The meaning of global expansion
Global expansion, in business terms, is when a business begins operating in another country, usually to take advantage of local market conditions or lucrative opportunities to increase revenue or reduce costs. Global expansion refers to any business activity in a new territory, from selling products or services, dealing in raw materials, manufacturing, exporting, importing or employing.
Global expansion is often linked to fast-growing businesses that recognise they can make more money if there is a demand for what they do abroad, or that they can reduce costs by operating in a new territory. It can also be about driving brand recognition in a new region, or even leveraging market share from a competitor who is also active in that part of the world.
What are the benefits of expanding globally?
Expanding globally can offer numerous benefits to businesses and organisations. Some key advantages of global expansion include:
- Increased Market Opportunities: Expanding globally allows a company to tap into international markets and customer segments, which can lead to increased sales and revenue.
- Diversification: Global expansion can help diversify a company's revenue streams, reducing its dependence on a single market. This can mitigate risks associated with economic downturns in specific regions.
- Access to Talent: Expanding globally can provide access to a broader talent pool, enabling companies to hire skilled workers from around the world. This can be particularly advantageous for industries with specialised labour requirements.
- Economies of Scale: As a company grows and expands into new markets, it can often achieve economies of scale by increasing production and distribution efficiency. This can lead to cost savings.
- Innovation and Knowledge Transfer: Global expansion facilitates the exchange of ideas, technologies, and best practices across different markets, fostering innovation and improving business processes.
- Risk Diversification: Spreading operations across multiple countries can reduce risks associated with geopolitical, economic, or regulatory changes in any one market.
- Competitive Advantage: Expanding globally can provide a competitive edge by allowing a company to offer its products or services in markets where competitors may not yet have a presence.
- Brand Recognition: International expansion can increase brand visibility and recognition, enhancing a company's reputation both globally and domestically.
- Access to Resources: Companies can gain access to new sources of raw materials, suppliers, and distribution channels, which can improve supply chain resilience.
- Learning and Adaptation: Expanding globally forces a company to adapt to different cultural, regulatory, and economic environments. This learning process can lead to greater organisational flexibility and agility.
- Profit Potential: Entering emerging markets with a growing middle class can lead to substantial profit potential as disposable incomes rise.
- Strategic Alliances: Global expansion can lead to opportunities for strategic partnerships and alliances with local businesses, which can be mutually beneficial.
- Tax Benefits: Some countries offer tax incentives and preferential treatment to foreign investors, potentially reducing a company's overall tax burden
However, it's important to note that global expansion also comes with challenges and risks, including cultural differences, regulatory complexities, currency fluctuations, and political instability. A well-thought-out international expansion strategy may vary depending on the industry, company size, and specific circumstances, so it's important to consider these factors when making a decision to expand globally.
The first step in any global expansion: research
Before any action is taken to expand globally, researching the desired activity in a new country, region or even continent, is essential. The point of failure for many global expansions is a lack of understanding of not only local laws, practices and regulations, but cultures too.
Take a look at the launch of American retail giant Walmart in Germany in the 1990s. Although Germans were used to big box retail, Walmart failed to identify nuances in Germany’s restrictive operating hours, employment laws and additional bureaucracy for international companies. Tie that in with a failure to match up to German shopping habits (like the ‘greeters’ at the front of the store that Germans found quite off-putting), and the global expansion failed catastrophically.
Just because a product or service performs exceptionally well in the home market, it doesn’t mean the appetite will be the same in other international markets.
And even if your employees in your home country are happy with their working conditions, employees in another country may expect something different – or the law dictates they need to be different.
One of the best options is to work with a local expert, often known as an Employer of Record, to identify the potential pitfalls, restrictions, opportunities and strategic advantages available in your target country. They’ll also manage the administration and hiring of staff in your target market, meaning you can focus on the operational side of your global expansion.
A great tip is to use a simple SWOT analysis framework to identify the Strengths, Weaknesses, Opportunities and Threats of entering a new country or territory. This means you can then identify any issues before you’ve invested any serious capital.
Establish your market entry strategy
Global expansion always requires a robust strategy built on extensive research. One problem with global expansion is the pressure to start taking advantage of the opportunities abroad as quickly as possible, often meaning businesses run before they can walk.
Establish a project and planning team, or a committee/steering group if you have a restricted budget. Then, use your preferred project management technique to plot out the timeframes, must-dos, nice-to-haves, and a few scenarios from your SWOT analysis.
Like any global expansion strategy, pre-defined success criteria and a list of goals in order of importance that everyone can see will make life a lot easier.
Being agile is also a great way to succeed when it comes to global strategy. By having the ability to change priority, pivot or stop work altogether in a short timeframe, you can react to the unexpected red tape, extreme demand or tough hiring conditions with less expense.
And if you do experience a Walmart situation, having an exit strategy can help minimise the PR blowback or economic risk to the rest of your business.
Find the right talent
Possibly the most important tactic on our list, employing the right people to manage your global expansion is the difference between success and failure. Unlike operating in your home country, hiring abroad comes with three main challenges:
- Language barriers
- Laws, customs, regulations, taxes, work permits and government-related challenges
- Employment culture, salaries and things like unions
Even if the country you want to expand in is very similar to your home country from a market, culture and economic perspective, the labour laws and working conditions can be extremely different. This is where it pays to have an expert, on the ground, who can speak the correct language and warn you of the changes you’ll need to make to accommodate your new employees abroad.
Unfortunately, some countries see the opportunity to ‘take advantage’ of foreign organisations who are willing to let capital flow over their borders, from the base level all the way to the government. From made-up taxes and charges to inflated salaries or union membership, it is very easy to lose money to corruption, shady tactics or simple greed.
A great solution to this problem is to engage with a global Employer of Record. These organisations usually employ their own agents or direct employees in the target country or region. They’ll have extensive knowledge of employment laws and practices, cultural norms and the pitfalls that need to be avoided. Most importantly, they’ll tell you if what you want to achieve is possible, in the way you want to do it.
The investment needed isn’t always scaled to your expansion and it’s a bit like hiring a guide when you visit somewhere completely unfamiliar, plus you’ll get tips and advice that will help you to develop your strategy and even identify further opportunities in the same target market.
Global expansion isn’t a quick and easy process, but it can be made infinitely easier and quicker with a solid and well-researched strategy. You don’t even need to have an extensive understanding of local practices yourself either – engaging with someone who knows the target market inside out is a quick solution that allows you to focus on operations and the actual launch of the expansion.
And always remember the golden rule with global expansion: just because you’re doing great at home, doesn’t always mean you’ll instantly do great abroad without making a few adjustments.
If your organisation is planning a global expansion, then our on-the-ground Employer of Record services bring both value and expert support. Get in touch with TopSource Worldwide and start planning your headache-free global expansion today.