The Advantages and Disadvantages of International Business Expansion
Establishing whether you should expand your business to another location internationally can be a difficult and complicated decision, and careful consideration of all the advantages and disadvantages is essential for making the right choice. Here are some ways in which international expansion may or may not be the right move for your business.
Reaching new customers
You probably have a good idea of how your business performs in its home country, but who knows how many more consumers and clients you could reach in a new location? The available pool of prospects will expand dramatically, and they may even have an enthusiasm for your products and services that outmatches the customers at home.
Spreading business risk
If your business should unfortunately encounter hard times in one location, continuing to operate in another will relieve some of the pressure. The more countries in which you have a presence, the more the ups and downs of business fortune will become smoothed out and easier to manage.
Accessing new talent
The success of your company may depend as much on the people you work with as the actions and decisions of you personally. Expanding to an international location could give you access to talented, invaluable new employees and business partners who would take your enterprise to the next level.
Amplifying your brand
Expanding your business out from its home country will have the effect of increasing the visibility and therefore brand equity of your name, logo and ethos. You can enjoy a reputation boost from international growth, and your new customers in the target location may perceive your business as having an exotic prestige. You will also have a great opportunity to extend the reach of your intellectual property, trademarks and copyrights to new regions.
Securing foreign investment
Investment firms and individuals are not distributed evenly across the globe, with large concentrations of investment money available in some areas and little in others. Depending on the target country for expansion, you may find that growing your business internationally gives you access to investment capital far beyond that which is available in your original location. Fortunately, data is easily available to identify which countries are the best and worst for investment fund opportunities.
Operating in multiple locations will quite naturally increase the quantity of products and supplies you need to order, allowing you to negotiate lower prices for your growing bulk purchases. Essentially, there is an inversely proportional relationship between the size of your operation and your per-item costs.
Increased immunity to trends
No business wants to be in the situation of realising that its main product or service has gone out of style. Having a presence in more than one country can help you to ride out the winds of trends, fashions and fads – a product or service that has become dated in one location may still be going strong in another, buying you time to rethink your approach.
Improved consumer confidence
An advantage of a physical expansion against selling things to the target country from afar via e-commerce is that your customers are likely to have increased trust in the company if you have a registered, localised office or stores in the country – particularly if after-sales support is an important factor in your industry.
Foreign rules and regulations
International business expansion certainly isn’t short on confusing paperwork, as every country has its own tax and employment laws as well as business registration and trademark considerations and papers that must be filed in a foreign language. The good news is that we are always on hand to help with these situations.
An unavoidable consequence of any business expansion is that many logistical considerations will quickly become more complicated with questions about how to efficiently handle communication and organise shipping of physical goods between sites. Of course, shipping from one country to another can take a long time, and what do you do in the event of delays (or even missing shipments)? Another consideration is that not every country has the same resources and infrastructure, and it may be best not to make any assumptions about the things you need to operate in the new country.
Speaking the language
More than three-quarters of the world’s 195 countries don’t speak English as their primary language, and even if you are expanding to one of the many nations that speaks it as a secondary language you will need to get to grips with the local tongue if you intend to communicate properly with your new customers. Don’t skimp on localisation and translation services – countless stories abound of high-profile business humiliations due to badly translated slogans and product names.
Coordinating time zones
Another consequence of expanding internationally is that you can introduce a time zone disconnect between your sites – as an example, an American company expanding to India might find themselves in a predicament, as the 9am-5pm office hours in America would correspond to 6:30pm-2:30am Indian time! Not all time zone conflicts are this severe, but it’s important to minimise inefficiencies; if each site has to wait until the following morning for a reply to an important email, everything slows to a crawl.
Monitoring currency fluctuations
The value of your home currency relative to your target location at any given moment can have huge significance for the success of your business. If your home currency is weak by comparison, this can allow you to offer competitive pricing in the secondary location – it is actually a strong home currency that is worse for international business (in simple terms, customers with a weaker currency will struggle to afford your products). This may force you to either drop your prices or make fewer sales, both of which will hinder your bottom line. On the other hand, a shrewd business owner may be able to time their purchase orders to make their money go further during a favourable moment in the currency fluctuations.
Mitigating credit risk
A domestic customer who defaults on their bill can represent serious trouble, but that goes double for foreign clients, as depending on the location there may be no guarantee at all you will be able to recoup outstanding debts from non-paying customers. This is known as credit risk, and the solution may be to identify the credit rating of new prospects up front or to take out trade credit insurance.
Following foreign politics
Assuming that your target country has the same political environment as your own nation could be a recipe for disaster. Staying abreast of developments is crucial, as political events can affect your business dramatically – what are you going to do if the foreign government embargoes or outlaws something you rely on? As with credit risk, securing political risk insurance is an excellent idea, as is establishing backup plans for your most crucial supply chains.
Gathering market research
Depending on your business, you may find it necessary to rebrand your company or rethink your products for best results. This could potentially involve expensive market research to discover what the locals in the new country respond to best and to understand the needs of a completely different culture. However, there are many ways of studying a foreign market on a budget, and creative thinking can help to keep the costs down.
Ultimately, there are pros and cons with any business expansion, and international growth is no exception. With careful forethought and planning, your business can go to the next level and take advantage of a whole world of opportunities.
For help and advice with expanding your company overseas, please don’t hesitate to call us on +44 (0)208 421 7470 or contact us via the website.