What are the basic decisions a firm need to make while expanding internationally?

Expansion or scaling is the usual next step when a business is growing. Expanding within the country of operation of the business is already challenging much more when the expansion is done internationally. Before expanding internationally, there are many factors to consider, especially if you are a small business that may not have someone in your team with extensive international expansion. This article will discuss what to consider when expanding a business internationally – from the readiness of the business to financial implications, regulations on employment and taxes, access to talent, brand recognition and many others.

Are You Ready To Go Global?

One of the first things you need to ask yourself is whether your business will benefit from expanding internationally. Just because you are growing does not mean you will benefit from an international expansion. For example, suppose your product is too niche and serves a specific demographic in your current location (for example, traditional clothing) or too familiar (for example, commodities already commonly sold in bulk like milk). It might not be wise to expand production internationally. Ask yourself honestly if you have the capability and the resources to support the initial investment for an international expansion. It might be better to serve one country well than serve several countries poorly.

Another fundamental question to ask is whether your product or service appeals to customers in countries where you are planning an expansion. Are there similar offerings? What differentiates your offering from existing ones in that country? Will customers be inclined to buy your product or service? This is where you will need to conduct market research to determine the attractiveness of your offering. You will also find out if you need to tweak or adapt your offering to suit the tastes of a specific country. An example of this is food offerings of fast food franchises like McDonald’s or Burger King, where slight adjustments are introduced depending on location.

What To Consider When Expanding A Business Internationally

Let us delve deeper into the specifics of what to consider when expanding a business internationally.

Affordability

What will be the cost implications when expanding a business internationally? Conducting operations overseas will come with many costs such as office space, travel, customs, shipping, and manufacturing. These costs vary from country to country as well as international regions. There will also be costs that are specific to global expansion. In the EU, for example, there are rules around product labelling and certification that every company must comply with if they want to sell inside the EU.

As they say in business, cash flow is everything, so you don’t want to encounter unexpected cash flow issues. Therefore, it is imperative to develop a budget to list down all the costs and balance against the potential revenue and profit expected to be received. In addition, in many cases, international expansion necessitates capital injection via outside investment or debt financing. With all these affordability issues taken into consideration and expansion still comes out as a financially worthy idea, then it might prove very successful with the proper preparation. But if it seems like costs, especially the initial costs, will take years to recover, concentrating on expansion or diversifying your products/services instead of entering the international market would probably make more sense.

Geographical Distance

When considering expansion internationally, it would make more sense to think about neighbouring countries first. For once, the language, culture and customer preferences are most likely similar. They would not require as many costs and effort as possible if you expand in a different region altogether. For example, if you are currently operating in West Europe, say the Netherlands, it would generally be easier to expand into neighbouring countries like Belgium or Germany instead of expanding first in the US. Brand recognition is more substantial the closer you are to your home country, and customer preferences are a lot similar, too.

Brand Recognition

What is the level of recognition of your brand in the market? Before the pandemic, travel has become more accessible. The world is increasingly becoming borderless. People are now more familiar with brands and concepts outside their home market. But suppose there is a high level of recognition for your brand in the market (could come from exposure via the internet/social media, etc.). In that case, you are already one step closer to expanding internationally. It is no longer uncommon to see where a foreign brand opens in a new market, and there is a line out the door on opening day. People are already anticipating the brand, and there is already brand recognition even before it enters the market.

Market Landscape

What is the current condition of the new market you are expanding into? Are the economic conditions similar to the one you are currently operating in? Or is it better or worse? What about existing competition? Are there existing offerings similar to yours? How do they differ from your offerings? How do they compare in terms of price and customer base? These are all things to consider under market and the competitive landscape when you want to expand to a new country or region.

Ease Of Registering A Business

Sometimes this is the first and most crucial hurdle to overcome when expanding overseas. For example, in many countries in the Middle East and Asia,  foreign companies who want to put up operations will require a national of that country to be among the owners. In some cases, the national has to have a majority stake over its foreign partners. If the product or offering you are selling is regulated – for example, in France, it will require special licenses and considerations if you will compete against local wines or cheeses – you might want to reconsider other means of selling your product instead of setting up manufacturing.

Employment And Tax Regulations

Employment and tax regulations have both financial implications. Just like the rules for registering a business, employment and tax regulations are different across countries. And since this has implications on everything related to the business –  from hiring employees to complying with business tax requirements, you must not ignore regulatory issues.

Businesses operating in Asia, for example, are required to make contributions to employee housing and social care programmes. This is not something employers are accustomed to in most Western countries. Relocating existing employees to a new country instead of hiring new staff will also entail securing visas that may not be accessible depending on the country. This should not necessarily stop companies from setting up in a new country if the market conditions are right. Still, employment and regulatory issues must be complied with to minimize risk during an expansion.

Economic And Political Considerations

Economic and political conditions are often among the top reasons why companies hesitate to expand into another country or region. Lack of peace, stable government, business infrastructure and transparency could be disastrous for a fledgling new operation in a foreign country or region. This is why companies hesitate to set up operations in many parts of Africa and why companies might hesitate to expand into the UK after the Brexit.

Cultural Understanding

If the country or region is not ready for the product or service you are offering, there is no reason to expand! For example, if you are in the cannabis business, you would probably think twice about expanding into Asia or the Middle East, where cannabis-based products are still widely classified as prohibited drugs. When considering an international expansion, understanding the consumer and business culture of the host nation is crucial.

As mentioned, a way to ‘test the water’ is to work with an employer of record (EOR) rather than outright registering a business entity. The EOR then acts as the legal employer for your company in that country, letting you place staff there for a short period. And if this initial test is successful, you will have already laid the groundwork for a permanent expansion.

Access To Skilled Talent

In an international expansion, you must hire locally the talents needed in operating the business. In the business process outsourcing (BPO) industry, for example, this is of prime consideration. Customer and tech support via call centres often expand their operations in markets with abundant talent at a cheaper cost. You will see many of these companies expanding into Asia (India, Philippines, etc.), where there is a large English-speaking talent pool servicing their customers in mainland US or the UK.

Fulfilment

If your business is all about creating products for customers and planning to operate internationally, you need to ensure you have an efficient fulfilment strategy in place from the beginning. For instance, before, batteries are essential for electric or hybrid cars, so if you are expanding into another country, you must have enough batteries or consider setting up a battery manufacturing facility ahead of the assembly line for the cars.

From warehousing to packaging and shipping, you will require fast logistics that is high-quality and budget-friendly for your business.  You can consider partnering with a global logistics and fulfilment company to ensure smooth delivery and availability of both raw materials and finished products.

Marketing Techniques

When expanding globally, you must adapt your marketing techniques and message to align expectations (and laws) in different countries. Language is prominent but consider the deeper meaning of messaging across cultures as it has a more profound impact on the success of your brand. Consider the marketing adage: think globally, act locally. This means that a brand must adapt its messaging to fit unique aspects of the culture. For example, McDonald’s burgers accompanying condiments vary from country to country. In Japan, the burgers have mustard in them from the get-go unless otherwise, you ask for no mustard. It is automatically added. Hiring a local marketing firm helps showcase your brand in the best light for locals.

Packaging

International packaging can be pretty tricky. Regulations for packaging vary from country to country, so you must ensure the following packaging standards. Recognize that packaging must conform to sustainable practices in some regions. It is an essential part of your marketing, wherever you go. Legal requirements requiring disclaimers on the package also impact your decisions. For instance, many developed nations need disclaimers (with bold warnings and pictures of diseased lungs, to boot!) on cigarettes, while less developed nations may forgo such informative instructions.

Quality Assurance

Quality standards may vary from country to country and region to region. In Muslim countries, for example, goods must pass the Halal quality standards.

If products or raw materials need to travel from the home country, there might be a difference in quality from the initial quality when the product left its home country. For example, fresh produce crossing large distances might face increased chances of spoilage or bruising. You must put in place a system of quality assurance that considers these issues.

Expanding A Small Business Into International Markets

Expanding internationally requires a lot of effort and resources, which may be challenging for small businesses with limited resources, experience, and network. Below we outline the best practices and ideas that may be helpful when expanding a small business into international markets.

Find The Right Partners And Team

You will want a great team or partner. A partner can be anyone you trust – a mentor, a business expert – someone who can provide valuable advice. It is crucial to establish a local office and team that understand the market and language. This way, it is more accessible to complying with regulations.

Consider hiring a country manager who knows the market and will position your product to attract the target demographics. They will also help you find local partners you can trust to assist with marketing, administration and hiring requirements. The people you bring on board to deal with your foreign business partners and customers must be well-versed in the local environment, but they should also be looking out for your interests. A core team who knows the local language, customs, laws, etc., will be a great advantage to you.

Have The Right Infrastructure

The right infrastructure will ensure a smooth launch. For example, do you have a management team that can deliver your strategy from a satellite office? You need to decide which business decisions can be made locally and made from the headquarters? Do you have the means to set up IT and telephone systems? What about the sharing of data between employees? Does the data you are capturing follow the law and best practices?

Consider How New Customers Will Receive Your Ideas

When you expand internationally, you now need to think of new ideas you roll out regarding how they will receive in your home country and perceive them in the countries or regions.

Not only perception, but you also need to think about the scalability of these ideas. Consider time zones, language and cultural appropriateness when expanding internationally. If you don’t do this early on, you might offend your international partners by appearing more concerned about yourself [than] them.

Do Your Due Diligence

Think through all possibilities – especially during global expansion. Visit the country you intend to expand into and gather information. Experience the country, its people and culture first-hand before developing a plan and making major decisions. Visit potential customers, distributors, OEM partners, and even competitors making either complementary or competing products. You will find valuable information on whether your product can sell, who the competitors are, what price to sell, and how to sell (directly, distributor, etc.).

Ask The Help Of Experts

For a smaller business used to doing everything on its own, it might be tough to reach out and ask for help. Know that with global expansion, you will almost always need help. You cannot do everything, and you do not have all the information. It is better to seek the help of someone who is an expert in that location. Do not hesitate to seek help from experts, especially at the start of the expansion process.

Be Flexible

Once you have expanded internationally, be prepared for some hiccups. Every new country presents new challenges, and companies must adjust and adapt their products and processes to meet consumer demand. Do not be afraid to tweak or pivot.

Adjust Your Customer Support

Expanding internationally means having an entirely new customer base to support. As a result, you have to adjust your customer support operation to account for scale and local customer sentiments.

Franchising As A Way To Expand Internationally

We cannot discuss international expansion without mentioning franchising. Franchising is a popular way to expand brands globally without physically setting up operations in another country or region.

Franchising Defined

Investopedia defines franchising as a type of license that grants franchisee access to a franchisor’s proprietary business knowledge, processes, and trademarks. This allows franchisees to sell a product or service under the franchisor’s business name. In exchange for the franchise, the franchisee usually pays the franchisor an initial startup fee and annual licensing fees.

Popular food chains like McDonald’s, KFC, Burger King, Starbucks and many others expand globally through franchising. They may set up one or several stores to bring brand awareness into a new country, but most of these chains outside of their home country (the US) are franchises.

Franchising Is Expanding Globally At A Low Cost

To increase a business’ market share or geographical reach at a low cost, it may franchise its product and brand name. A franchise is a shared venture between a franchisor and a franchisee. The franchisor owns the original business. It licenses the right to use its name and idea. The franchisee buys this right to sell the franchisor’s goods or services under an existing business model and trademark.

Franchises are a popular way for businesses to expand, especially in a highly competitive industry such as fast food. One significant advantage of selling a franchise is that you do not need to set up each franchise location physically. Instead, the franchisee will do that for you. In return, franchisees will not need to spend resources getting their name and product out to customers as they benefit from the global marketing and promotions of the brand.

Pros and Cons of Franchises

There are many advantages to going via the franchising route. There are also disadvantages. First, it is a low-cost entry into a new country or region. Second, you will be forced to standardize your process and streamline it, so it is easier to manage many franchises from a different location at the same time. But while franchises come with a formula and track record, success is never guaranteed.

Disadvantages include intense effort to set up and monitor. As a franchisor, you have to ensure that efficient monitoring is in place – in terms of the quality of the products being sold and respecting the brand’s integrity. Unfortunately, there will also be franchisees who will be difficult or violate the terms of the franchise. This can damage the brand reputation.

The Bottom Line

Whenever you decide to take that first leap towards expanding internationally into a new country or region, the more research and planning you do, the better prepared you are. International expansion is a big decision and should not be taken lightly. However, going global is an essential step for a growing brand and, if done responsibly, can produce remarkable results.

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You might also enjoy these popular startup growth-related articles When Is The Right Time For A Startup To Expand Into International Markets?, International Market Selection For Startups and International Expansion Failures on the same topic.

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