Tips for choosing and penetrating new markets

Promises made in Busan, Accra and Paris and the deepening emphasis on aid effectiveness and sustainability have led major donors to incorporate the localization of aid into their core strategy. The U.S. Agency for International Development, for example, has committed to disburse 30 percent of its aid through country systems by 2015. Most other funding agencies have also pledged to award more contracts to locally incorporated firms. The growing reliance on country systems, or the approach of channeling aid through institutions and systems of recipient states, means that development activity is more localized throughout the program design, procurement and implementation stages. In this new competitive marketplace where donor policy and procurement rules target locally incorporated firms for contracts and grants, traditional implementers are rethinking some of their business strategies to thrive. Many development organizations with headquarters in donor countries are doing so by establishing regional, country and field offices in low- and middle-income countries. A quick look at the exponential growth of global nongovernmental organizations confirms this trend: two decades ago, there were a little more than 23,000 NGOs operating internationally; now there are about 44,000. More of these international NGOs are registering their subsidiaries as legal entities in the countries they operate in, which allows them to compete and bid on projects in local markets and access aid awards administered by in-country missions, national governments and corporate social responsibility funds. NGO and private sector leaders consulted by Devex confirm that geographic expansion into developing countries can also enhance an organization’s reach and impact and improve overall project delivery, but there are major obstacles and difficult decisions that firms must navigate carefully. Foremost is choosing the country or market to enter. Setting up a local subsidiary in a country saturated with strong implementers or one that does not have the necessary infrastructure in place, for example, might do more harm than good to an organization and its prospects for growth. Here are some suggestions on what a development organization should do to evaluate potential markets for expansion. 1. Examine development funding flows. Construct a complete picture of donor engagement and project opportunities in each country you are targeting to enter. Review the funding strategies of these donors and talk to donor officials to gain a better picture of what their priorities are and what opportunities are there for your organization in the country. Check what other fundraising options are available beyond traditional donors. Investigate emerging sources of development assistance, including private sector companies, local foundations and philanthropists. 2. Scope out the competition. Map out the competing organizations working in your target countries. Research their donor base and recent contract awards to help you understand the market opportunity. Evaluate their office setup and staffing structure. Approximate their fixed and operational expenses, including project overheads and administrative costs, to inform your own budget planning. Then, determine where and how you can best position your organization to add value in your sector. 3. Assess socio-political dynamics. Conduct or sanction a formal assessment of each country’s political and economic structures, but dig deeper to reveal histories, power dynamics, social relationships and patterns of resource distribution and contestation. These are needed to understand the competing political and economic interests, religious and cultural beliefs, ideologies, and incentive structures that influence media reporting, policy choices and political behavior. Based on this information, assess the level of public support likely for your service or advocacy. Note how a possible change in government or political elites will affect your operations. A sound understanding of the socio-political context is an essential component of an integrated risk management strategy, especially in fragile and conflict-affected states where institutions are volatile and there is weak social cohesion. Jan Kamphuisen, Control Risks Group associate director for global risk analysis for the Afghanistan, Pakistan and the Middle East and Northern Africa region, emphasizes that a sound understanding of the socio-political context is an essential part of an effective risk management strategy. He suggests investing in understanding the power landscape within each country and how key powerbrokers can influence project outcomes. 4. Compare in-country locations. A country’s capital city or business hubs may not always provide the most value for money for your organization. Visit different sites. Account for rental rates and fees, shipping and delivery costs, staff accessibility and commute times, and transportation rates. Check for affordable and accessible Internet and phone services. 5. Assess safety and security risks. Enlist the services of a trained security practitioner to rank security and safety risks for the countries being considered. Some of these risks are bomb threats, kidnappings, extortion, terrorism, ethnic conflict, insurgency, vandalism, theft, workplace violence and fire. Another consideration would be the likelihood of natural disasters and the country’s level of disaster preparedness. A trained security practitioner is likely to draw on historical experience and knowledge of the physical and social environment to determine probabilities. Check if there are additional risks to foreign employees. Also investigate crime rates and crime reporting procedures. Do a cost-benefit analysis of countermeasures and security programs required. Identify the harms or losses that could arise from a potential security incident or threat, including effects on the continuity of your operations. 6. Assess the business climate. Investigate banking regulations and fraud prevention options. Track trends in currency value fluctuations and inflation rates. Study pay scales to ensure planned compensation would be within standard remuneration levels. Check insurance costs. Scrutinize the regulatory environment and review corruption assessments and investor ratings. An evaluation of transportation and infrastructure systems will also help determine the cost and ease of doing business in the country. Examine methods for receipt, transfer and storage of cash, including for remote sites. Compare cost of living expenses. “Don’t forget the paperwork,” cautions Tom Krift, Save the Children’s vice president for strategic operations. “Find out about the type of registration required for the program model you plan on implementing and how long it will take.” 7. Examine the talent pool. Determine which country ensures access to qualified staff, both in-country and from neighboring areas. Assess your target countries’ education systems and check if the skills in their labor markets align with your organization’s needs and priority sectors. Doing so can help your organization determine whether most of your staffing needs, especially for highly technical posts, can be filled locally or not. So you’ve done your research and due diligence and have settled on a new market to enter. You know that there are enough business opportunities for your organization and that the talent pool is large enough to eliminate the need to relocate a sizable number of your existing staff or bring in expats. But deciding on which market to enter is only one of many decisions you have to make when expanding your organization’s reach. Should you set up the local subsidiary now or wait until you’ve won a contract in that country before establishing an office there? Should you set up your own company, acquire a local firm or forge partnerships with leading implementers there? These are just a few questions your organization needs to address before expanding into a new market. Below are other considerations to keep in mind to help ensure your business will thrive in a new operating environment. 1. Decide on an entry strategy. Choose between establishing an office right away or testing the waters first. Sometimes, winning a major contract in a specific country can be the best entry point for breaking into a country on a more permanent basis. It provides the initial reason for staff presence, exposure to the country context and requires less upfront investment because of an existent revenue stream. Krift adds that infrastructure needs will depend on an organization’s strategy — whether it plans on building a program from the ground up, partnering with another organization to start a new program or building upon an already existing project operated by another NGO, government unit or civil society organization. 2. Engage other players (and maybe the competition). Krift suggests examining the already existing work on the ground. Identify which local government agencies, civil society groups, firms and social entrepreneurs are doing work related to yours. Consider coordinating and collaborating with them. Assess whether your experience allows you to offer them capacity-building services. In 2010, Save the Children launched a YouthSave project in Ghana, where the organization previously did not have any other programs. Prior to launching, it identified other market players and determined that those offering accounts for “youth savings” either served better-off youth or marketed guardian accounts to parents. Save the Children decided to position itself as provider of youth savings accounts that involved the youth directly as users. With funding from the MasterCard Foundation, the organization worked out a sustainable product design. Sub-grant and service agreements with partners such as HFC Bank Ghana meant it did not have to register and set up a local subsidiary. 3. Compare laws and regulations. Do not sign any contracts before talking to local legal experts. Inquire about taxation systems, including any special taxes and tariffs on foreign businesses and charities. Check and compare labor laws and hiring practices and safety and environmental regulations. Note that political stability has an effect on the ability of the government to pass laws and issue licenses. 4. Assess local customs and business etiquette. Talk to locals about acceptable dress codes and appropriate salutations. Note schedules for holidays, weekends and prayers, which could affect your operating hours. Some places may have food restrictions and regulations on interactions between males and females. 5. Build local business development capacity. Ensure that the new office is linked back and properly supported by business development teams at headquarters. Develop a local mechanism for tracking potential partnerships and funding opportunities and managing threats. For projects and programs, Krift emphasizes the need to secure enough funding to sustain an organization’s level of presence in the country for the entire duration of the activities. 6. Implement a formal staff recruitment, orientation and training program. Before hiring begins, determine the employment structure. Will staff members be hired as consultants, regular employees or a mixture of both? Draft clear descriptions of the differences between consultants and regular employees, including responsibilities, benefits and pay scales. Work with reputable headhunters and jobs placement agencies. Devex has one of the largest and most comprehensive jobs boards for the international development community, and profiles for more than 550,000 development professionals. All staff members should be given access to information about the organization such as its history, mission, philosophy, structure, logistics and daily routines, IT infrastructure, and evaluation and supervision systems. Their own roles should be explained to them. They also need to know about the organization’s target clients and beneficiaries and understand the image the organization wants to project to the community. 7. Go local in your approach. Technical expertise includes sensitivity to context, especially for issues such as human rights and strengthening civil society. Think about how to adjust your service or advocacy to local needs and values. Hire people who speak the local language and develop publicity and reporting documents in the vernacular. Create a positive reputation by participating in appropriate community events. 8. Tap business associations and expat groups. Reach out to the diplomatic and foreign business communities. Join and actively participate in the foreign chambers of commerce and like-minded organizations that can offer introductions to important clients and national government agencies. Read more: - What localization means for your development organization - Conducting due diligence on local partners: Why and how Want to partner with organizations in East Africa? Join us as Devex hosts its first-ever International Development Partnerships Forum on Oct. 16, 2013, in Nairobi, Kenya. Visit our event page to learn more and sign up to attend.