Consider These 3 Variables Before Expanding Your Business Internationally

January 26, 2017

8:30 pm

If you’re thinking of taking your business overseas, examine market need, local regulations and your local network.

Despite the fact that it has never been easier, a company’s international expansion still retains an exotic allure today. Wells Fargo’s 2015 International Business Indicator recently found that 60 percent of U.S. companies expect to increase international business development planning in 2015. It remains a goal, and then a milestone, for fast-growing successful businesses to expand beyond their native market and move into international territory.

Whether it’s San Francisco or Spain, launching in another location is one of the most challenging benchmarks an entrepreneur can experience. In the past year, we grew our company globally and we now have offices in London, New York, Barcelona, Dubai and Santiago de Chile. Companies with truly global ambitions have probably seen a good degree of success at home, but I’ve observed a tendency among these organizations to lose control of their senses when moving overseas. Too often, companies seem to simply stick a pin in the map in order to locate their first international move, or target the market du jour.

This strategy invariably leads to disaster. You wouldn’t launch a business without careful research and planning on things like barriers to entry, market fit and size, distribution networks, local partnerships, language barriers and scalability potential. So why take the risk of abandoning these principles when going global? International expansion can be widely profitable for your business, as long as you consider three key variables.

Make Sure There’s a Need in the Market

For instance, a U.K.-based company may have dreams of launching in the U.S., but this is rarely a realistic ambition. The two countries may share a common language, but this counts for nothing if you are moving into an already-saturated market vertical to compete with established players.

One example of a failed expansion into a new territory is Target’s move into Canada. Problems ranging from real estate challenges to botched technology rollouts to poor training contributed to this high-profile failure, with some analysts pointing out that many Canadians already cross the border into the U.S. to visit Target stores anyway. There simply wasn’t a compelling business case for Target to expand into Canada.

Our expansion abroad was generated simply by the global nature of our business. We build partnerships with local leading financial institutions and service providers that can allow their best clients to join our network and connect to trustworthy business leaders worldwide. We are present in the main financial centers in four continents and we’re about to expand in Asia.

Understand Local Regulations and Cultural Preferences

Some years earlier, Target rival WalMart attempted a similarly ill-judged move into the German market, which ended up costing it an estimated $1 billion. Ultimately, this was due to a lack of understanding of German labor laws and restrictions on business hours, which meant that Walmart couldn’t operate profitably in the country. In this case, a lack of local knowledge coupled with a misjudgment of the market opportunity proved extremely costly.

Research is vital for businesses that may not have the resources to recover financially from a failed international market entry. To properly plan expansion into unfamiliar territories, tap contacts that are familiar with the country, leverage their knowledge, and arm yourself with as much information about potential partners and prospects as possible.

We decided to position our product team in Barcelona because of the presence of initiatives that sustain startups and the presence of diverse talent.

Build a Local Network

Entering a new market may require a company to make a number of acquisitions so they have appropriate premises to operate from, or perhaps they will be looking for partners, distributors and the like. But knowing who to trust is key.

Begin by tapping into your network’s trusted contacts and finding the common connections. Credible businesses often have strong relationships with reputable business schools, top financial institutions and industry-leading companies. Otherwise, you’ll want to grow your business the same way you may have started your company: attending events, scouting out similar companies in your industry, and investing in sales and marketing.

Luckily, technology makes this step easier. While the way business deals have been done has changed very little for many years, we now have the luxury of using online and mobile tools to our advantage. Social networks mean that we can find out a lot about people and initiate a relationship before meeting them in person. It is even possible to do this with potential business deals and services (not just individuals) now.

When doing business overseas, it can be hard to really understand local markets, and tricky to navigate entrenched territorial networks. The two qualities executives need when expanding internationally are a mind open to possibilities, and a healthy dose of realism. Understanding the barriers to entry in each market – whether they are cultural, regulatory, or simply a lack of a personal network – will save money otherwise spent on a more fragmented globalization approach. A focused, researched strategy may help you discover a profitable market you didn’t previously consider.

This article is courtesy of BusinessCollective, featuring thought leadership content by ambitious young entrepreneurs, executives & small business owners.

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Brian Pallas is the Chairman, CEO, and Founder of Opportunity Network

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