Fronde’s decision to enter the Australian market was driven by:
- the growth opportunity. It wanted to build a strong Australasian base to help establish a presence in the United Kingdom. Australia was seen as the first step for this international expansion
- the perceived ease of market entry
- the perception that Australia was a similar market to New Zealand’s. Fronde felt its New Zealand model could easily be replicated in Australia.
The investment was unsuccessful because:
- Fronde’s business model was ill-suited to the Australian market and not robust enough to withstand a downturn
- the lack of detailed planning for business development
- market expectations were not well researched
- insufficient financial resources to withstand the market downturn
- higher than anticipated expenses to maintain the Australian business
- competing priorities, including interest in establishing an office in the United Kingdom
- Fronde’s services could not be differentiated from others in the market.
Setting up
Fronde was invited to attend an investment promotional event in Sydney. As a result it decided to set up an office and event sponsors organised office space and other services. The sponsors also assisted with relationship building.
Fronde recreated its New Zealand model by relocating staff from New Zealand to identify software development opportunities. The staff that went were selected, not because they were the best people for the Australian market, but because they were available and willing.
Local Australian staff were able to identify the differences between the two markets and the resulting challenges. However, the New Zealand management team was not willing to change the strategy.
For the first six months, Fronde turned a profit but then business declined. Fronde exited Australia after 15 months.
In hindsight, Fronde believes acquiring a local business, getting a channel partner or entering a joint venture would have been better approaches.
Lessons
- Have sufficient cash resources. Fronde believes successfully establishing an operation in Australia requires $NZ1-2 million (including funds to withstand difficult times).
- A strategy needs to be more than just a financial plan and should be informed by market research and local knowledge. Strategies should also be flexible and include an exit plan.
- Understand market differences. Australians are more contractual in their approach to business relationships and have a preference for working with Australians.
- Get assistance when setting up an office, such as the promotional event Fronde used.
- Be different. Price is not an adequate way to differentiate.
More information:
www.fronde.com
