In an increasingly globalized world, taking your company, your products, and your goals abroad can be an excellent way of gaining new customers and growing your business.
But is global expansion for everyone? What challenges will you face when creating a strategy to take your business abroad, and what are other companies currently doing?
We have the answers to these questions and can guide you through this challenging but rewarding process of taking your company to the next level.
What is Global Expansion?
Global expansion is precisely what the name suggests: expanding your business overseas, exploring foreign markets, and increasing your operations abroad.
When a company is ready to develop a global expansion strategy, it will start operating in markets outside its home territory. The expansion can be to other countries, continents, or entire regions, depending on what makes more sense for the business and the goals it wants to achieve.
We will look further into the benefits of global expansion, but what you should have in mind is that by growing your business abroad, you can increase your topline revenue, grow your market share, foster innovation, and have access to talent that you wouldn’t necessarily find in your home country.
Even though global expansion has its advantages, it can also be a challenging task. Exploring opportunities abroad means dealing with foreign laws and regulations and sometimes facing culture shock.
Different Strategies for Global Expansion
It is essential to note that what works in your home market might not translate to other countries. Doing the proper research and preparing for global expansion appropriately is crucial. Nothing has changed, according to the Harvard Business Review, which stated that although many companies are ambitious and want to go global, only some can turn that will into profit. Most companies expanding abroad had a Return on Assets (ROA) of minus 1% for the first five years of their expansion, meaning they spent more than they profited. The reason for this low success rate is a lack of planning and the difficulty in predicting the risks of this massive move.
The first step in avoiding these problems is to decide on a global expansion strategy. How your company approaches this new challenge depends on your business goals and expectations, and what works for one won’t necessarily work for the other. Being aware of possible risks will also help in choosing the business model that will bring more benefits.
The international strategy is the most well-known way to expand globally. It is the approach most companies selling products abroad will take, as they can maintain an office in their home territory and export or import goods to target markets.
This strategy is ideal for companies looking to expand their business without necessarily expanding their operations. It is easier to adapt products than to transform a whole company to fit into different cultures.
Moët & Chandon is an example of a corporation that follows this strategy. With an office and manufacturing facility in France, the brand exports its world-famous products to the entire world without needing offices or production plants in other countries. The fact that the brand is so connected to its region and has strong roots in tradition makes it easier to sell abroad without needing any changes to cater to foreign markets.
When thinking about genuinely global companies, you probably think of brands following a transnational strategy. That is the case for Coca-Cola and McDonald’s, for example.
These companies have a central office in their home country and subsidiaries elsewhere. As a result, it is possible to regionalize operations, business, and marketing decisions while also following the primary strategy set by the central office. Consider how McDonald’s will always aim to have the Big Mac on their menu – no matter the country they operate in – while also adding products to meet the tastes of different cultures.
The advantage of this strategy is that certain aspects of the company’s operations can be adapted according to the target market, but the core of the business remains the same.
Companies taking a step further from a transnational strategy will probably follow a multi-domestic plan. As the name suggests, this approach creates multiple smaller brands explicitly aimed at foreign markets. Under this strategy, the products are developed, produced, and marketed according to local needs and tastes.
Nestlé is the perfect example of a company that follows this strategy. Their products are perfectly catered to the markets in which they operate. For instance, consider Nestlé’s chocolates. In some countries, they are sweeter, while in others, they incorporate local ingredients. This strategy allows the company to act regionally and have a global structure.
This approach is even more challenging to achieve than the other strategies we’ve listed here, as it requires a deep knowledge of target markets and a profound involvement of the company with its local consumers. Everything needs to be regionalized, from manufacturing plants to marketing campaigns.
The complete opposite of the multi-domestic strategy is the global strategy. Companies with this approach change very little or nothing of their products when selling to foreign markets. This way of expanding is often the case for technology companies.
For example, Apple sells the same products in every market. There is no need to develop and manufacture a different iPhone for different markets. With strong branding, the company is well-loved worldwide and doesn’t need to adapt too much of its operations and communication efforts.
Technology also doesn’t change according to the taste of consumers, which allows companies following this approach to remain committed to their products or services while also taking advantage of external markets, talents, and opportunities.
This approach is different from the international strategy due to being more complete. It is more than just selling products abroad. A company with a global strategy is aiming to strengthen its brand worldwide.
The Benefits of Global Expansion
Growth and expansion are natural goals for every company. If you are succeeding and generating profit, looking at how to take on different challenges and markets can be the next step.
As we discussed, global expansion can be complex, and there’s no guarantee of success. However, with the right strategy, a well-designed plan, and some smart risk management, exploring new markets can significantly benefit your business.
It can be lucrative
Expanding your business to a different country can increase revenue and lower production costs. For example, moving a manufacturing plant to countries where raw materials are cheaper could significantly reduce production costs. Taking your product to a target market with less competition can also result in a larger sales volume.
If your product solves an unmet need of customers, you might be the first to reach certain regions, building your brand before the competition catches up. As a result, your company will be seen as innovative and revolutionary, increasing positive feelings about your brand in its target market and in its home territory.
You can improve your workforce
Being able to hire and work with professionals from different countries means discovering new talent and taking advantage of educational and cultural differences.
Say your company is originally from Spain, but Argentina has a much stronger workforce specialized in what you produce or provide. Expanding to Argentina increases your chances of finding the right professional for what you need and further developing your business. You are more competitive and efficient with the best workers in the world.
You can be more prepared for crises
Every country has its challenges, but some struggle more than others regarding the economy. Businesses rely a lot on the stability and predictability of the markets in which they operate. However, if there is more than one market generating profit, your business is more likely to survive and face crises easily.
Of course, this is about diversification and not about ignoring the risks. Preparing for struggle is also part of developing a global expansion strategy but knowing you are not dependent on just one market or economy can be highly beneficial.
How to Create a Global Expansion Strategy
Globalization is a reality. Businesses – even SMEs – can now expand their markets, look for employees in foreign countries and take advantage of a global economy.
The availability of technology, remote work, and companies that provide help throughout the expansion process makes it easier for any organization to go international.
If you believe it is time to take your company to the next level, make sure you do your research and then choose the strategy that best fits your goals and your day-to-day challenges.
Consider all the risks you may face in the first few years of the expansion. For instance, learn about the legal issues you might have to deal with, the potential competitors, changes in government, or twists and turns of the economy. By setting a clear and realistic goal for your company abroad, you increase your chances of success.
All the information you gather will help you to ensure that you choose the right location for your expansion. Only some countries will suit your offering, and this decision must be based on your goals, financial situation, and resources.
Whenever possible, hire local professionals to help you guide this process. They will be able to provide you with invaluable insights into your target market and instruct you about possible adversities.
It can also be quite useful to form partnerships with businesses with expertise in both worldwide expansion and hiring international staff. Their knowledge and expertise will increase the chances of success for your company. Companies specializing in hiring people abroad, such as an Employer of Record or Global PEO, will help you find the experts to take on this challenge, ensuring that your expansion goes smoothly.
Don’t be afraid to change your product or service to fit your target market. Embracing the culture is essential and shouldn’t be treated like a burden.
How to Avoid Mistakes in Global Expansion
When developing your global expansion plan, you will likely make mistakes. Partnering with an expert global expansion company will help you to avoid these problems, but it is crucial to keep these issues in mind to increase your chances of success.
Know your territory
Every country is different. Before taking your business abroad, make sure you are aware of the different laws of other territories and study the market in which you want to enter. Don’t expect the public to behave the same way they do in your home country.
Follow best practices
No matter where you set your business, you should always follow best practices. Be careful to follow local labor laws, respect different cultures, and be aware of environmental and ethical issues.
Protect your brand
Your brand is your most important asset. No matter the territory in which you operate, you should present a solid image, ensuring that customers will have a similar experience with your company no matter where they live. This also means monitoring risks to avoid damaging your brand abroad and at home.
Know your supply chain
One of the main challenges of working abroad is finding suppliers and partners you can trust. Partnering with companies specialized in global expansion will help you avoid risks, but knowing your supply chain and doing the proper research is crucial.
Monitor your risk register
Maintaining an active risk register will help to prevent you from falling foul of local country laws, especially in the early stages. This will later become essential as your business grows and expands globally.
Global expansion can be a positive strategy for every business, but it can also be a tough challenge. Deciding if it is the right move for your company will depend on your goals, objectives, and expectations.
Exploring foreign markets requires deep research and partnering up with the right allies who can guide you over the hurdles of this new frontier. Having possible mistakes and risks in mind before embarking on this journey will also help you set your expectations.
The benefits of global expansion are significant. It is the natural next step for many companies, irrespective of size. By preparing yourself, making the right decision for your business, choosing the best target market for your goals, and predicting the risks you might face, you will set yourself up for success.