The "First-Mover Advantage" in Foreign Markets

The race is on to obtain a "first mover advantage" in the European online world. Many U.S. companies were just born in the last few years and have won more online market share in their home market than traditional, well-financed, older companies, simply because they were known online as the first in their market segment. Amazon (non-existent 6-7 years ago) has a substantial advance over the top U.S. bookstore chain Barnes & Nobles. eToys also enjoys a much greater sales online than traditional toy company FAO Schwarz or Toys "R" Us, even though eToys did not exist 6-7 years ago either. eBay is now interested in establishing itself in the top European markets, but British QXL has already won over the online auction market niche in many European countries, and consumers know to go to QXL when they want to buy by auction (in their own language).

"US players have already been able to scoop up 20% of the European market by coming in with large-scale pan-European businesses," says Patrick Forth, Vice President of the Boston Consulting Group and author of the report entitled "The Race for Online Riches --E-Retailing in Europe."

"This approach contrasts with that of typical European incumbents who have focused on their national markets only. US online retailers, however, will also find it difficult to deal with the European online market since it is a conglomeration of regional markets, each at a different level of development... European retailers need to step up to this challenge and determine what part of their business can be scaled on a pan-European basis and what part needs to be tailored to appeal to local preferences within the European market," says Forth. "The rewards will be huge for the small number of retailers, either European or American, who find the right balance between the two."
(http://www.bcg.com/european_retailing/press_release.asp)

It seems that whoever captures new e-Business territory first, wins its leadership -- like in the American West in the 19th century. If you snooze, you lose. When expanding globally, early market leaders have advantage leveraging their brands that have been established in their home country. And competing against local "names" in other countries represents a significant hurdle.

This is also the case when American companies miss out on crossing the Atlantic in the online world, and let lesser financed companies in Europe dominate a certain market niche first. European companies have the advantage that they have been doing business internationally for centuries, and are used to localizing their sales and after-sales support into other languages. Americans do not like to bear the expense of localizing their site, nor do many of them think it necessary to market to invest in promoting their Website in each country market. They may just miss the boat in many European online market niches, even though they are many times more financed than their European online competitors.

I saw this when I visited Munich two weeks ago. I met with two companies there, one a German leader in free email, another a leader in online automobile sales in Germany. Both are quite keen on having their site translated and promoted in important European markets, to establish themselves as the leader, before heavily financed Hotmail (owned by Microsoft) and Autobytel decide to invest in Europeanizing their Website.

This scenario is one I see played out over and over again, as European companies have started obtaining the necessary funding for extending their Website beyond their country borders, to become market leaders in their field on a global scale. Whoever speaks about marketing on a global scale must bring it down to country by country. While this is happening, I see many American companies haggle about whether to localize their site or not (and the idea of budgeting for Web promotion in many languages is not attractive at all to them, as it can get expensive). I am not making this up -- these observations come from the thousands of emails and phone conversations I am involved in since 1995 to European and American companies about cross-border online marketing.

"Rich localization for serving multiple national markets and a stronger sense of style are likely to separate European sites from simply adapted U.S. versions." (Dr. Therese Torris, Forrester Research, Inc. “The Best of Europe’s eCommerce,” August 1999)

Additionally, European and Asian businesses have a natural advantage when approaching the multi-linguality of the Internet as they have much more experience selling in a trans-border, trans-culture environment. (eMarketer, “The eBusiness Report,” December 1999)

Forrester recommends that the further the site enters into actual transactions, the more it must localize. “Localization turns visitors into prospects and customers.” Yet they recommend depth over shallow localization to prevent the company from engaging in interactions they are not prepared to handle. 16 The message is clear – don’t deceive the customer that you are prepared to manage a transaction completely in French if you don’t have this capability. The negative impression left will remain with the potential customer for quite some time.

Here are some excerpts from an excellent market study written by Donald Plumley (Executive Vice President with Bowne Global Solutions, a leading localization agency), called "Global eCommerce". It is available for download at: http://www.bowneglobal.com/WP012100 (Jan., 2000).


--- Global eCommerce [market study] ---

...
The Localization Imperative

Before examining the components and steps required to leverage the global Internet opportunity, we will step back and re-consider whether content localization is in fact a necessity.

Today, English is the “lingua franca” of the Internet – 78% of all websites and 96% of eCommerce sites are in English. Yet by 2002, more than half of net users will speak a language other than English and by 2003, it is predicted that the majority of Web content will be in a language other than English. (eMarketer, “The eBusiness Report,” December 1999)

In a recent Forrester report, The Best of Europe’s eCommerce, they assert, “Localization is indispensable for attracting large numbers of customers in Europe’s fragmented market. Even customers who speak English prefer sites that offer their local language as well as local product selections, relevant payment options, and localized versions of customer service.” (Torris, Dr. Therese, Forrester Research, “The Best of Europe’s eCommerce,” August 1999)

The language factor is in fact much more significant in Asia than in Europe. While approximately 40% of Europeans speak “some” amount of English (15% first language, 28% some English), less than 10% of Japanese have any English-speaking ability.

Early adopters, those companies that see the global picture and have altered their Web strategy to address international issues, are seeing the payoff from localization. One large IT company discovered that a significant percentage of inquiries were coming from South Korea – they created a Korean website and revenues rose by 8 percent. (Ferranti, Marc, “From Global to Local”, Infoworld. October 11, 1999)

With these factors and the other evidence, we believe it is indeed reasonable to maintain our assumption that localization will play a significant role in the globalization of the Internet.

Forrester believes that while US firms still serve as a benchmark for the still immature market, it was widely agreed that there is tremendous potential for eCommerce in Europe. However, they believe new standards for design and content are likely to emerge. Rich localization for serving multiple national markets and a stronger sense of style are likely to separate “European” sites from simply adapted US versions. (Torris, Dr. Therese, Forrester Research, “The Best of Europe’s eCommerce,” August 1999)

Additionally, European and Asian businesses have a natural advantage when approaching the multi-linguality of the Internet as they have much more experience selling in a trans-border, trans- culture environment. (eMarketer, “The eBusiness Report,” December 1999)

Where localization was being used, it should be extended beyond just language. eCommerce firms are advised to carry localization throughout the entire buying process. Firms should offer product selections that combine local taste, original editorial content, local payment methods, and customer service. BOL, an online bookstore, is cited as a good example – their site serves four national markets effectively. (Torris, Dr. Therese, Forrester Research, “The Best of Europe’s eCommerce,” August 1999)

...Forrester advises sellers to adopt the buyers' perspective – this is particularly relevant when competing in foreign markets. The use of language, content and interface are all key parameters to establish the necessary trust and rapport to engage and capture the on-line customer.


Sellers Must Adopt the Buyer’s Perspective

While European corporations may lag US firms in the global Web race, they have a head start in localization. Increased complexity and costs are predicted, requiring new skills and tools to stay ahead of “outside” players. The expense of localized sites is acknowledged, yet European firms do not doubt the return on investment. And leading strategists see only a growing need for localization as sites embrace eCommerce. It is predicted that content will grow exponentially as globalization leads to a multiplication of country sites, divisional sites, brand sites, community sites plus the self-service imperative of eCommerce. As a result, they assert that update frequency will soon be measured in hours and minutes. (Torris, Dr. Therese, Forrester Research, “JIT Web Localization”, July 1998)

Forrester recommends that the further the site enters into actual transactions, the more it must localize. “Localization turns visitors into prospects and customers.” Yet they recommend depth over shallow localization to prevent the company from engaging in interactions they are not prepared to handle. (Torris, Dr. Therese, Forrester Research, “JIT Web Localization”, July 1998)

The message is clear – don’t deceive the customer that you are prepared to manage a transaction completely in French if you don’t have this capability. The negative impression left will remain with the potential customer for quite some time.

Forrester concludes the benefits of localization done right can mean eyeballs, revenue, and lower costs:

In sum, these are compelling reasons why companies attempting to transact global business through the Internet require localization to have an effective website. The early leaders into Europe, such as Amazon.com, understood the need for locally relevant content. They executed their strategy by acquiring a local player on a country-by-country basis. For example, Amazon started in the UK by acquiring Bookpages.co.uk and turning it into Amazon.co.uk; then went to Germany to acquire Telebuch.de to launch Amazon.de. (Rousell, Anne-Marie, GarterGroup Research Note: “Local Content is Key as US Companies Expand their Web Reach in Europe,” September 14, 1999)

Bertelsmann serves as an interesting example of how a European powerhouse developed a Web strategy aligned to capture European consumer market share. While their joint venture with Barnes and Noble is well publicized, they also created a joint venture with the French publisher Havas to create BOL, a leading pan-European online bookstore. They have made other investments in Internet infrastructure such as ISPs to help bring customers to their storefronts. (Roussel, Anne-Marie, GarterGroup Research Note: “How Bertlesmann’s European Web Strategy Tailors Content for Local Consumers,” September 13, 1999)

What is interesting about current examples is they tend to focus on B2C sites. B2C sites require rich, frequently updated content. On the surface would appear to be an ideal market for a localization services company. However, to date it appears that a significant percentage of B2C firms use joint ventures, partnerships or acquisitions to enter international markets. E*Trade, eLoan and Autobytel are entering non-English speaking markets through joint ventures or other non-ownership arrangements, bringing only their brand, technology, and/or experience into new territories.

This has a strong limiting effect on the potential for content localization services, as the purpose of the local firm is to generate locally relevant, local-language content. There are however, significant opportunities for content management and related services as will be discussed below.
...


The Logistics Hurdle

Beyond the complexities of language, site architecture and content management, the global orders must be fulfilled. Some amazing facts emerge. Forrester observes that commerce sites, starting day one, routinely get 30% of traffic and 10% of orders from outside the US. Incredulously, US-based B2B eCommerce sites routinely turn away half of international orders. (Drakos, Nikos, GartnerGroup Research Note; “What Does it Take to Think Globally But Act Locally on the World Wide Web?”, January 29, 1999)

Despite the raging success of eCommerce and the inherent boundarylessness of the Internet, most merchants simply can’t handle global orders. Forrester reports that eighty-five percent of firms surveyed can’t fill international orders because of the complexities of shipping across borders. Of the 15% that can handle global orders, most are shipping to only a few countries in Europe and Asia where they can fill orders out of local warehouses. Of the “globally incapacitated”, three-quarters cite basic issues such as system inability to register international addresses accurately or to price total delivery cost. (McCollough, Stacie, Forrester Research, “Mastering Commerce Logistics,” August 1999)

Firms that turn down international orders, with no prior international sales experience, cite shipping (53%) as the primary reason, and firms with international sales experience, cite channel conflict (56%) and shipping (56%) as their reasons. (Putnam, Michael, Forrester Research, “Instant Global”, June 1998)

Yet it is imperative is to deliver to global destinations. Citing 30% of online shoppers outside of North America, retailers like the Gap, which accept only US-based orders, suffer huge opportunity costs. To ship to international destinations – whether or not the merchant has a local presence – firms can partner with service vendors like Circle to handle that last leg or invest in systems from Syntra and Nexlinx. It is obvious that companies that want to sell globally can’t open warehouses in every country. However, small firms will be able to take advantage of global opportunities by using Web services to perform functions such as denied parties, calculate landed cost, and estimate arrivals. (McCollough, Stacie, Forrester Research, “Mastering Commerce Logistics,” August 1999)

There are a variety of logistic companies, ranging from DHL to new Internet start-ups, ready to help the global merchant deliver their goods.
...


Spectrum of Globalization

Jupiter has developed what they term the “spectrum of globalization” when referring to the current state of Web globalization efforts. The four categories are: Global Brand Abdication, which they attribute to the majority of US-based sites; Brand Defense, typically involving redirection to a flagship .com site; Market Presence, such as translated brochureware; and finally Market Penetration, an aggressive attempt to pursue foreign market share and build the global brand. (Dodd, Preston, Jupiter Communications: “ Globalization: Overcoming Challenges of Geography and Language”, February 1999)

They characterize the action of “ignoring” the global impact of the Internet on the company as akin to corporate suicide.
...


Are You Already Behind?

Going global is not for the fainthearted. Forrester indicates companies must sell $1 million or 10 percent of sales -- whichever is larger -- to cover the costs of internationalizing a site and offering telephone support to customers outside the United States. But the risks of global market abdication are simply too large to ignore. US companies attempting to penetrate non-US markets must be more aggressive in implementing globalization strategies or risk market abdication. A Jupiter WebTrack survey of the 114 leading US Websites found that two-thirds of sites have minimal or no globalization, such as a registered foreign domain name, been translated into another language, or featured local content. (Dodd, Preston, Jupiter Communications: “Globalization: Overcoming Challenges of Geography and Language”, February 1999)

This message is clear – US firms are at increasing risk of losing their global advantage through inaction or incomplete action. In fact, European companies may emerge by the end of 2000 as leading the global eCommerce race. With a history of needing to compete in regionalized markets they understand the complexity and are able to support multiple country commerce much easier than their US counterparts. So if Internet-time and eCommerce are not enough of a challenge for business today, the Sword of Damocles appears to hang over the head of the globally timid.

[The entirety of this study is available for download at: http://www.bowneglobal.com/WP012100]

--- end of study ---

These are pretty strong terms that the writer uses, but I do not think they are exaggerated:

"[Jupiter] characterizes the action of “ignoring” the global impact of the Internet on the company as akin to corporate suicide."

This statement equates the level of importance of getting a company online (as realized by most companies in the late '90s) to the importance of globalization (now in the early 2000's). The above report opened with a quote from Andy Grove [former CEO of Intel] in the Wall Street Journal: “Today, we are preoccupied with Internet companies. In five years, that label will be meaningless. Why? All companies will be Internet companies.”

The extension to stage two of Internet development is the globally unifying aspect of eBusiness. When distance and closed boundaries disappeared as factors for keeping a market local, many companies have no other choice than to act on a world level, or face extinction from competitors who have already become market leaders in the top 20-30 country markets (which must make up 95% of the world's online market).

It is also interesting to notice that this study emphasizes the importance of localization, which goes beyond just translating Web material. To have the "look and feel" of a local site, it needs its own content and interface, which is different than in other countries.

One point that is left out of the study, however, is that, in order to be noticed in the first place, a multilingual Website has to be promoted in all its languages. Otherwise, as they say, "a Website without traffic is not an Internet presence". People will not automatically come to the site just because has been localized. Effort - sometimes great effort - has to be made in order to bring people there.

Unless a company can finance the launch their multilingual site, they will not be able to significantly penetrate the international online market. And, in general, the first mover advantage holds. Get into your international markets quickly now... before the local competition has already won over those markets.

February, 2000

Written by Bill Dunlap (Managing Director)
Global Reach
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Written by Bill Dunlap
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Last revised on 19 Feb., 2000
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