-based middle market B2B company named Aspen Aerogels that makes aerogels that have superb insulating qualities. The product is lightweight and very effective. Their real challenge was learning how to manufacture it, scaling up from the laboratory to commercialization. Aspen started selling to an oil company, which used the product for wrapping pipes on deep-sea drilling rigs. They went from there to selling the product to the oil company's refineries, and then expanded to other international customers. Now they're considering expansion to the global building industry, a much larger market.
Aspen didn't need a huge sales force to go global because of its relatively small number of customers and decision-points. They didn't need large warehouses or a deep footprint abroad due to the size and light weight of their product.
NCMM: Are there any special challenges that middle market companies typically face when expanding globally?
Lessard: They may not have a recognizable brand or relevant relationships in the target market. In addition, transferability can be difficult in terms of needing to have a deep and costly internationalized footprint. But technology is increasingly enabling middle-market firms to interact with global clients without an expensive global footprint. And middle market firms can often overcome their disadvantages by leveraging existing relationships.
NCMM: Could you go into more detail about that last part?
Lessard: Usually the easiest route for middle-market firms seeking to internationalize is to leverage existing customers who are international and to begin serving that particular customer's international needs. You go from local to global. A middle-market B2B supplier in Ohio, for example, might leverage their relationship with Honda by going to Honda and asking them, "Would what we're doing here for you in Ohio be special abroad?" A conversation with Honda could help you explore international opportunities.
NCMM: How can global expansion improve a middle market companies' capabilities?
Lessard: When you work in great global learning environments, which are increasingly dispersed around the world, you will learn things. You will not only see global customers finding new ways to use your products, but you'll also find new ways to assess customer needs. You can bring all these internationally developed capabilities back home. It's a virtuous cycle of learning and adapting.
Boston-based Chuck Leddy is an NCMM contributor and a freelance reporter who contributes regularly to The Boston Globe and Harvard Gazette. He also trains Fortune 500 executives in business-communication skills as an instructor for EF Education. Circle him on Google+.