Many business owners and entrepreneurs look to the future with optimism when it comes to expansion opportunities. However, while a successful business model might be making waves in a domestic market, this doesn’t guarantee it will continue when scaled up to global proportions.
International markets are a different ball game and there is a risk that companies that expand their operations too early will flounder in the larger pool. A worrying, but also encouraging, 9% of small businesses fail due to unsuccessful geographical expansion. With such high stakes, small businesses, in particular, must carefully consider whether they are ready for global expansion or not.
Scaling too soon
When everything seems to be going your way it’s tempting to strike while the iron is hot and jump on the notion of expansion. You may fear that if you don’t take the opportunity to expand when things are going well, you may miss the boat. However, there are some important considerations to make when expanding a small business to reach global success.
Firstly, at least one of your senior stakeholders will have to devote most if not all of their attention to international growth. If you can’t spare that person from your leadership team, then it’s likely that you won’t have the capacity for development on a global scale.
Adjusting your company infrastructure can go a long way to aiding this growth but it can take time to change your operations or to find the right senior staff for the job. However, fintech enables rapid scaling without overtaxing HR and accounting teams and it provides an easily auditable and automated compliance trail.
Underestimating the costs of growth
The costs of growth aren’t isolated to the people in your leadership team, expansion costs can quickly escalate if you don’t account for them, grasp the fundamentals and budget accordingly. Your attention can be so devoted to expanding operations that you roll with things a little too much and neglect to take a structured and strategic approach.
It’s important to pull back from the temptation to dive right in and take a more considered approach. Identifying major costs on new facilities, employees, and inventory is the place to start but you must weigh that against your forecasted income potential.
You must consider how you are going to finance this expansion but also ensure that you leave an additional buffer for incidental costs that may not have been on your radar. If your projected income versus outgoings looks healthy for a global expansion then it’s certainly worth the risk.
Too busy to grow
The fact that you are swamped with work is a good sign that your business is heading in the right direction. With so much demand for your goods or services, it’s easy to imagine that there is an opportunity for expansion to another market. However, you must conquer your market first.
That means getting your operations to the point where you aren’t absolutely slammed and you don’t know which direction you are heading. Chaos is not a good basis for expansion, it can cause you to miss essential strategy points and you may not be capable of making the tough decisions at that moment.
Instead, it’s important to organically grow your domestic business operations to ensure that the foundations for your expansion are as solid as possible.
Restricted by your niche
The chances are that as a small company there is a limit to how far a niche will carry your business. Your product or service might provide a perfectly legitimate and essential service at home but it’s impossible to know if there is a gap in other markets without doing thorough research.
Not only in terms of the law but also in the behavior of your potential customers. What is popular at home doesn’t always resonate with new markets. For example, garbage disposals are widespread across the United States; a survey of 1,000 U.S. adults shows that just over half of Americans live in homes with garbage disposal.
But while popular on home soil, a garbage disposal installation company may find it hard to break into other markets even though its product is hugely convenient and adds value to many homes in the US. In fact, garbage disposals are banned in several Canadian, and American, cities, meaning that it would be a fruitless venture.
Tackling different rules, legislation, and rates
As a domestic company, you can enjoy the tax laws and lack of interest rates that you are already familiar with. However, once expanding from one country to another, operations become complicated and often expensive.
There are many quirky local laws and obligations that businesses must follow to allow for their operations to exist in a different country. For example, Spain’s unfamiliar laws can make transactions in Spain seem overly complicated for those who are considering expanding into this market.
Without seeking the right guidance from financial advisors familiar with the laws in the countries a company wishes to operate in, expanding businesses may discover surprise costs that diminish their returns. In some cases, this may be prohibitive to any future endeavors so exchange rates and domestic tax laws must be understood before proceeding.
Mastering the exchange rate
It’s not just laws that can quickly reduce your earning potential, there are exchange rates to be considered too. The foreign exchange market is the largest in the world with trillions of dollars changing hands every day.
Your fees can include exchange rates, wire transfer fees, and small-print costs that aren’t immediately apparent. All of these fees begin eating into your profit margins and the more currencies you trade in, the more fees you are likely to encounter. It’s essential to research and negotiate where possible which payment providers offer the best rates.
Failing to adapt to local marketing cultures
Business owners must understand that while the world is more connected than ever, rules are different from country to country, including marketing behaviours. In the United States, we are used to companies marketing to us from all angles but this approach won’t necessarily go down well in a foreign market.
For example, resentment towards online advertising is strong in the Scandinavian countries, while France is another country with a strong dislike for online advertising. Some countries require a more refined approach to marketing and it’s important to understand and adapt your style to suit the countries you intend on trading in.
Neglecting to check out the competition
It’s easy to assume when everything is going so well that it will continue to do so as your operations grow. However, when moving into a global market the competition changes and it can be much harder to keep tabs on what others are doing.
Expanding companies may also be riding a wave of enthusiasm that can give them blinkers when it comes to worrying about others. This failure to understand and consider what the competition is doing can see a small business lose the battle against key demographics.
It’s important that globally expanding businesses think sustainably and rather than looking for short-term wins think about the international market in the long term. That includes studying the competition to see what makes them successful and why, in some cases, they have stuck around.