Photo by NastyaSensei from Pexels
Expanding a business is a daunting step for any business owner or entrepreneur – but the decision is even more complex and risky when you’re planning on expanding your business internationally whether you’re only going into a single country, a region, or multiple countries. Unless you have extensive international expansion experience, you probably have lots of questions and don’t know where to start with your planning. We created this post as a first step as you consider your international expansion by listing and briefly describing factors you must consider.
As part of this process, you not only need a comprehensive business plan that maps out the steps you’ll take, but you must research specifics of each country or region you’re considering, looking specifically at things like cultural/language barriers, what the competition is like in that country, etc.
So many challenges arise when you expand your business internationally and the more thoroughly prepared you are, the greater your chances of success. Without this thorough planning and organization, your business might lose hundreds of thousands of dollars in an instant and damage your brand to the point where future expansion plans are even riskier.
As part of your preparation, there are several things you must consider before making a decision about expanding your business internationally. To help guide you in the right direction, here are 12 factors every business must consider before beginning an international expansion:
One of the first things you must consider is how much it will cost the business to expand internationally. Conducting your operations overseas comes with a variety of costs, from office space to travel, customs, shipping, and manufacturing. These costs vary widely across countries and international regions as well as unique costs applying only to international expansion. Customs, for instance, are specific to international business, while bribery, while illegal in the US when it comes to paying government officials, is standard practice in some countries if you want to get things done. Work with professionals who can guide you regarding costs associated with the specific expansion area to ensure you have the budget to make expansion feasible.
You don’t want to face unexpected cash flow issues – therefore it’s a good idea to develop a list with all the costs and ensure they balance against the potential revenue and profit that you’d receive. If expansion seems like a good idea financially, then it might prove very successful with the right preparation.
But if it seems like costs, including startup costs, will take years to recoup, focusing your efforts on domestic expansion or diversifying your products/services rather than entering the international market makes more sense.
2. Tax and employment regulations
Different countries and regions have different regulations when it comes to taxes and employment. For instance, the US has strict regulations on employee safety, through OSHA, while other countries may have lax laws governing employee safety. And, it’s not always that straightforward. For instance, Mexico has a number of different agencies governing employee safety, each with its own regulations that are sometimes contradictory.
You can’t afford to ignore these legal regulations, as they affect everything from the hiring of employees in each country to filing your tax returns correctly. You must also consider how your home country treats income earned internationally as this might impact profits significantly. Minimize risk when planning an expansion and look into these regulations sooner rather than later. The earlier in the process regulations enter the decision, the better, as they might even impact your mode of entry choice.
3. Your marketing techniques
This might seem like an obvious one, but it’s still something you can’t ignore. When expanding globally, you must alter your marketing techniques and messaging so they fit expectations (and laws) in different countries. Language is an obvious consideration, but the deeper meaning of messaging across cultures impacts success more.
In marketing, we have a rule: think globally, act locally, which translates into a single brand that adapts messaging to fit unique aspects of the culture. Often, hiring a local marketing firm helps position your brand in the best light to locals.
4. Hiring employees internationally
Whether you’re planning to open offices globally or simply having remote workers in different countries, you must consider who you’ll hire for the various roles. In an international market, the talent pool varies dramatically in terms of skills, availability, and culture. Therefore, you might feel challenged to find the best employees for your business, determine the proper management style with cross-cultural employees, and training employees.
You need to spend time looking at various professionals (on sites such as LinkedIn), comparing them based on their skills and experience. To do this effectively, it’s worth finding a country that has an abundance of professionals who are ideal for your workforce. With the help and guidance of a trained hiring professional, you’ll then be able to identify who is a good fit.
If your business revolves around creating products for customers and your planning to operate internationally, you need to ensure you have an efficient fulfillment strategy in place from the beginning. For instance, before Hyundai brought the first automobile to the US, the brought boatloads of the parts necessary to customize and repair their cars. Thus, when customers bought cars, they had no problem getting parts, which made for high customer satisfaction.
From warehousing to packaging and shipping, you need fast logistics that is high-quality and budget-friendly for your business. You must find a company to handle worldwide fulfillment – such as online at Fulfillment.com. Companies like this align with your plan to expand into new markets by offering quick delivery and shopping software (among other helpful features).
Following on our discussion of logistics, another thing you must consider is international packaging. Regulations for packaging vary in different countries, so you must ensure you’re packaging correctly. Recognize that packaging must align with sustainable practices in some regions and is an integral part of your marketing regardless of where you go. Legal requirements for disclaimers on the package also impact your decisions. For instance, many developed nations require disclaimers on cigarettes while less developed nations may forgo such informative instructions.
7. Due diligence
One of the first things you should do when making business decisions associated with international expansion is due diligence. But how do you take into account all the possible scenarios? Well, you or your staff might spend some significant time in the countries under consideration to gain a more nuanced understanding of the systems in play or hire a local firm to support expanding your business internationally.
Information-gathering of this sort can prove to be invaluable in the long term. Why? Because hands-on experience in the culture provides an indication of whether your product solves a problem for local consumers, what price point suits local economics, and how to distribute and sell your product, among other factors. Although it might initially seem like an expensive endeavor in terms of both time and money, it’s a move that many businesses take and provides more useful insight than simply conducting research online.
Currency is a hot issue in any international endeavor. First, exchange rates fluctuate, sometimes widely. This increases the risk faced when expanding your business internationally since you can’t peg your prices to the international exchange rate. In times of great fluctuation, like happened recently in Venezuela, you might find yourself selling products at a loss, which is never good.
Further, most countries impose restrictions on taking money out of the country. Thus, your profits might be tied up in the country earned, which limits your flexibility in employing those profits to meet financial obligations outside the country.
9. Quality assurance
Quality is always something to consider and expanding internationally doesn’t imply more or less emphasis on quality. It does, however, mean different standards of quality across some cultures in concert with other differences in needs.
Traveling long distances might also impact quality at delivery from initial quality when the product left its home country. For instance, fresh produce crossing large distances might face increased chances of spoilage or bruising. Put in place a system of quality assurance that takes such issues into consideration.
10. Economic and political stability
The world is unpredictable – both in terms of politics and the economy. So, when you’re planning to expand your business globally, you must ensure your business has fully considered the level of risk associated with expansion since higher levels of risk require higher levels of reward (profit) as compensation. Use prevailing and historical information, as well as forecasting to limit your risk by choosing countries with less unpredictability.
Examples of political risk include expropriation, which happened to Ford when the Cuban government expelled all US companies and took over their assets. Economic risk comes through changes in the economic factors underpinning consumer purchasing power. For instance, a country with a growing middle class, such as China, represents a good opportunity for many businesses, while the unpredictability inherent in a command economy introduces more risk.
Of course, if a country represents a higher risk (and there are objective measures of risk published by third-parties), then it might be a better idea to avoid them altogether.
11. Distance from home country or markets
Geographical distance is a vital consideration when identifying where you can feasibly expand. In the beginning, you might be tempted to dive headfirst by expanding into the first country that shows interest in what you have to offer. But you need to ensure that it’s a country that’s within easy reach so you can successfully deliver products to meet demand. For instance, China is appealing due to low wage costs and huge numbers of prospective employees. But, among other considerations, China is very far from markets in Europe and North America. That means you experience long delays in products reaching your Western markets. For some products, like fashion with a predictably short life cycle, you might experience lower sales as the lead time to replenish hot fashion styles is months.
12. Brand recognition
Expanding your business internationally may mean going into countries where you have little or no brand recognition. That means significant investment in advertising to create awareness of your brands and build favorable attitudes to support the purchase. In other cases, your branding doesn’t work in the country you wish to enter. For instance, the Ford NOVA (which is now retired), means no go in Spanish, which doesn’t bode well for car sales.
So, there you go! Those are 12 factors to consider when expanding your business internationally. Of course, this is not a complete list and we’ve only touched on each factor briefly. Start with these 12 factors as you consider expansion, then research other factors you might consider that impact your potential success.