[VIDEO] The international expansion of a startup is a possibility that every entrepreneur who considers himself ambitious has to keep in mind. But where to start? And most of all, when? Patricio Hunt, managing partner of Intelectium, reflects on a topic that generates a permanent debate, with mixed opinions. As we explained on our website, one of the mistakes made not only by entrepreneurs, but also by managers of large companies, is the overestimation of the attractiveness of foreign markets. For example, many focuses are placed on Silicon Valley as a place from which a company can operate to strengthen itself both in the North American and in the home market. But, of course, this is not that simple. Experience tells us that it is not always advisable to develop a startup in the European and North American markets in parallel. And even if that company is committed to its development in the Latin American market simultaneously with its consolidation in Europe, it will find a considerable distance, of a geographical nature and of other types, that will complicate this development. Patricio Hunt cites the theory that Pankaj Ghemawat explains in his prestigious article Distance Still Matters: The Hard Reality of Global Expansion, published in the magazine Harvard Business Review. which refers to the work of economists Jeffrey A. Frankle and Andrew Rose. Economists know that there is a positive relationship between the size of economies and trade flows that establish, as well as a negative relationship between distance and these trade flows. Frankle and Rose concluded in their research that for every 1% that distance increases, trade flows are reduced by around 1.1%, while there are other variables that affect this development very positively, such as the existence of a common language (increasing the flow of trade by almost 200%), a common block of trade (Common Trading Block), which increases it by 330%, or the establishment of a common border, which increases trade flow by 80%. It is also worth mentioning the nature of a former colony that a territory can have with respect to the one of its origin, which increases the flow of trade by 900%. Let's talk about the Latin American market. In Spain, this is usually presented as a natural market, very close to the Spanish one. However, if we review the strongest Latin American economies, we see that it is not such a level playing field. The language is common with two of the largest economies, such as those of Argentina and Mexico, but not with that of Brazil, with which Spain does not form a Common Trading Block, does not share borders, nor does it maintain a former colonial relationship - in any case, that role belongs to Portugal. Argentina, given the current situation, is a market that places many obstacles to international trade. And Mexico has other characteristics that hinder the development of companies, such as security. Taking into account these data, in Intelectium We believe that The most important thing for a Spanish entrepreneur is that their startup is developed, first, in the European market, starting with the four strongest economies (Germany, United Kingdom, France and Italy) and on different scales depending on the degree of competition that exists for the product in each of these markets. If the company manages to consolidate in these countries, the ease of expanding beyond it increases considerably, and many North American and Asian companies will pay attention to it. We believe that the key to the proper selection of markets lies in carrying out a Country Portfolio Analysis, a technique for the international expansion of a company that places all the emphasis on potential sales, warning in detail of the costs and risks of doing business in this new market (most of them are due to barriers created by distance).
