How To Expand Your Business Internationally
Going global is the dream of every entrepreneur. In a digital world, it has never been easier. Yet, even with the increased ease, there are still many pitfalls in the journey and most businesses that try to go global, don’t make it. Entrepreneurs face many challenges. They have to navigate through unfamiliar regulatory landscapes, understand new markets, find new and trustworthy local partners, all the while keeping their brand identity intact. This is a lot for any business to take on. So what we are going to do now is to discuss how you can expand your business internationally.
Is Your Business Ready to Expand Internationally?
Given the challenges we discussed, the most obvious question you should ask yourself is whether your business is ready to expand internationally. You may have the ambition to go global but lack the structures and conditions to go global. Trying to do so when the conditions aren’t right, is a recipe for a very expensive failure.
Going global is complicated. Regardless of how big a company is, navigating different jurisdictions is complicated, difficult and expensive. The journey can take resources and time from efforts to improve products and tap into other market opportunities. Often, expansion is not even economically desirable. Businesses often seek into fast-growing markets, but these fast-growing markets attract competition and this can drive down returns and prevent businesses from earning the profits that the market promises. You should be guided by a desire to do business where economic profits are created and the best guide of this are returns on invested capital (ROIC). ROIC is the link between corporate performance and valuation. If your expansion creates economic value for your business, then it is something to pursue. If not, then it is destroying capital or doing nothing to add to shareholder value, in which case, it should not be pursued.
In going over your capital allocation options, you should attempt to focus your capital on the best option you have in terms of creating economic value. Diversification is too costly to be practical, given the challenges of expanding across multiple countries at the same time.
Many entrepreneurs never stop to consider whether there is a real market for their products overseas. This is vital. Product-market fit has been called, “the only thing that matters”. For instance, Uber has struggled in many countries in the world where there does not exist the right density of drivers for their model to be viable. Just because your business works in the United States, doesn’t mean it will work elsewhere. Gathering market intelligence and understanding the market opportunities as they are not as you wish them to be, is vital.
A market may promise economic profits and your product may have the right product-market fit, but your organization needs to have the financial and institutional infrastructure to scale outward. For instance, do you have the legal expertise to navigate through the laws? Do you have the right partners? The locale may present you with unique geopolitical risks. For instance, many investors are finding that they underestimated the geopolitical risks of investing in China. That happens when you don’t really understand the area you are investing so much in.
Advice and Best Practice
One of the most important things that you can do is to find the right local partner. No matter how much market intelligence you gather, you will lack the knowledge and networks that a local partner can bring to the table. A local partner can be nothing more than a mentor to guide you through the country you are expanding into, or it can be a business you partner with to tap into the market opportunity. Whatever form your local partner takes, you need one.
You also need to have a local country manager who understands the regulations and market and will ensure that your business is compliant with the law and operates in ways that maximize the brand of the company within the cultural context of that country. In an era of globalisation, the importance of local markets is often forgotten. A global audience is no use if nobody wants what you’re selling or understands what your business is about.
This is a process that takes time and should not be rushed. Mistakes are hard to unwind and there may be better options tomorrow.
Build the Right Infrastructure
Often, businesses are ready to enter new markets but they do not have the conditions and infrastructure to support their expansion. You have to ensure that you have the following in place:
- A management team capable of delivering results from the local office
- A system to determine what decisions can be taken at the local level and what needs your attention. Ideally, business units should be able to function largely autonomously, otherwise the costs of governance mount and eat into your revenue.
- The ability to set up telephone and IT systems to enable smooth communication flows.
- A system that allows secure data sharing in the local office and between the local office and the global office. Data captured must follow local best practice and regulations.
Look Into Second-Order Effects
You have to consider what the second-order effects of your product in the local market will be. That implies an understanding of the local customer, anj understanding which many expanding businesses do not typically have.
Not every idea is scalable, no matter how well it works in your market. Consider Tesla. If Tesla wanted to expand aggressively into Africa, it would meet certain hurdles. The most obvious hurdle is that electricity provision is often interrupted, so that it would be hard for many people to consider buying a Tesla if they did not have secure sources of electricity.
Issues of culture, language and even time zones, can affect the scalability of even the very best ideas. For example, Zimbabwe is one of the world’s biggest tobacco producers, yet only 1.3% of its people smoke every day. The cultural values of the country preclude the growth of the industry. Discover more about your business and begin the journey toward international expansion.