International Market Entry Strategy

Hello.

1 I would like to present to your attention the concept of strategic business development for the company CJSC “Nikolaevskoe PO”.

2 This company develops and sells software products for business automation, has a well-developed partner network, and holds strong positions in the Russian information technology market.

3 In 2016, a meeting of the company’s board of directors was held, at which a development vision was formulated. It sounded as follows: “The company must expand its business abroad.” The development of the development strategy concept, for discussion at the next meeting, was assigned to me, and in this work I was able to apply the knowledge gained during my studies. After analyzing the company’s activities, I came to the conclusion that large-scale business expansion will require significant efforts from the Company in all areas of activity. And in order to take into account as many factors as possible, the strategy concept I developed is based on the theses of three main schools at once: the design school, the planning school, and the positioning school.

4 After studying the main approaches to strategy development, I proceeded to market research. To determine the scale of the project, I collected information on how much the Company can earn. The global information technology market is estimated at $2.5 trillion, which is more than 100 times larger than the Russian market. Information technology includes many types of products and services. The Company is primarily interested in accounting systems; the size of this segment in 2018 is forecast at $256 billion. At the same time, the mobile applications market will amount to $76 billion, so it is also worth paying attention to it.

5 Having learned how much can be earned, I moved on to finding ways to do it. The first chapter of the work is the concept of a marketing strategy. The basis for its development is Philip Kotler’s 4P marketing methodology. In it, I propose the products that need to be developed, provide recommendations on pricing policy, the sequence of increasing advertising support, and the procedure for entering the markets of different countries.

6 To develop the concept of business expansion by country, in accordance with the confirmed hypothesis that migrants in many countries are more entrepreneurial compared to the local population, I used migration statistics.

7 I was especially interested in information about migrants who founded companies.

8 Where the share of migrants in the population is small, I used the trade balance statistics of those countries.

9 The main development direction formulated in the first chapter is supported by the figures of planned financial indicators. Given the scale of the project, it is proposed to work gradually, developing the company’s brand and reaching break-even in 5 years with 250% annual growth.

10 The planned values are set in terms of the financial indicators that must be achieved. The work presents a revenue plan; it is considered to coincide with cash flow, since it is planned that all expenses are covered by initial investments. This is necessary so that the search for money does not constrain the specified growth rates, which, as you remember, amounted to 250% per year.

11 Plans are plans, but there is always an environment in which we operate, and it makes its own adjustments; therefore, in the second chapter I supplemented the concept by defining the state of the environment in which the Company operates: to determine the rules of the game that will have to be played in new markets. As Michael Porter states, there are 5 forces that can pose a threat to the Company: other products that can replace ours; other companies in the market; new competitors that may appear; the ease with which customers can leave us; and suppliers who dictate their terms.

12 An important part of market positioning is determining one’s position among competitors. Their grouping is done by annual revenue and the cost of licenses for the most common products, including 10 years of maintenance.

13 In accordance with established foreign practice, an integral part of the project is risk analysis. When developing the concept, this analysis was performed using a simplified FERMA methodology. Strategic goals were defined, namely: expanding the business to other countries and financing it through funds obtained via the IPO procedure. For these goals, risks were identified and assessed. The involvement of external and internal experts at this stage of the work made it possible to take into account both the experience of other companies and our specific characteristics.

14 In the third chapter, for the identified risks, a report was formed in the form of a risk map, the most dangerous threats were selected, and measures were proposed to mitigate them. The risks include problems related to turning the Company into a public company, to its active growth, and to operating in new markets in different countries. If the problems of the unknown nature of new markets can be mitigated by working in several markets at once and by acquiring existing companies that have the experience we need, then to prevent possible problems of the Company’s growth it is necessary to improve the management system and develop employees’ competencies—in order to increase flexibility and customer focus. This is also very important for operating in more competitive foreign markets.

15 Risk analysis concludes the development of the strategy concept, from the standpoint of setting the required values of customer-related performance indicators and setting goals. Now we need to prepare the tools to achieve these goals. In accordance with the Balanced Scorecard methodology of David Norton and Robert Kaplan, achieving these goals requires transformations at the level of business processes, as well as the development of human capital. I addressed this issue in the fourth chapter.

16 As for processes, here, although it sounds amusing, it is necessary to establish a process for restructuring processes. The process approach has its roots in the 19th century, in the time of Frederick Taylor, and makes it possible to structure and divide work, indicating the available inputs and the resulting outputs.

17 In order for the view of the problems to be comprehensive, I used the systems approach, among whose authors one can name Peter Drucker, Ludwig von Bertalanffy, Anatol Rapoport, and William Ashby. How the process and systems approaches work together and how automation tools can be applied to them I showed using the example of the Company’s business process model.

18 As a result of almost a year of work, a model was formed that makes it possible to fully simulate the Company’s activities and forecast the results of the Company’s work in the future. In the process of creating the model, an analysis of the capabilities of modern automation tools was performed. The systems approach requires taking into account a large number of factors, and without the use of such tools its application is difficult.

19 By setting the model parameters, I was able to determine the workload of employees in software development departments, find bottlenecks, and carry out optimization, which made it possible to reduce the time—and with it the cost—of releasing new versions of the product by 12%. The work performed made it possible to develop an algorithm for making well-founded management decisions.

20 This algorithm makes it possible, by collecting information on the current performance indicators of the company and building its model, to run simulations that calculate a forecast for the indicators of interest in the future. By changing the structure and parameters of the model in accordance with the proposed management decisions, it is possible to compare management decisions based on the forecast results, and most importantly, to choose the best ones for further implementation in order to improve the Company’s performance indicators.

This methodology is applicable in many companies and is especially relevant at the strategy development stage, when decisions are made that have the greatest impact on the company. It allows management to reduce the risks associated with making management decisions and to improve the company’s financial performance.

21 After working through the restructuring of business processes, I moved on to developing proposals for the development of human capital. To analyze the state of the Company, the methodology for determining the position in the organizational life cycle by Ichak Adizes was used, which, in addition to analysis, makes it possible to predict frequent problems and provides recommendations for maintaining a normal direction of development—at the level of requirements for the competencies of the company’s management. In particular, in order to maintain the direction of movement from the “Go-go” stage to the “Adolescence” stage, the Company’s management needs to improve the skills of reasonable administration and avoid irrational bureaucracy.

22 We also do not forget about developing employees’ competencies. The work considers the application of the customer-focused approach and agile methodologies necessary to increase competitiveness: Kanban, created by Taiichi Ohno, and Scrum, which began to be developed by Jeff Sutherland and Ken Schwaber.

23 In the previous chapters, goals and tools for achieving them were developed. All that remains is to put them into practice. For this purpose, in the fifth chapter a template was developed, with an example of the sequence for carrying out organizational changes. John Kotter’s methodology was taken as the basis. The sequence of steps begins with defining the current and desired states and proving the need for the stated changes, and ends with embedding the changes made in the corporate culture.

24 As is known, an established culture keeps the current state of affairs unchanged, and this makes it possible to preserve the new state of the Company that has been achieved (often with great effort).

25 Changes in management approaches accompanying the growth of the Company’s business will inevitably meet resistance, and in order to increase the probability of success in implementing organizational changes, using the example of introducing a customer-focused approach, the main objections of employees were studied and arguments were selected to respond to these objections.

26 As a result, a concept for expanding the Company’s business abroad was developed,

27 including target economic indicators: it is planned to capture 2% and 8% of the global market for mobile applications and accounting systems.

28 recommendations for product development: mobile applications that will be free until the habit of paying for them is formed;

29 and accounting systems, starting with simple and universal ones and ending with the headliner, with support for accounting for different countries.

30 Taking into account the identified consumer expectations, recommendations were developed for a pricing policy that should be differentiated, but at the same time supported by justification for the consumer in the form of a set of functionality that the consumer receives for their money.

31 It is proposed to promote products gradually, increasing presence on platforms as products for the respective country become ready, and using free and cheaper products as a source of leads for selling more expensive ones.

32 As entry points to the international market, it is proposed to take countries with a large number of Russian-speaking migrants; this will save funds on the infrastructure for working with partners at first. Then it is proposed to move in the direction of the top GDP countries through countries with lower GDP, gaining experience and strengthening the credibility of the client list.

33 Thus, to summarize, the developed business development strategy concept for “CJSC Nikolaevskoe PO” makes it possible to expand the Company’s business by 10 times; reduce the expected damage from the identified threats by 11 times; in addition to setting goals, it provides tools to achieve them in the form of proposals for restructuring business processes and developing human capital, and also provides measures to overcome resistance to these changes.

34 Among other things, the methodology I developed interested the developers of the Business studio modeling environment. Based on the problems I found, they made fixes in the new version of the program released the other day. We are now preparing a publication of the model I developed and are developing cooperation on joint promotion.

35 Thus, dear friends, the methodology I developed for using simulation modeling to automate the calculation and comparison of the forecast effect from implementing management decisions works successfully.

Thank you for your attention!

If you are interested in my work, you can read the book in full: "Development of the concept of strategic business development of CJSC “Nikolaevskoe PO” by entering the international information technology market".

And if you would like to talk, I will be happy to answer your questions.