Going global: Why all companies need an international expansion strategy
Companies have been expanding to new countries and regions for ages. But today, in a hyper-competitive business environment, there is more pressure than ever to find new sources of growth, cost optimization, and profitability. Thankfully, expanding operations to a new market is also easier than ever.
By going global, companies can tap into unexplored customer segments, access new technologies and resources, and diversify their revenue streams. It’s one of the easiest ways to stay competitive and adapt to changing market conditions while also reducing their dependence on any single market. International expansion has become necessary for companies of all sizes, regardless of industry, location, or history.
Every company should have an international expansion strategy. In this article, I will go over the benefits of going global, the challenges you will face, and how you should approach creating an international expansion strategy.
Risks of not going global
The risks of staying local are becoming increasingly consequential for companies in today’s globalized economy. Businesses that do not expand their operations to other countries risk stagnation and failure. Some are purchased by their direct competitors. With a limited capacity to invest in new products, services, and workforce, their operating costs rise continuously while the revenue does not.
By staying local, a business relies on a single market. A sudden economic downturn, shifts in regulations, or political instability can severely impact a company’s operations and financial performance. Numerous enterprises have suffered from economic and political turmoils in their home countries. Sometimes, even a single new law may turn a prosperous business upside-down.
But the most significant danger of not going international is falling behind the competition who dared to do so. Competing with corporations that outsource their operations to cheaper countries is brutal. These rivals have access to more markets, customers, talent pools, and resources than any local company could imagine. Multinational companies like Alphabet or Amazon can easily reinvest their profits and continue to improve their services.
On top of that, the competition in most industries is always growing. The barrier of entry is getting lower and lower, while technology makes scaling the business easier and easier. Many companies in the United States already have 90% of their operations in EMEA or APAC to keep costs low and maximize profits. Nowadays, staying local doesn’t even provide any considerable savings for companies in the global north. Growth possibilities are stronger, employee rates are lower, and investment returns are better in other countries.
The benefits of international expansion
Expanding to foreign countries offer many advantages for organizations, making international growth a core part of most successful business strategies. Below is the list of the most substantial benefits globalization brings to companies.
1. Access to new markets and customers
By expanding internationally, businesses gain access to new regions and, consequentially, new customer segments. As a result, they’re driving growth and increasing profitability. If your Total Addressable Market multiplies, you don’t have to worry about a lack of customers - as long as you adapt your offer to suit the new market. It’s important to remember that customer needs vary from region to region.
2. Diversification of revenue streams
Once you gain customers in the new country, you reduce your dependence on a single market. Achieving a degree of diversification improves stability and mitigates region-specific risks. You will often find that many companies from your homeland already operate in your new market of choice and that your growth increases their willingness to do business with you. Frequently, the new location becomes a substantial revenue driver for the whole company as it’s more affordable to maintain but brings steady income to the company.
3. Bigger talent pool and affordable resources
An international expansion enables companies to tap into new talent pools, which can help them enhance their competitiveness and adapt to the changing market environment. Technology investments are much cheaper in EMEA and APAC compared to the US. Even in uncertain times, the expansion widens your company’s access to a specialized workforce that comes up with fresh ideas for products and optimization possibilities. But be sure to devise a good plan before recruiting in a new location. The employees’ expectations can be completely different from what you know.
4. Risk mitigation
International expansion enables companies to diversify their operations, which is a foolproof way of lowering at least some business risks. Growing the business in times of economic downturn is easier when you don’t rely on one location to provide resources and deliver services. Sometimes, it’s actually impossible to find all the things you need in a single location.
5. Improved brand reputation
Another considerable advantage of international expansion is its impact on your company’s brand and reputation. Demonstrating a global presence and commitment to serving customers worldwide is respected. It may result in more fruitful business partnerships as other entrepreneurs will see that your global workforce enables you to quickly deliver what they need for a reasonable cost.
6. Power to leverage diversity
Every nation is different and has its unique strengths. Some countries are great for IT outsourcing, while others are ideal for manufacturing. When planning your expansion, first set clear expectations for what you want to achieve. With the right strategy in place, your company will avoid costly missteps and achieve a satisfactory return on investment.
The challenges resulting from global growth
While international expansion offers many benefits, it also comes with a set of challenges that successful organizations must learn to navigate. The most prominent are listed below.
1. Regulatory compliance
Companies must comply with different legal and regulatory frameworks in each country they operate. When planning your expansion, work with specialized lawyers who will inform you about all the legal steps needed to establish and run a business in a given country. Sometimes months of legal work are necessary to ensure local laws and regulations compliance. But once you go through this, a new market awaits.
2. Communication and collaboration across borders
Time differences may force you to work different hours than usual, but setting core operating hours helps to mitigate this issue. Difficulties with cross-border communication lessen if using any modern online communication tool. But remember to confirm that the one you chose is supported in all regions you’re involved with.
3. Navigating local conventions
Discovering how locals do business may present a substantial concern for companies that seek expansion into countries with entirely dissimilar work cultures. But wherever you go, building relationships with local suppliers and partners is essential. Local employees are also used to their known working methods; understanding them is vital to effective communication. For your business to flourish abroad, it must adjust to local customs, even if just slightly.
4. Building an inclusive company culture
Your organization already has its culture, but expansion abroad will force a transformation. Individuals joining your company in foreign locations will have different life experiences and expectations than your existing crew. It doesn’t matter how well your methods have worked before. Some things will have to change for people to work towards the same goal.
Creating a global expansion strategy
Companies must take a comprehensive approach to devise an effective international expansion strategy. From setting clear goals to ways of achieving them, the 7 steps below are a good starting point when working on your expansion plan.
1. Establish clear goals and realistic expectations.
Begin by precisely formulating your reasons to expand. Is a bigger talent pool your primary motivation, or is it the access to new customers or reduced operational costs? All these options are fine, but the central objective will determine your priorities. When expanding for talent, you should consider the perspectives for future workforce growth:
- How steady is the population growth?
- What educational opportunities the country provides?
- Whether environmental or political threats exist?
2. Research the prospective countries.
Thorough due diligence is necessary to establish what markets are the most promising ones. Meticulous evaluation of a target country’s market size, growth potential, competitive landscape, and cultural nuances will vastly improve your likelihood of success. While online guides and reports are a good start, a tailor-made analysis by a company specializing in market research will aid your plans immensely. Sometimes it can even prevent costly mistakes from happening.
3. Assess customer segments.
Once you determine which markets are adequate for your business requirements, it’s time to learn about your potential customers. A customer experience specialist will estimate the need for your product or service in chosen markets and help you develop a launch strategy to set you up for success.
4. Create a marketing and distribution strategy.
Understanding local buyers is paramount to establishing a winning marketing plan and distribution scheme. Learn about the values and customs local consumers hold dear and what excites them. Your messaging and distribution channels must resonate with local sensibilities and, at the same time, promise unique value. Remember that even the best marketing won’t work if your product is not the right fit for the market.
5. Evaluate the regulatory requirements.
As mentioned before, all companies must comply with local regulations to operate in any given country. Before making the final decision on the expansion, work with legal counselors. You need to understand at least the basics of tax laws, labor laws, and other regulatory requirements your business will face in the new location to see if you’re ready for expansion.
6. Build a global team that leverages technology.
Technology facilitates communication and collaboration across borders, but people still do all the leg work. Focus on building a global team with expertise and cultural knowledge sufficient to navigate the international economy. Expertise in global hiring is difficult to acquire, so don’t hesitate to utilize third-party recruitment services. Hire experts from around the world to work at any of your locations and remotely. Favor specialists who enjoy working in international environments.
7. Reevaluate the pricing strategy.
When entering new markets with a service or product, learn about the pricing dynamics in each target region. Concentrate on factors such as currency fluctuations and local pricing standards, and determine what counts as competitive pricing. When outsourcing a part of your business, examine if what you saved allows for a decrease in your prices on the domestic market, thus improving your competitiveness.
Examples of companies that successfully expanded to foreign markets
There are thousands of companies that expanded internationally. Below are inspiring examples from the finance, tech, and logistics industries.
Citi is a global bank that has been expanding to new markets since the early 20th century. In the 1980s, Citigroup established a significant presence in Latin America. In the 2000s, it developed into Asia and the Middle East. Citigroup’s international growth has allowed the company to diversify its revenue streams and reduce its dependence on the American market. Going global allowed the firm to access new customers and broaden the range of its financial products and services. Today, Citigroup operates in 160 countries, has an on-the-ground presence in 95 countries, and offers a wide variety of services to all its international customers.
Amazon is a technology company that has expanded by steadily launching local versions of its eCommerce platform in various countries. The corporation has also entered new markets by acquiring local eCommerce businesses, such as Souq.com in the Middle East and Junglee.com in India. Amazon’s international growth has enabled it to reach new buyers and expand its product base. Today, Amazon benefits from lower costs in some countries and mitigates risks associated with economic and political instability in others.
DHL is a logistics enterprise that has been expanding to new markets since the 1970s. The company has entered new markets by acquiring local companies, such as Airborne Express. DHL’s global expansion has allowed it to provide global logistics solutions to its customers, take advantage of lower costs and greater efficiencies some countries offer, and mitigate economic and politics-related risks.
HSBC is a British multinational banking and financial services company. In the 1990s, the firm embarked on an aggressive expansion journey, acquiring banks in Mexico, Brazil, and Argentina. Going global allowed HSBC to enter new markets and offer its customers a more comprehensive scope of financial assistance. As a result, the company saw considerable growth in its client base and revenue.
Allianz is a German multinational financial services company specializing in insurance and asset management. The enterprise expanded into Asia-Pacific in the early 2000s, establishing its presence in China. This move began Allianz’s endeavors in the growing insurance market in Asia, which has since seen a rise in demand due to increasing middle-class incomes and overall economic growth. The company’s expansion into these new markets has helped to diversify its income streams and increase profitability.
Maersk is one of the world’s largest container shipping companies, currently operating in over 130 countries. The company’s transnational growth strategy has focused on investing in a robust global network of ports and terminals, advanced technology, and solutions tailored for customers in all markets. Maersk’s expansion provided the company access to new markets, reduced its operational costs, and improved its ability to manage risk through geographic diversification.
A common denominator
All these companies have succeeded in new markets by following a similar process:
- Conducting market research and analysis
- Evaluating legal and regulatory requirements
- Building global teams
- Leveraging modern technology
The global competition is fierce, but there is still room for more companies
The benefits of international expansion cannot be ignored by any company looking to remain competitive in today’s globalized economy. Businesses that operate globally increase their revenue and customer base, diversify risk and access new sources of talent. There are undoubtedly many more benefits that I didn’t cover in this article.
As technology and communication continue to advance, the world becomes even more interconnected. Subsequently, the need for companies to expand internationally only increases. To remain competitive, businesses of all sizes must develop well-thought-out international expansion strategies. By considering how their unique business proposals correspond with the needs of global markets, they can set themselves up for long-term success.
In conclusion, the globalization imperative is real, and every company should take it seriously. If you want to make the most of the opportunities of today and expand your operations globally, the time to act is now. Contact us today for more guidance. Maxima has been supporting businesses in developing their international presence for decades.