Today, we live in a global economy where many businesses have expanded their operations in foreign markets. If you are a decision-maker, especially in a prosperous business, you have certainly thought, ‘Should we go global?’ at least once.
At first, expanding your operation seems like a simple decision. However, there are many complex issues and careful considerations related to international growth.
Factors Affecting International Expansion
The company’s reasons and the magnitude of internationalization factors depend on the business’ nature and the overall market strategies.
In general, a company needs to consider the following issues when going global:
- Required resources, such as cost, time, and opportunity
- Internal factors, such as corporate policy, strategies, and HR issues
- Legislation and compliance including taxes, payroll, immigration rules
- A cost-benefit analysis (required investment vs. future cash flows)
- Permanent establishment and related expenses
- Contingency plans for secured future operation
- DIY approach or outsourcing functions to a third-party
Carefully considering the internationalization facts of existence can help you prevent any mistakes or incompliance. So, thorough research is the first step to prepare for expanding globally.
What’s more, understanding the new market can be the decisive factor for success or failure.
Pros and Cons of Globalization
There are both advantages and disadvantages regarding any shift in business direction or scope. At this point, one must take into consideration the impact at both the corporate and market level.
Advantages of International Expansion
When one executes globalization properly, they can explore a wide variety of benefits.
Expansion to New Markets and Customers
The first and probably most obvious advantage is the increased customer base or new revenue potential. When a business has experienced domestic success and has growth potential, it is only natural to take it in foreign markets.
If the goods or services prove successful, the business will then enjoy increased revenues or profits.
Access to More Resources and Skilled Forces
Apart from new customers, taking the business global offers a pool of new potential employees. These people might possess certain qualities, skills, or talent to improve your operation significantly.
What’s more, a business going global may explore foreign investment opportunities, along with the use of free trade zones and similar benefits.
Company Reputation and Brand Awareness
When globalization is planned and executed correctly, it can significantly improve brand recognition. Note that this issue is not easy to achieve, as offering the wrong products to a foreign market may also hurt your company’s reputation.
Nonetheless, business partners and potential investors almost always prefer a company with an international presence.
Cost-Efficient Methods for Production
A company with an international presence can outsource the manufacturing to the country with the cheapest infrastructure and labor costs. For instance, production in China offers a competitive advantage through decreased costs of production.
What’s more, expanding to new markets allows a company to explore economies of scale.
Diversification of Risk
Different markets are subject to various external factors, such as natural disasters, political pressures, or recession. International presence reduces the risk of failure, as one market can compensate for the demand shift in another.
For example, if the domestic market is slowing down in activity, the business will rely more on other markets’ revenues.
Disadvantages of International Expansion
In addition to the internationalization benefits, one must consider the possible challenges of entering a new market.
Initial Costs and Regulation
Registering a new branch or production facility requires an initial investment. What’s more, a company should always consider termination costs.
Another challenge is the tight foreign market regulation. Here we can mention company registration, immigration rules for long-term workers, work permits, and overall compliance.
No question, entering a foreign market is a complicated procedure. The company must fully accept the foreign country’s regulation, which may differ from the domestic market. Therefore, it is essential to find professionals to cease compliance risk and perform correct business procedures.
The Need for Outsourcing
To better control the resources, one may benefit from outsourcing experts for their professional opinion. For example, a business may need to outsource call centers, or hire lawyers, local tax accountants, and international HR experts, to prevent compliance risk.
Eventually, outsourcing might decrease the degree of personalized services or brand recognition.
Language and Cultural Barriers
Each country has a different culture and business operations. So, the domestic market is usually one step ahead in understanding the customers, thus sales.
When expanding to a foreign market, it is always best to receive cultural training and social customs before starting the operations.
Internationalization offers both advantages and disadvantages for each business. So, the company must start with thorough research and understanding of the foreign customer base. At last, one must weigh the pros and cons to make an informed or suitable business decision.