Going global is the obvious strategy for a business owner who has comprehensively dominated the national market. Expanding your business overseas gives you access to new markets and makes your business more resilient by mitigating the adverse impacts of domestic economic fluctuations. At the same time such expansion may present unexpected challenges. Strong competitors may already exist in a foreign market, or your products may be unheard of in a new culture. The obvious requisite before making this strategic move is to do some research and fact finding. The information you collect as part of your research must help you thoroughly answer the following crucial questions:
- What is the potential for profitability
- What are the possible pitfalls
- What is the optimal strategy
Some overseas markets are exceptionally attractive owing to their sheer size. A permit to do business in India or China gives you access to more than a billion potential consumers. Obtaining an EU trade license opens doors to multiple countries simultaneously. Even though the cost of such an agreement may be high initially, it can prove to be very profitable in the longer run. This is especially true of businesses that sell products with universal utility and appeal, such as electronics and automobiles.
Getting access to international markets with a similar history and culture as your home country can be very useful. The awareness of and demand for your products and services in such regions may already be well developed. Close geographic proximity is likely to also minimize your export costs.
In the quest for rapid growth businesses often overlook the importance of assessing the competition. Well established local players in a foreign market may undercut you as a short term strategy to keep their market shares. Another form of strong competition can exist due to protectionist policies of the overseas administration.
Other potential issues that may crop up while trying to do business in a foreign market include low awareness, poor demand, inadequate capacity to pay, easy availability of close substitutes, cultural mismatch, poor infrastructure, too much corruption, excessive bureaucracy, and so on. Only by conducting a thorough market research can you can assess threats like these.
Based on the information you collect from your market research there is a small chance that you may decide not to enter the new market at all. On the other hand you are likely to find that the returns outweigh the risks. In the latter case you must have a well planned and fine tuned entry strategy for the new geography.
One of the key factors to address will be culture, which may be a challenge or an opportunity depending on how you approach it. Culture will determine several aspects of your marketing mix including your product packaging, presentation, advertising, market segmentation, and the like. For example, unlike most of Europe, most Arab countries only import halal certified meats, and solarium services are unheard of in large parts of Africa. The necessary prerequisite to a strong understanding of the culture in your target market is proficiency in the local language.
In addition to cultural variations there may be regulatory differences between your home and target countries. Regulations can change unexpectedly, Brexit being a good example. You must familiarize yourself with the legal aspects of doing business in a foreign land, with reference to matters such as taxation, ownership structure, min and max threshold and type of investment allowed, among others. Hiring an experienced local legal counsel specialized in the subject matter is usually the best way to deal with such issues. A legal expert can help you answer questions such as:
- What is the best form of financing for your expansion
- Whether to expand through a subsidiary, franchise, or another route
- What are the tax implications of exporting vs. manufacturing overseas
- What permits do you need
- What kind of insurance must you have
- Which laws govern the employment of foreigners
Your strategy must also address distribution. The local stakeholders you contract and the form of distribution network you setup will have a sizable impact on your long term profitability. Not least of your considerations should be how to convert and transfer money conveniently and efficiently from your overseas revenues to your home country.