More and more companies decide to go global or expand into a new territory each year. There are many reasons why a business manager or entrepreneur may look to expand internationally. From increasing profitability and customer base, to exploring new opportunities and developing a company’s reputation, many companies are excited by the opportunity to setup shop in another country. While there are many upsides to an expansion, there are several downsides that can have negative effects and cause your business strain and difficulty in the new market. Here we explore some of the mistakes businesses make when looking to expand and how to reduce the effects of such mistakes.
Why Businesses think about Global Expansion?
International expansion is much simpler than before and is no longer just for a handful of large corporations that have the means and resources to do it. Now many small and medium sized businesses have access to international clients, even before they setup in another country. Businesses may choose to expand for some the following reasons:
Wider customer base
Having a new customer base not only means there is more opportunity for new sales, but it also gives your business a chance to introduce a new product offering to a different audience. This has the potential to increase revenue, profitability, and reputation of a company.
By exploring a new market before your competitors do, it gives your business a chance to access the customer base first, beating them to it. You may also be offering consumers something new and different to what is currently on the market.
By going international or expanding to a new country, a business begins to improve its reputation. This allows your business to attract new customers, improve on brand recognition and establish international credibility.
Access New Opportunities for Growth
By entering new markets, you are able to look for new opportunities to grow your business. Whether it be through joint ventures, new product offerings or diversified talent, your business will have the opportunity to grow or develop through a number of different ways.
Considerations Before International Expansion
Taking your business international is no easy feat and there are many important considerations that should be made before you decide to take your business abroad. From business registration to employment regulations to tax practices, you need to firstly make sure that there are no administrative restrictions on your operation. Thereafter you need to consider the best mode for entry, the affordability, marketing practices and other important factors. Many business managers overlook some important considerations which leads to them making severe mistakes when expanding.
4 Mistakes Businesses Make When Expanding Internationally
These common mistakes should be avoided at all costs:
Lack of Preparation
Setting up a business in another country involves much more than just selling a product or delivering a service. Companies need to not only be aware of marketing and operational processes, but also the administrative processes involved in the initial setup. Companies need to find the best means of entry into the market, such as establishing a joint venture or partnership with a local partner. Many companies are not aware of the various vehicles of entry available, that could have long term effects on the operations of the business.
Small and medium enterprises should also prepare for the change in market, which may by very different from their home market.
In order to avoid this, businesses should do the required research and begin preparation from as early as possible. Carrying out market research, contacting local partners or agencies, and getting in touch with local administrative bodies can give you a better understanding of what is necessary for your setup in the new market.
Localization of talent
Through the many lessons business managers and entrepreneurs have learned over the years, many now understand the importance of localization. Finding local talent is important for many reasons.
Local talent or employees who have extensive experience in the local market can give your business insight on how the market works and the regular practices. They will also be able to help you understand the business culture better and some norms and behavior patterns of consumers. There are many differences in culture that may be overlooked yet are important to the running of your business.
If your business is sales or BD driven it will be essential to have someone who can speak the local language in order to easily find the right partners or communicate with potential consumers. You may also need local support staff to assist you in the day to day running of the business. Overlooking the important step of having local staff could create many unnecessary complications for your enterprise.
Overlooking Available Resources
When a company decides to expand overseas, it is often not merely doing so with short term gains in mind, but rather a medium to long term goal in place. As such, businesses should make the necessary investments into resources that can assist them to enter and be successful.
Many businesses have chosen to save on costs or opted for a ‘do it yourself’ means, which eventually ended up being to the detriment of the business. Various problems have arisen from this DIY approach, like incorrect company setup, not being fully in compliance with local laws, a lack of understanding local consumers and many more problems have arisen from not using resources available.
Companies should endeavor to find or establish strategic partnerships that can ease them into the new market and assist with their expansion needs. Whether it be a local marketing agency that can assist you to promote your business through local channels, lawyers and tax consultants, or an expansion expert who can assist you with your company setup, using a local company may save you time and money in the long run.
Setting Up the Incorrect Entity
So, you have done the right market and research and realized the consumer potential in the new market. You then decide that opening up in the new country is what you need to do, and you proceed to open up a representative office in the target country to only later find out that there are certain restrictions on this type of entity.
This is a mistake that often happens to businesses who expand into new territories. Without proper understanding of the local regulations, it may be challenging to identify all the entity types available, and which one would be best suited to your business needs.
Each type of business entity has its own particular requirements for businesses of different sizes and objectives. Although the names of entities may be the same or at least similar in different countries, their requirements, obligations, and characteristics may differ. For example, a Limited Liability Company (LLC) in the UK is not the same as an LLC in Japan (Godo Kaisha). Even though they are similar, their respective minimum investments, required share capital and setup periods differ. Therefore, businesses expanding overseas need to ensure that they are selecting the correct type of entity for their needs and objectives.
There are also alternatives to setting up your own entity such as establishing a representative office (which may have restrictions), using an employer of record (EOR), or partnering with an established company and creating a joint venture. These vehicles of entry all differ but provide your enterprise with a flexible option and reduced risk.
With international expansion becoming easier, it comes as no surprise that more companies are looking to expand. While it does have many upsides, managers and entrepreneurs need to research and plan carefully in order to ensure that they are making the correct decision. It is important to prepare, find the right people, use the resources that are available, and select the most appropriate entity for your setup in the new market.
INS Global is a Global Expansion company that helps businesses setup in different regions. If you are considering expanding your business into a country, our expansion consultants can assist you with all your business needs. Whether you are looking to incorporate a company or for an alternative solution to incorporation, our experts are able to assist you. We also specialize in recruitment, invoicing, and payroll administration. Get in touch with us today and let our experts simplify your international expansion.