The world is closer, faster, and braver than ever. If you have a global product, then beyond a certain level of local market penetration, global business expansion is not only prudent but inevitable. After all, expanding business to international markets boosts scalability, preludes foreign investments, a bigger talent pool, and helps with diversification.
Although expanding business internationally may seem lucrative, it involves considerable risks, challenges, and compromises. You honestly need to be open to obliging by new policies and different market needs. In other words, you need to think big, radical, and borderless! And conduct thorough research and spadework to crack the international challenge.
In this post, we will discuss the aspects you need to keep in mind before going global with your business and address questions like – what to consider when expanding a business internationally?, what should be my international business expansion strategy?
First: The Advantages of Expanding Your Business Internationally
- Market growth: Every enterprise loves to expand its market share and increase its sales and, consequently, its market share. Entering new markets means a completely new playing field irrespective of old market performance.
- Increased revenue and customer base: When the market at home is exhausted or saturated, the overseas market is a prospective choice to generate revenue and profits.
- Fight loss in the domestic market: Should the business be under threat in the domestic market, international revenue shall come to the rescue. Companies like Mitsubishi and Blue Star were able to fight recession in their home countries due to their presence in the international market.
The Challenges of International Business Expansion
Expanding a business internationally isn’t as simple as scoring international gigs as a freelancer. There are enormous challenges in global business expansion. Even experienced enterprises face a lot of challenges and failures. Here are some of the biggest issues you are likely to face.
Legal and Regulatory issues
Compliance risk is one of the biggest inevitable challenges. The legal and regulatory framework is different from one country to another. A lot of paperwork, codes of conduct, and standards unknown will need to be grappled with. The intimidating part is that your reputation is under threat in the market where you desire to make a statement.
When you want your first international business to garner as much success as you achieved in your local market, you need to understand the nuances of culture and language in the place. If you don’t, the blunders can be embarrassing.
Take the Pepsi campaign in China. When Pepsi expanded to China, it launched with the slogan: “Pepsi brings you back to life”. But their Chinese version of their phrase translated to, “Pepsi brings your ancestors back from the grave”. It didn’t work out well, as you can imagine.
Similarly, Ford India unintentionally released a series of sexually offensive caricatures as a part of their ad campaign in 2013. To creatively communicate the new bigger boot space feature, Ford’s ad agency made caricatures of glamorously dressed women gagged up in the boot. This came at a time when the country was raging over the 2012 Delhi rape case. Obviously, in the end, Ford took the flak, apologised and sued the ad agency.
Acknowledging the culture of a region is essential for effective communication. The primary challenge would be translating your business to meet the cultural expectations of international consumers.
Need for localisation
For decades, top companies have relied on standardisation. But as the lifestyles changed and the customer base diversified, there has been a propensity to include and embrace the local culture. Unless customers find your product relevant and relatable, you are never likely to grow in the market. You also need to understand the habits and consumer patterns of your foreign base to stay competitive. Otherwise, they would bid goodbye at once.
Localisation is vital. But it isn’t easy. It is expensive as well. Successful localisation strategy is about the right balance between stiff standards and customisation.
In the hall of shame for lack of localisation is Starbucks. The renowned coffeehouse chain has just about 40 stores in the Australian Continent, where people have a coffee craze. The reason is, it failed to understand the taste of Australians. Starbucks had made the coffee a little too sweet for the Australians and refused to change. Consequently, within the first seven years, it lost about $109 million in sales.
Tips for Expanding Your Business Internationally
Internal and Market Analysis
When you are going global, you will never be short of surprises. But, those surprises shouldn’t cause havoc in your business. Conduct thorough research and pre-work before the launch. That’s why we insist on internal and market analysis.
The motive of internal analysis is to show a reflection of your business. You understand your SWOT, demographic intelligence, whether your team is: proactive, reactive, or defensive, and your ability to thrive in the international market.
On the other hand, it’s essential to conduct market analysis to understand the key factors that influence the market: GDP, strategy and resources available, sale predictions, available options, adoption and innovation rates, ease of banking, infrastructure, and other services per capita, economic independence, and other industry-specific information. The process of managing small business finance heavily relies on this information.
Adopting a global business strategy
Your host nation is most likely to be much different from your home. This calls for a rethink of business strategies.
At first, you have to choose your (primary) global business strategy, which is majorly based on two factors: global integrity and local responsiveness. Global integrity is a measure of the extent of standardisation, i.e. ability to replicate the same products and methods. In contrast, local responsiveness indicates the extent of customisation to meet the expectations of the host nations. Based on this, there are four global business strategies which are given below.
Next, choose your mode of market entry. There are many ways to enter a foreign market. Based on your budgets, resources, product adaptability, tariffs, expenses, approach, options, etc., you have to select your mode of entry. Some of the routes are: exporting, licensing, piggybacking, partnering, JV, alliances, mergers, subsidiaries, and greenfield investments.
Strategies are incomplete without finance. Functionally overseas operations may be similar to domestic operations. However, finances are complex. There fives main activities / issues which need to be incorporated in your financial strategies and decisions:
- Capital budget: budget for sourcing, production, and local expertise access
- Capital structure: proportions of debt and equity
- Long-term finance: trade, offset foreign receivables, currency fluctuations
- Cash management: Optimisation of money across borders / cross border payment solutions
- Working capital management: Focus on policies, pricing, funds positioning, bringing back the money earned, and exploring business banking solutions.
Find the Right Partners & Talent
Business is a team game. Going global means long distance coordination and local collaboration. But the advice here in this context isn’t different from evergreen advice about hiring and partnering with the right people. Seek local talent that suits your core and can communicate effectively. Hire the right people who can implement your ideas quickly and with utmost care.
You will also need the right partners, franchisees, services, contacts, and distributors who will push your products into the local market. Do not go behind big names. Find partners who can align themselves with your values, needs and commit themselves to do the best for you.
Look out for robust partners who can travel the globe with you. For example, Salt offers a one-stop solution for all your international banking needs. Such reliable partners will ease the process of expanding a business into different countries.
Have the Right Infrastructure
Infrastructure is critical for the smooth business functioning. Ensure that you do the best to satisfy employees and customers. Also, be bound to legal compliances.
Besides real buildings, focus on your IT infrastructure. You’ll have to rely on services and resources that give maximum protection to your data whilst being mindful of local laws on data storage and privacy.
Infrastructure is a domain that may require a significant portion of the budget. Foreign infrastructure can be expensive and a far-flung thing to perceive. But, this doesn’t mean that you can rest on very cheap commodities or entities. Your entire business infrastructure should be well-integrated and have the ability to scale.
Efficient Logistics Management
Best practices in logistics are vital to staying relevant in the host market. Your business success is leveraged on the effectiveness of your logistics.
Fortunately, you can find plenty of case studies and resources on the logistics of top performers. By deep-diving their logistics and supply chain systems, you’ll get ideas to manage expenses (consider a virtual card for your business), complexities, and uncertainties.
Best Logistics Practices to follow
- Set High standards of visibility, trade compliance, and transportation contract management.
- Increase automation
- Choose the best partners
- Improve in-transit visibility and use of a network to optimise inventories
Global business expansion in this era is hardly a matter of choice. With intensely competitive markets, running a borderless business is now an obvious decision. Just like the incoming era of borderless banking, which we at Salt are happy to be pioneering!