How to deal with challenges on the road to overseas expansion? — guest column

For startups in Europe, the European continent alone is a huge market, with more than 40 countries in which they can reach potential customers. Each of these countries has its own regulations, infrastructure, language, and culture, which poses many challenges for companies. The huge growth opportunities associated with expansion can also be a threat. As the Startup Genome report points out, as many as 74% of startups fail due to premature scaling.

In a guest column to AIN, Damian Wielechowski, Head of Communication & Partnerships at SpeedUp Venture Capital Group, talks about how a startup can increase its chances of a successful overseas expansion, also sharing the thoughts of the representatives of startups: Localazy, Swobbee and SP Tech.

  • Václav Hodek, CEO of Localazy
  • Ludwig Speidel, CFO of Swobbee
  • Piotr Sikorski, CEO of SP Tech Solutions

Startups, by definition, are supposed to be rapidly scaling companies. While it is possible to achieve a significant foothold in some market niches in your home market, building a truly large company usually requires overseas expansion. Easy to say, harder to do.

Expanding into new markets comes with many challenges. According to the Startup Hub report, companies identify a number of challenges associated with this. The most frequently raised obstacles are regulatory issues, financial constraints, approaches to advertising and lack of knowledge of local culture and consumer preferences. Some may say that a key element of success is flexibility and the ability to adapt quickly to changing conditions. This is all true. However, when undertaking an expansion with an often limited budget and uncertain cash flow, one simple mistake can have very…bad consequences.

In the first phase of overseas expansion, the key issue is to properly match the product to the specifics of the new market. Research conducted by CSA Research on nearly 9,000 consumers from 29 countries found that as many as 76% prefer to make purchases in their native language. This means not only translating product and marketing materials, but also taking into account cultural differences and consumer preferences.

It is important to understand that what appeals to an audience in one market will not necessarily work in another. That’s why it’s essential to thoroughly research the expectations and needs of the local community and tailor your offering to meet those requirements. This will avoid potential misunderstandings and better appeal to new customers. With a solution to this problem comes the startup Localazy, which has created a platform that combines machine translation, experienced translators, and experts from local markets.

When establishing Localazy, our goal was to make the complex process of expanding into international markets easier for entrepreneurs. At the same time, our motivation from the very beginning was to strive to reduce language barriers around the world. Our Localazy platform can be compared to an advanced autopilot that ensures smooth and efficient translation of content. When you add text in the native language, our platform automatically translates it into other languages of your choice, using professional translators from the relevant market, who are supported by AI-powered workflows. Our approach pays special attention to User Experience. That’s why Localazy supports more than 50 different content formats, providing support for a wide range of business needs. Our goal is to provide a flexible and comprehensive tool that allows businesses to effectively manage multilingual content, saving them time and money,

Václav Hodek, CEO of Localazy, says.

Having a solid knowledge of the laws in the country to which a startup is targeting is a key element for success in the expansion process. It is not enough just to know the commercial, civil, or tax laws. This is only the tip of the iceberg. The legal reality is multi-layered and requires constant deepening of knowledge and keeping abreast of changes. Neglecting this aspect can lead to serious legal consequences and even threaten the stability of the company.

Legal challenges related to expansion can be acute, and it’s what the aforementioned Startup Hub report listed as the #1 concern for 60% of respondents. Additionally, when a startup operates in a heavily regulated industry, such as medicine, aviation, or railroads, things can get even more complicated. It is from the railroad industry that SP Tech Solutions, a Polish startup that recently made its first deployments in the German market, comes from. SP Tech Solutions offers the Raily toolkit, which is a comprehensive IT system designed for companies whose business involves rail transportation in both its operation and execution.

Entering new markets really requires a comprehensive plan and thorough analysis. I’m not just speaking of business analysis, but also, and perhaps most importantly, a thorough familiarity with regulations, regulatory requirements, cultural attitudes and the ways in which the market itself operates – especially its so-called unwritten rules. SP Tech operates in the rail market, which to many may seem quite hermetic, but in reality you just have to know how to navigate it. In the case of our growth and overseas expansion, our main focus is on the German market, as a result of the need we have identified there. We saw a wide field for our tools, especially the Raily Marketplace, which provides a platform for finding and ordering, among other things, traction services, such as hiring a driver to run a train on a specific route. Our tool not only allows you to take advantage of fixed prices and proven partners, but also to act faster, without the need for telephone appointments, while eliminating the chance of duplicate orders. It’s worth noting that in Germany, about 50% of the railroad workforce operates on an outsourced basis, which is a huge market for Raily Marketplace and a real need we can address,

Piotr Sikorski, CEO of SP Tech Solutions, comments.

Scaling a software solution to other markets already seems like a challenging task, but expanding overseas to a country or continent for a hardware startup is a huge challenge. In addition to the need to understand legal aspects and adapt to language and cultural differences, such as in the case of SaaS products, hardware development companies must pay special attention to delivery logistics and building relationships with new subcontractors.

In addition, legal issues are becoming even more complex, especially in the context of selling and distributing equipment, which must comply with different technical standards and energy efficiency requirements in different countries.

Such a path has been traveled, among others, by Swobbee, a German startup developing battery charging stations for LEVs (light electric vehicles), which have a swappable battery. The company provides a solution (hardware + software) that takes the responsibility for the physical process of charging batteries off the shoulders of LEVs fleet operators. Swobbee is already available in several European countries, and more recently in New York City.

Expanding a hardware start-up overseas poses significant logistical challenges. Establishing a new value chain in a distant market requires a reliable supply chain and overcoming complex regulatory barriers. Critical questions arise, such as where to manufacture equipment. Should we set up new manufacturing facilities, outsource production, or deal with long and costly shipments? In addition, after-sales service and ongoing operations present further challenges. Building awareness in a blue ocean market is essential, as is establishing a new corporation in the target region. There are inherent uncertainties in establishing and maintaining partnerships, which adds another layer of complexity to the expansion process. I would strongly recommend that hardware companies seek out local partners to aid in this process. For example, during Swobbee’s expansion into New York, direct support from the NYC Department of Transport was invaluable in navigating local constraints and complexities,

Ludwig Speidel, CFO of Swobbee, comments.

Overseas expansion is definitely a watershed moment for any startup. It’s a step that requires courage, strategic planning and flexibility. During the process, startups face a variety of challenges – from adapting to local regulations to building relationships with business partners and adapting the product to the new market. However, for those that go through the process successfully, the door opens to potentially huge opportunities to grow and scale their business.

Author: Damian Wielechowski,
Head of Communication & Partnerships at SpeedUP Venture Capital Group