There are immense opportunities in the global market for SMEs looking to expand their reach beyond local markets. Globalization was once a buzzword fueled by the improvement in communication and advancements in global logistics but is now part and parcel of business. However, taking a business globally, especially in the case of SMEs, is not without challenges and obstacles.
Beware of the Challenges of Global Expansion
Businesses looking to expand to foreign markets need to contend with an unpredictable business environment whose regulations may not favor their business model. Expanding globally can, in most cases, mean low ROIs or negligible ROAs for years on end. This is according to a study conducted by Harvard Business Review on international businesses.
There are several examples of large companies that have failed in the global marketplace due to unforeseen challenges and bad planning. For instance, tech giants like Google, Groupon, and eBay have struggled to make headway in China and some parts of Asia. Uber may have disrupted the transportation industry in many countries but has struggled to hack some major European markets like Germany.
5 Things to Must Consider When Expanding Your Business Globally
While going global is one of the best ways to expand your sales and grow your business, there are things you need to consider before setting sail. Let’s take a look at five of the most critical steps you must take before taking your business global today.
i) Regulatory Environment
One of the biggest obstacles your business will face when going into a new market is complying with regulations. Indeed, most failures in globalization for enterprises have been caused by hostile regulatory and political environments. Some countries have laws that either favors local competitors or make it harder for foreign companies to take root.
You need to understand the regulatory and political environment of the destination country. After this, try to match the situation with your business model and aspirations before expanding your business there. Make sure you have all the necessary permits and comply with local laws as you plan to launch your business in the new market.
In your initial studies, you may realize that some international marketplaces are lucrative while others are not worth venturing into (perhaps due to unfavorable regulations) despite the opportunities available for your business.
At this stage, getting expert advice will go a long way in preparing your business for a foreign regulatory environment. An expert will help you navigate compliance and international laws as you plan to go global with your business and can help you institute an agile approach to compliance.
ii) Identify and Understand Your Target Market
Researching the market is an absolute requirement when expanding globally. A mistake in identifying a market for your products can mean huge losses and untold frustrations. You need to see an opportunity for your products in that market first before launching your business there. It can difficult to compete with local brands unless you have a clear advantage or finances to survive the initial stages.
Cultural differences need to be put into consideration when going global. You may find it difficult or impossible to get into a market due to cultural practices and societal norms that don’t favor your products or business model. For instance, western food companies find it challenging to expand into some Asian markets due to cultural and religious mismatches.
iii) Competitive Environment
Few international businesses manage to get into a market with strong local competitors and survive. A proper SWOT analysis will guide you in identifying opportunities in a foreign market, measuring your product against would-be competitors, and finding a way to conquer that market. Remember, most countries tend to have protective policies for local businesses so you must be ready to put in more work to compete.
iv) Hiring Locally
While it might be tempting to export an executive team to a new country, numerous studies have shown that hiring locally is the best way to get into a new market. Hiring local will help your business to get a footing in a foreign market.
Here are other reasons why you need to go local when hiring:
- A local workforce costs less
- Local executives understand the local environment better than you
- It’s good for acceptance of your brand and diversity
- Hiring locally addresses language barriers
- Local executives have better relationships and networks in the local market
- Creates local employment and helps the market to grow
v) Operational Costs
In most cases, going global means relying on exports and foreign currency to run your business. One of the mistakes that SMEs make when expanding globally is not factoring in the operational costs associated with international business. Running a global business requires careful planning to ensure you don’t lose money trying to run an expensive business that is bogged down by international logistics, import taxes, and other unforeseen operational costs. It is also worth finding a company like Routefusion, who are a one-stop-shop for all of your international payment needs.
Expansion is the key driver behind all entrepreneurial undertakings in today’s business environment. It may have its challenges, but international expansion can be lucrative if done right. This is why SMEs need to approach global expansion with a great deal of planning and diligence.