We have been reviewing the growing number of Australian and New Zealand based niche organisations that are chasing growth opportunities offshore and the impact that will have on their future equity value. By definition, these observations will not apply to the larger and more diversified organisations that are part of our industry.
Since the financial crisis the local industry is growing organisations that are concentrating on being the best they possibly can within their chosen niche. We certainly encourage this trend as clients and candidates will increasingly rely on knowledge, experience and focus that will only become available with specialisation.
In Europe and North America it is common for companies to focus on narrow verticals within IT, Healthcare and other sectors. When these companies come to Australia, New Zealand or Asia seeking to expand by acquisition they are targeting organisations that have an equivalent focus and depth of knowledge.
The local markets are very small by world standards and business owners establishing a narrow specialisation feel this limits growth opportunities. Many companies seek to expand their service offerings in their local environment by adding complimentary verticals or being opportunistic in unrelated areas. But once you stray from your specialisation there is often little chance of going back.
Related: Incorporating offshore resources into your team is best practice
Those that seek growth within their focussed niche will often consider regional or global expansion. Sometimes this is driven by candidate opportunities (eg Medical Recruitment may require a presence in other countries to source doctors), and sometimes by client requirements (eg Engineering Consulting client wins assignments in other countries).
There is no doubt that geographic expansion is expensive, time consuming and full of risk for small and medium sized companies. Many companies in Australia struggle to expand between Melbourne and Sydney, let alone manage expansion into a location with a different time zone, economy, legal environment, client base and culture.
Different types of growth come with different risk profiles. As you might expect, growing by selling more of your existing services to your existing clients is the lowest risk growth strategy you can undertake. The risk associated with different growth strategies has been defined into these seven categories, increasing from the greatest freedom to expand (or the least risk).
Seven degrees of freedom for growth
The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise by Baghai, Mehrdad, and Baghai
Expanding to a new geography is a very high risk growth strategy. So how can this be managed? We believe a medium term strategy is required to prepare yourself for an expansion activity. As an example, organisations that identify Singapore as a target location become very excited by the international clients and increased fees that are on offer. But they quickly realise that local experienced recruitment resources are scarce and very expensive, that the regulatory environment is very different, and that the sales cycle can be daunting.
A lower risk strategy is to win clients in your existing location that will take you to your new location. Spend your time selecting clients that have the geographic reach you desire and then integrate yourself into those organisations. Over time you can follow your existing clients armed with warm internal referrals to reduce start-up costs and timeframes.
Expanding to different geographic regions brings other challenges to an organisation. What works in your home town may not work elsewhere. For example, candidate identification techniques will probably be very different and may be more global in nature. Recruitment processes will almost certainly change the way interviews are conducted and the compliance required.
Your internal structures will also need to change - staff packages, commission structures and the breakup of work (eg business development and resourcing) are likely to be different to your existing organisation processes.
As an owner and manager there will be additional stresses on time, finances and communication capability as you work very hard to manage an office remotely and maintain a consistent company culture.Investment in great technology will assist.
The rewards can justify the effort and the risks. Building a business that has a proven deep niche across its geographic region (for most of us this means ANZ and Asia) that has strong regional client relationships and sustainable offices is a worthy goal.
Those that are successful will have the ability to minimise local economic and political risks as well as add equity value in the eyes of their international peers.