Five Questions to Ask Before Expanding Internationally
Innovations in technology continue to ignite the movement of corporations toward globalization and international expansion. The following five questions should be considered before companies attempt to grow their business in foreign markets.
Do the economic benefits of expanding into an international market outweigh the risks?
Dr. Ikenna Uzuegbunam, Assistant Professor of Strategy, Entrepreneurship and International Business at Ohio University states, “the general attraction to expand towards emerging markets such as BRIC (Brazil, Russia, India, China) and MINT (Mexico, Indonesia, Nigeria, Turkey) markets is the inherent growth potential in these markets due to their demographic composition. However, firms should carefully assess whether these perceived benefits outweigh the risks of operating in these environments.”
Expanding internationally presents substantial financial risks. Initial investments in a new market can be large and the beginning start-up period often loses money. The risks need to be reconsidered once revenue is generated and overhead costs are factored in. Businesses should also put in place a long-term financial plan that supports the time needed to wait before the new venture becomes profitable.
Do you have the staff or executive team to effectively expand?
Expanding internationally puts strains on your staff because employees may need to adapt their duties either at home or overseas. There will also be new opportunities for employees with the necessary skills. Employers must determine whether they have the right senior employees who they can move from current positions and place into senior roles in the international arena.
Will you be able to adapt to the local culture?
Understanding the local culture is crucial to a company’s success when expanding overseas. This holds true for countries like France and Japan, whose cultural traditions influence marketing techniques, sales channels, and consumers’ tastes. Translating your marketing message to the local language can be challenging because it can be difficult to translate the context and meaning of the message. Sometimes changing the message is required to make an offering more appealing to international consumers.
The channels through which products are sold may vary in different countries. For instance, in Japan, relationships have a high cultural value. Foreign companies accustomed to utilizing direct sales models would benefit from changing their process and selling through local partners in countries that value personal relationships.
Another benefit of being well versed in the local culture is that it makes you aware of the competition. If you are going to take the time to translate and adjust your business model to fit a foreign market, it is best to know that you are not offering something that is already available. Seeing the competition will also allow for finding the niche market where your company can flourish.
What is the optimal mode of entry into the international market?
According to Dr. Ikenna Uzuegbunam, “Each market should be carefully assessed to determine the best entry mode,” because when expanding internationally “no-one-entry-mode-fits-all.” Certain businesses may choose to form joint ventures, while others may look for a local company to acquire when entering the market. Though it takes time and requires ensuring the union is right, there are advantages to forming an international partnership. The benefits include facilitating sales in the new environment, keeping low overheads, and having first hand insight into local trends and customs.
Another factor that may influence the mode of entry into an international market is timing. This goes hand in hand with grasping the local market and culture. By understanding the needs in the foreign market, you will be able to determine when to enter it. If the market is saturated with direct competitors or if the market is young and not ready for maximum growth, companies may decide to wait until conditions are optimal.
Would the planned expansion offer unique opportunities for innovation?
Advances in technology bring ever-changing possibilities for businesses to expand their offerings and reach new customers. As Dr. Uzuegbunam advises, “Because innovation is very critical to business success in the modern era, internationalizing firms should proactively and systemically assess the potential for innovation in their international expansion efforts.” If technology may predictably surpass the need for your product, international expansion would not be a smart move. On the other hand, there are many countries in early stages of development that allow room for much growth. Innovations and technological advances could make the move to a new market beneficial for many years to come.
While there are benefits to growing a business in a foreign market, there are also a number of challenges. Addressing these concerns in the early stages of expansion can help companies succeed internationally.
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