When analysts don’t take international markets seriously…

If the analysts following your firm don’t take your international markets seriously, then there are three tactics to correct the situation: work out whether they take any international markets seriously, pinpoint and address the weaknesses of your international strategy, and focus more on analysts who do understand international markets.

Here’s an example: One US-headquartered systems and software provider is the market-share leader in its technology area, both in the US and international markets. For several years, sales in underserved international markets have been greater than in the more saturated US market. Partly because of the international division of labour for sector-specific analysis in most research organisations, analysts following the firm are centred in the US. Those analysts are closest to the minority of the firm’s market which is growest slowest, especially in a recession which the US feels hardest and where capital spending is especially low. Looking outside the US, the analysts over-stress foreign currency risks and understate the importance of having already won market leadership in fast-growth markets.

Firms like these face multiple tasks in getting better leverage from with analysts relationships, including three strategic choices.

  1. Work out whether or not your target analysts ever given international markets an even break. Take a look at how your analysts are discussing the international markets of other competitors. If they systematically underestimate overseas markets then there’s a good chance that they are serving clients  that have a strong focus on the US market: you might need to widen your communications. However they are are taking the international markets of other market participants seriously, then it’s worth reviewing how you are communicating with the analysts, and what the analysts are saying. Make sure you are stressing international growth, and ask analysts to explain the contrasts in their approaches.
  2. Pinpoint your international weaknesses, and how you manage them. Many analysts focus on the greater risk of foreign markets, but this is often mistaken. Academic research shows that the risk premium on international business is often overstated. Given the greater volatility of the US dollar, foreign business can actually stabilise the financial performance of firms – especiallysince US coporations have greater choice over when to repatriate profits. Political risk can be greatly overstated since, especially for dominant market leaders, businessis less affected.
  3. However if your analysts are not taking international markets seriously, then perhaps their research is not being used by those who are taking international markets seriously. In the investor relations realm, for example, firms often focus on research firms in the market where their stock is listed. However now that investor bases are global, many of the investors might be using research from more global research firms. The line between market and equity research is blurring, with both equity analysts and investors increasingly using research from firms like Datamonitor and IDC Insights. Often developing greater communication with both market and equity analysts outside your domestic market will generate most positive research which can be used as a counterweight to domestic research, and can stimulate analysts in your domestic market to rething.
Duncan Chapple

Duncan Chapple is the preeminent consultant on optimising international analyst relations and the value created by analyst firms. As SageCircle research director, Chapple directs programs that assess and increase the business value of relationships with industry analysts and sourcing advisors.