Expanding Your Business Overseas in 2019? Here Are 6 Mistakes to Avoid
Posted on Feb 12, 2019 9:26 AM. 8 min read time
In nearly every way, the world is becoming smaller — and its peoples more interdependent. For companies, the opportunity of globalization and overseas expansion is too great to pass up now that technology has made it possible to reach a worldwide audience, but that doesn't mean this kind of expansion doesn't come with some potential pitfalls. Here are six mistakes to avoid as you consider taking your own company to other shores.
The opportunity of globalization comes with some challenges.
1. Not Doing Market Research
Apple has been trying to edge its way into the Chinese market for years, but it seems to have underestimated how much a matter of national pride smartphone brands appear to be. Tesco didn't make it in the U.S., and Walmart didn't stake a claim in Germany. So what tools and resources are available for actually conducting this research? Look for:
- Government data on job openings and the current value of the industry you’re looking to enter.
- Published reports, white papers and press releases from competitors about their own market activities and acquisitions.
- You can attend trade shows in the target nation to see what the business community is like and scope out potential rivals. You could even consider taking out a booth yourself in order to test the waters and gauge the potential interest in your product or service. This might also open the door to future collaborations or introduce you to future partners.
- A well-regarded market research company that can help you dig into variables and trends you wouldn’t know to look for otherwise.
This isn’t a full list — you have other primary and secondary sources of market intel, too. Some brand loyalties and shopping patterns run deeper than others and no amount of prior research will help you crack it. This happens. But some of these issues can be avoided through competitor and market research beforehand.
2. Not Having Enough Capital
Splitting your attention across multiple business locations, to say nothing of different continents, is no easy feat. You have to scale up your support systems and infrastructure, including office space, workforce, communication equipment and much more. Suffice it to say, you'll require capital for your expansion to go smoothly.
Capital isn't just about money either. If you operate in the computer sciences, for instance, you might find it difficult to secure the talent you need to open yourself to a broader market. You're going to need managerial talent too. Each one of these segments is an area of consideration as you draw up your plans for overseas expansion in 2019.
3. Expecting Immediate Profitability
Very few businesses will turn a meaningful profit in the days and weeks immediately following their overseas expansion. In fact, one of the biggest ways you can sabotage yourself is by pretending you'll be earning big right away and that unforeseen expenses won't creep in as you gain your foothold. Just a few of these expenses include:
- Building new relationships with the regional supply chain
- Establishing a reputation by chasing bids and engaging in marketing
- Analyzing the local market and dialing-in prices
- Adapting business practices to local regulations
- Raising new buildings, performing renovations and updating infrastructure as needed in new business locations
Your financial teams will be able to paint a fairly clear picture of your expansion costs, but you also need to build a buffer into your budget and remember that your earnings aren't going to be too electrifying until you've found your footing.
4. Expanding Without a Clear Competitive Advantage
The free market excels at delivering abundant choice — and therefore redundancy. Part of doing the necessary market research is getting real with yourself about whether your company actually has a competitive advantage over what's already available.
Unless you can make a convincing case for your product being the best in its class in your new market, you might be better off enjoying the homegrown support you've already got. Some of the most memorable stories of failed overseas expansions were due to, more than likely, the company overestimating the power of its name recognition and possibly even the utility of its products and services.
Starbucks' experience in Australia is one example of overestimating the value and market differentiation one brings to the table. One rival credited with their ill fortune "down under" was another American coffee favorite: McDonald's.
5. Not Taking Culture Clashes Seriously
There are many examples at our disposal of companies leaping before they looked and accidentally upsetting members of local populations with insensitive branding, offensive business practices and a general failure to appreciate how different world cultures can be.
Here are some examples of mistakes to avoid and culture-related questions to ask yourself before expanding internationally:
- Do you have the talent required to communicate and market effectively in the native tongue? Badly translated brand messaging alone has caused no end of headaches for global companies. It's not uncommon for products to launch overseas bearing names that reference bodily functions in the native tongue. There aren't many convincing excuses for blunders like these.
- Do you have any multi-cultural leadership experience? Some culture clashes can be a bit subtler, like the challenge of reconciling multiple teams of locals who live and work across the world. There are matters involving pacing, deadlines, work ethic, deference to authority and a host of other taboos and subtle cultural differences that have to be respected and navigated for your company to maintain productivity and harmony as it expands its reach.
- Are there traditions or workplace expectations you haven’t accounted for? Managing a local team while you're overseas yourself is a challenge no matter how much collective talent might be at your disposal. Companies that have struggled with this process overseas report that ratcheting the headcount down in meetings is just one organizational tweak that can bring more participation and greater collaboration to the table in locations that might work a little differently than we do here.
- Does your leadership, pace and working style match well with Hosftede Insights and other bodies of research? They can help you break down the prominent cultural and workplace qualities and expectations in other parts of the world and change your approach to management and leadership, when the situation calls for an adjustment.
Other companies, in anticipation of branching out their operations to distant shores, have organized job swap programs so that different national cultures can learn how their counterparts work in their brother and sister offices across the country.
That way, they can draw a line of best fit between the cultures, hierarchies, roles, productivity and daily expectations in each location. And having these job swaps take place before your new overseas offices open officially is a great way to anticipate and build solutions for possible problems in advance of, so to speak, "going live."
6. Starting From Scratch
It's not necessarily a delusion of grandeur to assume you can build a brand-new foreign presence for your company from the ground up. But it's probably true that you're making life harder than it needs to be by choosing to undertake this campaign alone. So what are your alternatives? Here’s a brief rundown of how to spool up your foreign presence quickly, with or without starting from nothing:
- Make an acquisition: Some businesses acquire an already successful, already established small or mid-sized business in target region. Companies like these will already have contacts in the regional supply chain. They'll know names, faces and procedures, and probably have a firm understanding of the accounting and regulatory standards there. An acquisition like this can be your backdoor into a new market and help you establish a presence without being a total newcomer and climbing the steep hill that comes with it.
- Green field investment: This is a type of direct foreign investment (DFI) where companies choose a site and build their presence from the ground up. As mentioned, this can be a tremendous amount of work, but it also oftentimes comes with subsidies and tax incentives from the “host” nation.
- Direct exporting: If it’s important that you retain control over the manufacturing processes, direct exporting can be a popular way to do so. You’ll partner with foreign distributors rather than assembly companies, which gives you a few more degrees of separation and an “easier out” in the future should you need it. This route is not as appealing or lucrative in cases where the currency of the originating country is far stronger than the currency in the targeted country.
- Franchising: Domino’s Pizza began setting the standard for foreign franchising in 1983. The International Franchise Association provides globally relevant advice and resources for any mid-sized or even smaller company considering this route. Franchising can be a good way to address potential culture clash, as you’ll have local leadership teams who know the region better than you do.
Got all that? This is a crash course for sure, but hopefully it's been a valuable reminder of what to bear in mind as your company readies for its own 2019 overseas expansion.