Why New Zealand is the BEST TEST MARKET before entering US/EU markets, especially for Asian companies
By Jeffrey Lin
Hey CEOs, so you have finally achieved some domestic success. Where do you go to grow next? How do you know your products/services are ready for the larger Western markets such as US and EU? Where is the safest field-testing ground to prototype your new innovation or validate your business concept/model before splashing millions of dollars on pushing your way into the larger markets?
Quite a number of Asian companies (especially startups) may pick the North American market as their number one priority when planning their international market expansion. Scoring even a small market win can be a major psychological win dreamed by many. However, opening up a new business front in US cities like San Francisco and New York can cost an arm and a leg. It is also mind-boggling to learn that there has not been a lot of successful stories of Asian companies/startups launching directly into this holy grail and becoming a great hit within just a few short years. Something is obviously missing here.
Just as the world treats Hong Kong or Taiwan as springboard to China or Singapore as launch pad into Southeast Asia, in the case of entry into the Western (English-speaking) destinations such as US and UK markets, the market entrants will also need a stepping stone to ease their entry. There is no good justification to trialing your new product/service in, say, the US market on day one with the associated risks, costs and other business complexities plainly in sight.
Unknown to most Asian companies, New Zealand (or its Maori name, Aotearoa) is repeatedly regarded internationally as an incubation nation (or experiment lab) for years and therefore serves the stepping stone purpose perfectly. The land of the world-renown flightless kiwi birds and Zespri kiwifruit is not a wasteful business detour if it can actually help the in-expansion-mode businesses arrive at the intended ultimate destinations faster. It is time for Asian companies to seriously consider treating Aotearoa as perhaps the most sound route to address business expansion challenges and utilize it as the best means to roll out new innovation worldwide.
This article attempts to answers the whys and to a lesser extent the hows when it comes to utilizing New Zealand as a test market before scaling for worldwide adoption.
Why New Zealand?
- In the past, not only the global tech juggernauts have used New Zealand for user testing (such as Microsoft (Sway), Facebook (Marketplace), Yahoo, Niantic (Pokemon Go), Bayer (Berocca) etc), countless foreign businesses of all sizes and types (including software, internet, app, gaming, TV content etc) have also found the island nation an attractive destination for launching their new products/services. Local industry leaders have even advocated turning their home turf into the incubation hub for frontier technologies such as artificial intelligence, autonomous vehicle, and distributed ledger technology (DLT).
- One of the common worldwide expansion obstacles encountered by global organizations is language. Out of the world’s approximately 7.5 billion inhabitants, 1.5 billion speak English either as first language or second language. There is a good reason why these organizations would want to make the most out of the English-speaking markets first and foremost. With nearly 5-million English-speaking population, New Zealand presents itself as an ideal starting point for them.
- Being a developed and multicultural market, New Zealand is endowed with early adopters who are affluent, sophisticated and generally receptive to new technology. Most importantly, the country wields a concentrated audience with similar consumer personas and behaviors as their Western counterparts. As such, the test data gathered will be of significant business value and therefore a good reference for other markets.
- In the case of most early stage companies, they face the tough decision of prioritization – generate revenue from day one or scale exponential. These resource-poor companies (especially the ones from the small non-English-speaking markets) can rarely take care of both simultaneously. In the New Zealand context, the risk of building a business that can generate revenue from domestic market but not so from foreign markets is minimal due to the rather homogeneous profile of New Zealand consumers to their counterparts in countries where English is also spoken as the first language. In other words, an early stage company can concentrate on making money in New Zealand knowing their business may still survive and thrive in at least other English-as-first-language countries later when ready without substantial redesign/redevelopment needed.
- New Zealand possesses world-class research and development capabilities actively backed by the government. The nation is definitely a great innovation source to the world.
- Going to New Zealand can be cheaper than going to the large English-speaking markets direct, with at least 20% to 30% savings in salaries compared to Australia, UK, US etc.
- New Zealand has excellent business infrastructure: stable political system; strong IP and regulatory framework; competitive and low-compliance tax system; good fibre connectivity. This is why the country ranks number one in the world for protecting investors, lack of corruption, and starting a business etc. In fact, because of the similar legal and financial systems to some of its Western counterparts, so business experience gained in New Zealand is applicable in those Western markets.
- New Zealand has unbelievably easy access to top government decision makers (and even purchasers) and industry leaders, and they are friendly and willing to help businesses with finding resources, making connections, and even help spread ideas.
- Compared to other regions, New Zealand is closer to Asia, and already enjoys preferential trade access with a few key Asian economies due to a number of comprehensive free trade agreements. Local players in New Zealand are keen to collaborate with international players.
- Due to its relatively small market size, generations of pioneering local businesses knew from day one they need to seek high growth elsewhere, especially in Australia, UK and US. The recently most-talked-about New Zealand enterprises that have successfully penetrated the Australia and/or US markets include Xero (accounting SaaS).
- Because of the ‘global from day one’ mindset, there is no shortage of skilled workforce who are adept at or experienced in selling to or managing the US/UK markets. Not only because the pathway to these markets are treaded by and therefore familiar to many home-grown talents, there is a not-so-small cohort of foreign talents who are now calling New Zealand home. In fact, foreign companies can utilize their well-trained local crew as their expeditionary force to enter the US/UK territories.
- Together with Australian market, the two countries have a combined 30 million population – a decent market size. There is really no need to look too far when it comes to every enterprise’s first Western (English-speaking) market.
- Due to lack of formidable competition in many product/service categories, so it is arguably easier for foreign companies to attain market leader position by comparison. Being able to tell the world your company is top player in New Zealand speaks volume simply due to the positive image already associated with New Zealand. On the other hand, the geographical isolation means a failed business trial in New Zealand probably will not matter too much.
- Industry verticals that are probably suitable for market testing in New Zealand: fintech, travel tech, agritech, food tech, biotech, edtech etc.
Now that you have learned about all the benefits of New Zealand, what can you do next? Below are some potential approaches outlined for comparison purpose:
- The asset-heavy approach: Send in the cavalry to set up local operation in New Zealand. You may even employ a local operational crew to try to quickly cover every inch of this market. Make no mistake though, despite being the most ideal test market, if you have not operated a business in a Western environment before, New Zealand can be a challenging market in its own right. Troubles can brew when there is a growing failure to effectively address the differences in things such as opinions and culture between headquarter staff and the local office. If you can pull through in New Zealand market on your own, congratulation, you are also ready for the larger Western markets!
- The asset-light approach: For certain businesses, the headquarter team can serve the New Zealand market from a distance and even get a local third party to advise on business strategies and cover certain functional tasks. The costs are mostly variable ones and do not put a big hole in the pocket, but ensuring satisfactory user experience in such market can be a losing battle especially for products/services that are high touch and/or high value. Most critically, headquarter may not receive user data first hand (if at all) that helps fine-tune their business offerings either locally or to the rest of the world.
- The balanced approach: Contract a local business builder with global experience and resources to acts like your on-the-ground C-suite executives handling a large array of agreed business functions (from market study to business development to operations to customer success etc). i.e. a local global person (or team) that understands the domestic market and can get hands very dirty as and when needed, without being an employee. Once the market is tested and products/services optimized (or business model fine-tuned), such business builder then helps your company build the local crew until the latter can operate independently. By then, you will also be in a position to send some of this domestic personnel as the business commando to be parachuted into the US/EU markets.
MNT Ventures Limited is a New Zealand-based cross-border venture studio focusing on startup/business scaling and corporate innovation. Leave a comment if you wish to be contacted for further information/discussion.
About the author
Jeffrey Lin spent the first 10 years of his career as a legal professional in both New Zealand and Taiwan, then stumbled across entrepreneurship, and has been immersing himself in the startup world ever since. He held leadership role in two startup ventures before joining Taiwan Startup Stadium, a government-funded initiative tasked with globalizing the Taiwan startup ecosystem, where he worked with over 400 investors from different regions and over 130 tech startups covering various verticals. Before his current role with Lightning Lab Tourism, he briefly headed the global operations for a Korean travel tech startup. Jeffrey has special interest in cross-border venture building and corporate innovation.