What to Consider When Expanding a Business Internationally

When expanding your business internationally, important considerations range from the obvious, like financial viability, to less evident, like cultural concerns. Understanding local market dynamics, international laws and regulations, and new cultures  is crucial for businesses dealing with the intricacies of building a presence in new territories. 

Key Takeaways: Per the World Trade Organization, key considerations for international expansion include 

• Market research
• Legal compliance
• Cultural differences
• Financial planning

Understanding local consumer behavior is crucial to developing a successful expansion strategy.

Expanding the borders of your business is difficult, but not impossible. Let’s look at the many elements of expanding a business beyond the United States.

Key Considerations for Entering a Global Market

It's important to weigh several key considerations before expanding into the international market. These include:

• Market viability
• Political and economic situations
• Local infrastructure
• Costs of expansion
• Identifying potential business partners
• Cultural and/or linguistic barriers

These and other factors play an important role in shaping your approach and strategy for global market entry.

Assessing Market Viability

This process ensures that your product or service has a viable customer base in the new market. Take this time to see if your business practices line up with the local regulations and culture. Can your business compete effectively with existing offerings in foreign markets? This and other questions should be answered before you pull the trigger on international expansion.

Business owners can use the following steps as guidelines during this crucial phase.

• Find Your Target Demographic

Who’s most likely to buy your services or goods? Research their age range, budgets, and buying habits.

• Determine Your Growth Potential

Estimate the current market size. Has the area grown steadily year over year? This will help you decide if it can support your business.

• Evaluate Market Needs and Gaps

Look for unmet needs or poorly served segments. Your product or service could fill these gaps, providing a competitive advantage.

• Study Legal and Regulatory Landscapes

Gauging the legal and regulatory environment is crucial for successful market entry. Pay particular attention to intellectual property laws.

• Find Your Competition

Determine who they are, their market share, and their strengths and weaknesses. 

• Perform a SWOT Analysis

SWOT stands for strengths, weaknesses, opportunities, and threats. This analysis will help you understand your potential position in the market.

If you haven't already, now is also the time to calculate initial investment costs and project your return on investment (ROI).

By following these steps, businesses can get a solid grasp on whether their intended market is viable. This minimizes risks and improves your chances of successful market entry. However, the work doesn't end there.

Economic and Political Climate

Stable economic and political environments make any business venture easier. Before taking your chances in a new market, understand the local economic indicators and the political landscape.

Here’s a detailed exploration of how the economic and political climate of another region can impact your business, along with a list of potential pitfalls.

Impact of Economic Stability on Business Operations

Economic stability is a good sign of a market’s profit potential for new businesses. Inflation rates, currency stability, and GDP growth reflect the health of an economy and its future direction. 

A stable economy suggests a good target for investment and business growth. On the other hand, unstable economies pose risks to business operations, affecting everything from pricing strategies to logistics.

Dealing with Political Relations and Trade Agreements

The political environment in your target market can greatly influence the ease of doing business. Political stability, trade agreements, and diplomatic relations with the U.S. all play a role in defining the business landscape. Examine policies on foreign investment, taxation, and repatriation of profits.

Some potential pitfalls caused by economic or political Instability are:

• Currency Fluctuations: Volatile exchange rates increase the cost of doing business and impact pricing strategies.
• Trade Restrictions: Tariffs and embargoes can limit access to the market or increase the cost of goods.
• Regulatory Changes: These can occur with little notice, disrupting business operations and increasing costs.
• Political Unrest: Instability can cause disruptions to supply chains, and even pose security risks to assets and personnel.
• Expropriation: In some cases, governments may nationalize industries or expropriate assets. This is particularly possible during wartime.

Businesses can reduce these risks through due diligence. Perform political and economic risk assessments before kicking off an international expansion campaign. Creating diverse supply chains and getting political risk insurance can provide some protection against these issues.

Infrastructure and Technology Accessibility

The United States enjoys a robust network of highways, railways, and ports. We're also a technologically advanced nation. Not every country can make these boasts, and your target market may or may not have comparable infrastructure to the U.S.

Good infrastructure leads to smooth operations, reliable logistics, and the ability to communicate with customers effectively. Your market's access and use of modern technology can dictate your business's capacity to innovate and remain competitive. 

Keep these favorable indicators of infrastructure and technology in mind.

• Well-Developed Transportation Networks: Look for modern and efficient transport systems by land, sea, and air. Having these in place results in easy freight shipping.
• Reliable Electricity and Water Supply: Stable power grids and water distribution systems are essential for day-to-day operations.
• High-Speed Internet: Widespread availability of broadband and mobile internet with high speeds is a must-have for digital operations.
• Modern Logistic and Freight Services: Efficient port and freight services reduce the time and cost of shipping goods into and out of the country.
• Digital payment systems: A strong presence of digital banking and payment services indicates a market's readiness for e-commerce.
• Strong IT Support and Services: Having these in place can facilitate easy maintenance of your technology infrastructure.
• Technology Parks: The presence of these innovation centers can be a sign of a vibrant tech ecosystem.

From bandwidth speeds to roadways, the presence and growth of such modern structures is vital . This will help to identify both operational challenges and local advantages. For instance, a country with a strong focus on digital innovation may offer unique opportunities for digital marketing strategies and e-commerce.

Advancing road and rail systems can mean improved access to both resources and markets that have yet to be tapped.

Developing an International Business Strategy

Let’s say you’ve done all of your homework and performed all the evaluations recommended above. Your target market has sound infrastructure, lucrative growth potential, and it doesn’t look like they’re going to blow themselves up any time soon. What’s next?

Now is the time to start putting your international expansion strategy together. Much like the process of vetting your target market, expansion strategies require a varied approach, encompassing everything from financing to building your brand. 

Let’s take a detailed look at these elements of international business expansion.

Choosing the Right Market Entry Strategy

For U.S.-based importers looking to penetrate international markets, selecting the right market entry strategy is a pivotal decision that can determine the success of their global expansion efforts. This choice depends on several factors, including resource availability and the specific challenges of the target market. 

There are five approaches to expand internationally that businesses usually employ. They are:

1. Exporting
2. Licensing
3. Franchising
4. Joint Ventures
5. Direct Investments

Below, we outline the pros and cons of these expansion strategies.

1. Exporting

This is a fairly simple method of expansion. You simply need to make your products available for international purchases. 

Pros:

• Low Risk: Exporting involves minimal investment compared to other entry strategies, reducing financial exposure.
• Flexibility: Businesses can test international markets and scale their operations up or down without significant commitments.
• Leveraging Existing Infrastructure: Companies can use their current production capabilities without the need for additional investment.

Cons:

• Market Barriers: Tariffs, trade barriers, and local regulations can complicate exporting.
• Reduced Marketing Influence: Relying on third parties can lead to less control over how products are marketed.
• Logistical Challenges: Managing international shipping and customs can be complex and time-consuming.

If you decide to go this route, you can use the information below to help you decide which markets to target.

Top Five Purchasers of US Goods Exports in 2022

Source: https://ustr.gov/countries-regions

Exporting your goods or services may be the most direct option to participate in global trade. However, it’s not necessarily required if your brand is strong enough.

2. Licensing

If your business’s value is in the strength of its name and IP, licensing may be a viable way to generate more revenue.

Pros:

• Low Cost & Risk: Licensing allows businesses to enter foreign markets with minimal investment compared to setting up their own operations.
• Income Stream: Generates a steady income stream from license fees or royalties.
• Market Penetration: Allows businesses to enter the market quickly by using the licensee’s distribution networks.

Cons:

• Limited Control: You won’t have as much control over the manufacturing process and quality control of their products.
• Revenue Sharing: Profits from product sales must be shared with the licensee.
• Risk of Creating Competitors: There's a risk that the licensee might become a competitor in the future.

If you like the sound of licensing but prefer a more extensive partnership, you might want to explore franchising options instead.

3. Franchising

A popular option among domestic restaurant chains, franchising your business provides fast growth with a few drawbacks.

Pros:

• Rapid Expansion: Franchising allows business to quickly establish a presence with relatively low costs.
• Local Knowledge: Franchisees bring local market knowledge, reducing the market entry barriers.
• Brand Growth: Helps in building brand recognition and loyalty across international markets.

Cons:

• Quality Control: Making sure your product’s quality is consistent across franchises can be a challenge.
• Cultural Adaptation: Franchise models may need significant changes to fit into local market norms and consumer preferences.
• Legal Complexity: Agreements can be complex to negotiate and require that you adhere to local laws.

Similar to franchising, our next option means sharing the risks and rewards of expansion between two or more parties.

4. Joint Ventures

Partnering for mutual benefit reduces individual risk for all businesses involved. 

Pros:

• Shared Risks and Costs: These are shared with the local partner, making it a less burdensome investment.
• Local Expertise: Local partners provide useful insights into the market, culture, and legal environment.
• Access to Established Networks: Your partners may have access to existing distribution channels, cutting down on logistics concerns.

Cons:

• Shared Control: Conflicts may arise during the shared decision-making process.
• Cultural and Management Differences: Differences in corporate culture and management styles can affect the joint venture’s operations.
• Legal and Financial Complexities: Creating and managing a joint venture involves complex legal and financial arrangements.

If the idea of sharing control with one or more partners doesn’t appeal to you, direct investment will probably be part of your expansion plans.

5. Direct Investment

When in doubt, do it yourself. You’ll make all the decisions and take all the risks.

Pros:

• Full Control: Businesses have complete control over their operations, meaning they can implement their business model and practices effectively.
• Long-term Presence: Indicates a long-term commitment to the market, potentially leading to stronger market presence and brand loyalty.
• Access to Local Resources: Allows companies to fully access local resources, including labor and materials.

Cons:

• High Investment: Requires significant upfront investment and involves higher financial risks.
• Complex Management: Managing overseas operations can be complex due to distance, cultural differences, and local regulations.
• Political and Economic Risks: Direct investment exposes the business to the economic and political issues addressed earlier in this article.

Choosing the right market entry strategy requires thoughtful consideration of these options, pros, and cons. Additionally, businesses can benefit from combining different strategies as they grow, adapting their approach to maximize success and reduce risks.

Building an International Brand

All the strategizing and market research in the world will prove useless if you don’t build a reputable brand people can recognize. To do this on a global level, you’ll need to get familiar with local culture and consumer behavior. 

An effective international brand strategy helps you create an identity that resonates with customers worldwide. Use these guidelines to build your identity in a thoughtful way.

• Culture-Focused Market Research: Understand the cultural nuances of your target market. This research should inform all aspects of your brand strategy, from product adaptation to marketing language.
• Localize Your Brand Messaging: This might involve working with local marketing agencies who are experienced in the local market.
• Leverage Local Partnerships: Collaborating with local influencers, celebrities, or businesses can help increase brand awareness and credibility among local consumers.
• Participate in Local Events: This is a relatively easy way to build good will in any market. Sponsorship opportunities should be easy to find.
• Optimize Your Local SEO: Ensure that your online content is geared toward local search behaviors and keywords.
• Build Social Media Campaigns: Social media platforms can vary in popularity from one country to another. Use localized content to engage with your target market on their favored platform(s).

Building a strong international brand is a long-term effort. Your plan must be adaptable or it’s almost guaranteed to fall flat. 

With a strong enough brand, you may end up attracting something almost as good as customers: investors. 

Financing Your International Expansion

Expanding your business internationally requires a considerable financial investment. You’ll need to cover the costs of market entry, setting up operations, and sustaining your business until it starts to make money. 

Here’s an overview of financing options available to businesses looking to expand globally, along with a brief explanation of each.

• Venture Capital and Private Equity: These investors offer capital and/or other resources in exchange for a piece of the business. 
• Bank Loans: This option may require collateral and a convincing business plan that shows the potential for profitability.
• Government Grants and Subsidies: These funds are beneficial as they often do not require repayment, but they typically come with strict criteria and usage requirements.
• Export Credit Agencies (ECA): ECAs can lessen some of the risks associated with international trade, like foreign buyers missing payments and political instability.
• Crowdfunding: This can be a viable option for businesses with a compelling story or product that resonates with a wide audience.
• Internal Financing: Reinvesting profits from your domestic operations is a prudent way to finance your expansion without giving up equity.

Your choice of financing options should reflect the needs and circumstances of your business. Evaluate the terms and costs of each option and consider seeking advice from financial experts or advisors with experience in international business expansion. 

Key Benefits of Successful International Expansion

Why should you consider international business expansion in the first place? Some benefits are obvious, but others are more subtle. 

We can group these benefits into the following three categories:

• More profits
• Better brand awareness
• A competitive edge

Let’s take a closer look at each of these benefits. 

1. Increased Market Reach and Revenue Potential

Expanding internationally opens up new markets, substantially increasing the size of your customer base. This diverse approach boosts revenue and reduces dependence on a single market.

2. Enhanced Brand Awareness

A global presence elevates your brand, giving it international exposure. In addition to enhancing your brand's prestige, this can attract new business partnerships and open up further opportunities for expansion.

3. Competitive Advantage

Operating in multiple markets can give you a competitive edge, providing insights into international trends and consumer behavior that you can apply to your operations. Additionally, being an early entrant in an emerging market can establish your business as a market leader.

Cultural Considerations for Global Business

One of the most important elements of successful international expansion is understanding your target market’s culture and language. Effective communication, negotiation, and business practices can vary significantly across cultures. 

Failure to consider cultural nuances can result in less market penetration and a tarnished reputation. Even companies as large and successful as BMW aren’t immune to the consequences of insufficient cultural understanding. 

Anticipating these differences and adapting your strategy is a key step to establishing yourself in international markets. Let’s look at some common cultural considerations and effective ways to re-shape your strategies.

Understanding Cultural Differences

While not comprehensive, the following examples of cultural considerations are a good jumping off point for businesses expanding into foreign markets.

• Communication Styles: Things like directness of language, the appropriateness of humor, and the use of gestures vary across the globe. An ad that’s persuasive to customers in the USA might seem obnoxious or even offensive elsewhere. 
• Values and Beliefs: Core values and societal beliefs significantly influence consumer behavior and expectations. An advertising campaign based on individual success may appeal to audiences in individualistic cultures, while collectivists might favor messages around coming together to succeed.
• Color Symbolism: Colors can symbolize many things from one culture to another. For instance, while white is associated with weddings in Western cultures, it can represent mourning in many Asian cultures. 
• Holidays and Celebrations: Aligning marketing campaigns with local holidays and celebrations can enhance your brand’s perception. Approach these occasions with sensitivity to avoid appearing exploitative.
• Digital and Social Media Usage: A platform that's effective for marketing in one country might have a much smaller reach in another. Additionally, the tone and type of content engaging to  users can differ significantly across cultures.

Changing your business practices to reflect cultural understanding is a powerful way to set your brand apart and build deeper connections with a global audience. In the next section, we’ll introduce some scenarios where businesses adapt their model to thrive in a new market.

Adapting Your Business Model: Prospective Situations

Fashion

Let’s say a U.S.-based fashion retailer plans to expand into Southeast Asia. This region is known as a hotbed for engagement on social media. 

To adapt, the retailer partners with local fashion influencers and bloggers for social media campaigns. They focus on platforms popular in the region, such as Instagram and TikTok. The business creates localized content showing how its fashion fits into local styles, displaying value in a market sensitive to trends and affordability.

Technology

In our second scenario, a tech startup specializing in personal finance apps wants to enter the European market. Given Europe's strict data protection and privacy laws (GDPR), they overhaul their data handling practices to ensure compliance. 

The startup’s marketing and advertising strategies focus on security, highlighting the company’s commitment to protecting user data. Social media campaigns involve discussions about financial literacy and data security, positioning the app as useful and trustworthy.

Automotive

For our final example, an automotive company wants to introduce its latest electric vehicle (EV) line to the Scandinavian market. To align with local attitudes toward sustainability, the company's marketing strategy focuses on the vehicle's low carbon footprint and use of eco-friendly materials. 

Participating in green energy and sustainability expos help solidify the brand's presence as an eco-conscious choice. Social media campaigns feature pristine local landscapes, underscoring the vehicle's role in reducing pollution.

No matter what products or services you plan to offer, cultural considerations are a vital part of expanding your business internationally. Another important part of doing business internationally is understanding the intricacies of shipping, logistics, and the regulations surrounding importing and exporting goods. If this is an obstacle in your business plans, we can help.

International Commerce With Product Distribution Strategy

Planning to enter the global market is a job all its own.  By working with experts in the field of product distribution,  you can feel confident about your business’s expansion plan.

At Product Distribution Strategy, our team of logistics experts can provide valuable advice and services in all fields of international shipping. From ocean freight to truckload and air freight, we have the knowledge and resources to give you a leg up in the competitive international market.

Trust us with services such as:

• Export consultations
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• Return logistics
• And more

Helping you grow your business is our business. Give us a call at (855) 863-7672 or contact us online today!