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International growth

The importance of a strategic diagnosis to international growth projects

Victanis Advisory Services GmbH
2018-10-17
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You may be wondering how to evaluate your business’s opportunities to grow internationally. Perhaps you are familiar with the strategic diagnosis approach, but you remain to be convinced whether it represents a serious opportunity to substantiate your international growth strategy? This article sets out some key aspects to highlight the importance of this tool in the context of assessing your expansion beyond your national borders.

What is a strategic diagnosis?

Let’s firstly stress what strategic diagnosis is all about. It encompasses a review of the complete range of resources and skills that a company has access to – financial resources, certainly, but also the company’s human resources, industrial base, and its technical expertise. It is appropriate to refer to it as a diagnosis, because the aim is to capture the full extent of the business’s situation at a given moment, taking into account its clients base and its competitive market, among other factors.

For this approach to be relevant, all factors relating to the business must be captured in full. The diagnostic is strategic because it is undertaken in the context of a tightly defined project, for example to grow the business, to restructure it, or to merge it with another company. The aim of a strategic diagnosis is always to improve the business’s economic performance, and therefore to generate value for the organization, its shareholders and its employees.

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What are the components of a strategic diagnosis and what is its significance for an international growth project?

When used to support an international growth project, a strategic diagnosis focuses on a number of different areas. In addition to analysing your strengths and weaknesses, and the business’s skills and capabilities, it goes without saying that it is essential to analyse the target market to maximise your knowledge and understanding of the ecosystem that the business will be operating in: what do you know about potential customers, the competition in your segment, or the dynamics of the market? An evaluation of your current and prospective customers’ international presence also needs to be undertaken, and you must consider whether your value proposition will be identical in foreign markets or whether it needs to be changed, refined, or enriched,

Analysing the target market also allows you to identify future potential business partners as well as possible targets for an acquisition. Finally, a visit to the target country may form part of a strategic diagnosis to support a growth initiative as it enables you to appreciate the inevitable cultural differences (or at least get an initial, high-level view) that will need to be addressed if you have any hope of success, and which will make it easier to choose the most suitable growth plan at a later date.

The whole process culminates in a country scorecard that is crucially important. Indeed, choosing the wrong target and investing in a country with a low appetite for your products or services would clearly be a disastrous strategic misstep.

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Internal vs. external strategic diagnosis

Internal strategic diagnosis

An internal diagnosis enables you to identify your business’s strengths and weaknesses while carefully dissecting your business model and your cost and revenue structure by analysing your human, tangible and non-tangible resources including your reputation and brand image. The aim of this exercise is to reveal, in a clear and unambiguous manner, the competitive advantages that you may be able to use as the foundations of your approach to growing your organization.

External strategic diagnosis

External diagnosis, meanwhile, allows you to define the lifecycle of your products or services by customer segment, to understand your current and prospective customers’ expectations and selection criteria, and to identify the opportunities and threats that are present in the business environment. For many companies, this second diagnosis is easier to complete.

But make no mistake ! It is a combined (internal and external) diagnosis, carried out with the support of an external consultant, that will be providing the greatest benefit to your business in the context of international expansion. Even though it is often overlooked, an internal strategic diagnosis, carried out with external support, is an important management tool that allows the business’ leadership to appreciate the business’ growth strategy from a new perspective and opens up new thought processes.

Moreover, asking an external company to challenge your business plan (in terms of its goals and its financial investments) represents also an ideal way to reveal any weaknesses or areas for improvement. Finally, a strategic diagnosis of this kind allows for clear identification and selection of the areas where the business needs to be strengthened in order to attack the new target market (such as management, sales, marketing, or HR).

In conclusion, therefore, it is important to remember that it is simply not good enough if the outcome of a strategic diagnosis is yet another report that goes nowhere: it has to lead to concrete actions. An effective strategic diagnosis allows you to develop a number of tangible and executable international growth scenarios. As you will appreciate, a strategic diagnosis is essential to ensuring that your decision to grow your business internationally is taken in the full knowledge of the facts and to achieve the hoped-for success.

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