A World of Opportunity: A Practical Guide for Expanding Your Business Internationally

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A World of Opportunity: A Practical Guide for Expanding Your Business Internationally
By Stephanie Hammer

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(For the MarketsWiki World of Opportunity Event, click here)

Expanding your brokerage business internationally may be an enticing source of significant new revenue. But how do you break into new markets with vastly different regulatory environments, time zones and other challenges, especially when you don’t speak the language? Whether you’re looking to expand into high-potential emerging markets or just next door, expanding your business internationally can be tricky. But the hassle can be well worth the reward.

While it’s difficult to find concrete estimates of the size of futures trading communities in many emerging markets, looking at the number of students completing financial training in derivatives may provide one good indication of your potential customer base.

Dr. Mark Holder, Program Director for the Masters of Science in Financial Engineering Program at Kent State University is particularly bullish on Asia. “Due to the appetite for risk in Asian markets, I expect the demand for increased trading access to rise dramatically in the coming year. Evidence comes not only from our strong Asian matriculation but also from the interest by many trading shops in Asia for financial engineering graduates. “

Saurav (Sunny) Arora, Director of United Stock Exchange sees a similar growth story in India. "India is poised for unprecedented growth as a modern financial hub. With new exchanges and asset classes like currencies and interest rate futures, there’s a huge untapped potential for developing the market”. His colleague, Pranav Chaturvedi, Director of the Indian Institute of Financial Markets has witnessed this growth in his class enrollments. “We have seen an increase of 45% in enrollment in our derivatives classes and we expect the trend to continue in 2011. This year itself we have educated over 1100 professionals, and held financial workshops in schools covering 7000 students. We see our educational activities as key to developing strong future demand.”

While these insights cover just two emerging markets, they provide a glimpse of the growth potential that is out there.

Professional or Retail?
If your target is the professional trader, don’t hesitate to contact exchanges, as you may be able to leverage their networks, programs and marketing materials. Some exchanges offer so-called trader development incentive programs that aim to attract professional traders located in emerging markets. You can, create your own compelling sales message around these programs.

Gaining a foothold in the retail space in some foreign markets can be more difficult. Trading futures and options requires sophisticated customers. Some cultures, especially in the Asia-Pacific region, have a notable appetite for risk. Researching the trading culture of your target markets is essential. And with the variety of business publications, the Internet and a capable student intern, the good news is that conducting research can be cost-effective.

Cultural Considerations – More than Just Language
When you target a new, non-English-speaking market, do you have to offer services and materials in multiple languages to succeed? Approaching potential customers in their native language can be essential, or just “nice to have.” The answer to this largely depends on your target country. Communication with customers in their native language may be a strong preference due to the fact that widespread English proficiency is lacking, as in some parts of Asia, Eastern Europe or Latin America. When in doubt, put yourself in your new customers’ shoes. In which language would you feel comfortable conducting complex financial transactions? Often, the most practical solution is hiring a licensed native speaker to field customer inquiries. It’ll make a lasting positive impression.

If you want to reach out to your customers in their native language, when it comes to your website and any other marketing materials, it pays to invest in high quality translation services. Beware: many translators are unfamiliar with terms used in the derivatives industry. A friend of mine tells the story of one company ending up with “a small hat-based stock index” marketing brochure instead of a “small cap” one!

Your USP (Unique Selling Proposition)
A good place to start is developing or tweaking your USP (Unique Selling Proposition). Your USP should be a concise value-proposition or sales argument for why potential customers should choose you over the competition. It should differentiate you from the competition.

You can offer international customers a variety of benefits, including deciding factors in today’s low-latency environment like proximity to exchange matching engines and integrated risk management tools. Stress your live coverage during exchange trading hours, your significant experience in executing popular business, your ability to offer reliable, comprehensive risk-management and clearing solutions, and that your staff is adept at dealing with any exchange-related issues in real-time. Do I need a Marketing Plan?
The answer is yes, but it doesn’t have to be expensive. Whether you produce your plan in-house or outsource it, laying out your marketing activities helps you to ensure that you choose and implement well thought out activities. A formal marketing plan gives you the important opportunity to outline activities that will work together as a campaign.

A campaign’s structure is important. For example, repeating your message over a certain period of time with more frequency can increase the likelihood that it will reach and resonate with your target audience. This is especially important when you have to stretch your marketing dollars. Your plan should be more than a list of activities – it should include metrics, which allow you to objectively evaluate measures and toss the ineffective ones in favor of those that deliver results.

Education: Building a New Customer Base
Developing a new customer base through web-based education is an increasingly popular strategy. Especially if you’re planning to expand into countries without much futures trading, you’d be well advised to invest in educating your target audience. By educating potential new traders, you have the opportunity to establish trusting relationships with them.

The good news is that with time, imagination and a cheap webinar license, you can make a big impact. Remember, traders and potential traders alike are looking for tips on executable strategies. This type of focused education is likely to bring more rapid results than general topics, like technical analysis. Steer clear of the hard sell, because once you “turn off” a lead, it’s hard to earn a second look.

Avoiding Some Common Pitfalls
When expanding internationally, it pays to be aware of common pitfalls in advance, as a little knowledge can save you time and money – and even keep you out of regulatory trouble.

Acquiring a solid understanding of foreign tax, currency convertibility and exchange regulation in your target market is essential. Are you allowed to solicit business in country x, and if yes, do you need additional licenses or authorizations? While there is no single answer across the board, you may want to check with US regulators like the NFA or international exchanges and associations, as they may be able to point you to foreign counterparts that can answer your country-specific questions.

Another common pitfall is assuming that you simply can leverage your existing activities without adjusting to local customs. You may be tempted to rely on your website and e-mail marketing as your expansion strategy, rationalizing “Hey, I can just expand my e-mail marketing to include country x”. Assuming that you can solicit business in other regions without necessary approvals can land you in regulatory trouble. Did you know, for example, you can be prosecuted for sending unsolicited e-mails to Germany, where they have some of the strictest privacy laws in Europe?

In today’s algorithmic landscape, you’ll need to be able to offer high-speed solutions to customers, regardless of whether they fall into the institutional or retail category. Keep in mind that when devising your technology solutions, telecommunications, especially in emerging market countries, often rely heavily on cellular networks or satellite communications, with limits on bandwidth or connection time.

Getting Started
Once you’ve identified your target market, how do you get started? Here’s a basic, but handy guideline:

1. Check with your target country’s regulator to ensure that you’re in compliance
2. Determine your USP
3. Get your marketing plan in order
4. Contact exchanges and check for any trading incentive schemes
5. Produce collateral material, including websites, e-mail marketing
6. Get started!