International Expansion: Pitfalls to Avoid and Strategic Steps to Take
A comprehensive guide to global business expansion for CEOs and their teams
In spite of all the world has thrown at international business in the last few years, global trade has bounced back stronger than ever. In our culture of increasingly globalised communication and transaction, international business expansion may well be the next logical step to take for your company’s growth.
Mauve Group has over 25 years of expertise providing global business expansion solutions to business small and large; covering everything from visas and immigration, global payroll, and local labour and tax law compliance.
Putting our experience to the test, we’ve compiled this comprehensive guide for business leaders looking to make the jump from their home market to a target market abroad. We’ll explore the main benefits to global business expansion, before identifying 10 key considerations you should make when putting your plan into action.
What benefits accompany international expansion of business?
Not all of the benefits to global expansion are obvious, and not all reasons for expanding into overseas markets are necessarily beneficial. Here’s a quick look at the best possible outcomes you can aim for:
- Higher profit margins: The bigger your company grows, and the greater your output, the more effective your economy of scale; potentially leading to higher profit margins.
- “First-mover” access to less-competitive markets: Expanding into uncharted (or less-charted) market territory for your company’s niche gives you access to less-competitive markets, and thus a chance to create a monopoly overseas.
- Wider talent pools: Establishing a presence in another country provides ready access to ever-wider pools of talent, with which to bolster and elevate your company.
- Heightened brand awareness: International business expansion should introduce your brand to new audiences, hopefully in time creating a heightened brand awareness which increases demand for your products and services.
- Opportunity to reset the lifecycle of your products: Whilst the average lifecycle of products eventually ends in their phasing out, this can be effectively reset when these same products are introduced to a new international market.
- Diversification of team and innovation of ideas: Diversity breeds innovation by virtue of introducing new perspectives and ideas to the boardroom; expanding your business internationally provides your company an opportunity for such diversification.
Mauve’s top 10 pieces of advice for successful international expansion
Expanding a business abroad can be a measured decision prompted by a need for growth, or to meet existing demand overseas. Equally, it may come on the back of an opportunistic merger, or the surprise availability of ideal premises or gaps in the market.
Whatever your reason for seeking international expansion of your business, it is not a process that should ever be rushed. Below, we discuss 10 of the most useful pieces of advice for a smooth, successful and meticulously-planned expansion, drawn from our decades of expertise in the industry.
1) Consider why you wish to expand overseas
International business expansion comes with its fair share of risks, which is why, according to one Harvard Business Review report, the majority of companies attempting it fail to make profit. Largely, one could argue that this comes down to a lack of preparation, coupled with a failure to establish a reason for the expansion in the first place.
A “growth for growth’s sake” mindset, as we’re sure you’ll already know, can pose a real risk to any business. Overstretching ourselves in pursuit of percentages can often end disastrously. This is especially true when operating in an international capacity, where setup costs are higher and the road to brand establishment longer.
Similarly, international expansion executed on a hunch that ‘X’ market will yield profit is likely doomed to fail. Your reasons for establishing an overseas presence must be watertight, and backed by a wealth of research.
2) Research, research, research
The first step of any international business expansion strategy should, in our opinion, always begin with research: into foreign markets, competition, culture and language.
Begin by researching the market in the country, or countries, you plan to expand into. Analysis should examine the size and potential for growth of the new target market, as well as its consumer attitudes and behaviours (including notes on age, spending, ethics), the state of the country’s economy, etc.
Research the state of competition to your business’s operations, products and services in the country/countries in question. Is there a niche for you to fill? What are your SWOTs (strengths, weaknesses, opportunities, threats) compared to your competitors? How can you effectively establish your company as a superior brand to those already existing in-country?
Linguistic and cultural analysis
One of the most important, yet often least considered factors to any international business expansion is the difference(s) in language and culture between your home market and target market. Even for companies branching into theoretically similar countries (think of a Mexican liquor company exporting to Colombia, or a UK-based accountancy firm expanding into Canada), there will be a plethora of cultural and dialectic (if not linguistic) differences which must first be understood. The gap between these differences widens as you explore further afield, e.g. into ‘Eastern’ and African cultures from the political ‘West’, or vice versa.
NB: It can be tempting to press ahead with international expansion regardless of the results of your research (i.e. being too ‘set’ on the idea). However, the research process – time-consuming though it may be – should be treated as a test-run: is the venture likely to work, or not? If not, it’s time to consider another location for your expansion, or reconsider whether international expansion is right for you at the present moment.
3) Choose an expansion strategy model
You don’t have to stick with the expansion strategy you initially choose – in fact the most successful international expansions are those which are both flexible and adaptable – but knowing roughly how you wish to enter your target market is crucial as a framework for later steps. There are 6 particularly popular expansion strategies, each with its own pros and cons.
- Exporting: Maintaining an HQ and offices in the home country, a business exports its goods and services to other countries via a third-party company (usually local to the target market).
Pros: Allows for simultaneous expansion into multiple markets at once.
Cons: Expensive to scale without establishing more of a local presence.
- Licensing: Maintaining an HQ and offices at home, a business transfers a local company in its target market the right to create and distribute its products and services on its behalf.
Pros: Efficient and cost-effective means of entering new marketplaces.
Cons: Hands over a degree of control over quality and brand to the local partner.
- Franchising: Establishing local subsidiaries in other countries, a business attracts local companies to become franchisees, replicating the original business’s branding and operations.
Pros: One of the fastest models for entry into an overseas market.
Cons: Not applicable to all business models nor relevant to all requirements.
- Partners and joint ventures: Rather than a single global brand, a business may partner with other companies and use different strategies for sales, marketing and product development depending on the market in question. Similarly, a ‘joint venture’ would allow two or more businesses to officially partner and establish a brand new company to operate in the new market.
Pros: You share the workload and risks with other companies with a shared goal.
Cons: Brand awareness fragments, and partnerships can be less cohesive.
- Mergers and acquisitions: The business uses its home-grown resources to purchase and merge with other businesses overseas, thus entering a new market by way of assuming control of existing competitors.
Pros: An expeditious and arguably less-risky path to the international expansion of business, and an existing local workforce already on the ground.
Cons: Requires large amounts of available capital, and you assume a companies failings alongside its share of the market, including the potential duplication of roles and consequent need for redundancies.
- Greenfield investment: A business establishes itself anew in an overseas market, building itself from the ground-up as it initially had at home.
Pros: You retain full control of your brand, including freedom of decision-making throughout all areas of the business.
Cons: A challenging international expansion model which requires the greatest investment, in terms of resources and planning, though which is relative to its undeniably desirable payoff (a fully-realised independent expansion overseas).
4) Establish an overseas, localised infrastructure to support the transition
Once you’ve conducted your research, selected the location(s) for your expansion, and chosen an expansion model, it’s time to begin creating a localised infrastructure to support the expansion.
Choosing between remote employees and independent contractors
Depending on your reasons and goals for international expansion, you’ll either need to hire a local team of employees in your new location, engage the services of freelance independent contractors instead, or send existing employees to the new location to begin establishing your presence there.
On the one hand, hiring independent contractors provides you access to new talent, local knowledge, and a new marketplace remotely. On the other hand, there are strict limitations (varying by country) on the extent to which you can rely on independent contractors before triggering misclassification and/or permanent establishment – both of which often result in heavy fines and penalties.
Hiring employees compliantly negates most of the risks described above, but is more costly and the process more lengthy. It can be made much simpler by working side-by-side with an Employer of Record (EoR). An Employer of Record can also facilitate the transfer of employees from your local branch or head office to the new location: an option which may serve as an agreeable middle ground between local employment and contractor work in the short term.
How to pay your international workforce
When hiring employees overseas, you’ll need a global payroll infrastructure equipped to pay your international workforce in a timely, compliant, and fair fashion. If you opt to explore the independent contractors option first, you’ll need a different payment system to remunerate them.
Paying tax abroad
Your company’s tax obligations – to the authorities and your employees – differ from country to country, and region to region. What works in your home market probably won’t apply abroad, which is why you need to be fully aware of how to comply with tax regulations in each of the countries you expand into.
Complying with international labour laws
Likewise, labour laws also differ from country to country. Whilst the international labour standards set and enforced by the ILO (International Labour Organisation) inform local government, the laws set by each nation’s or region’s legislature can still vary widely. Aspects of work and the workplace regulated by local labour laws often include:
- Employee contracts
- Payroll and tax contributions
- National minimum wage, salary structure, maximum working hours
- Overtime, sick leave and holiday pay
- Termination procedures and fair dismissal
- Employer contributions to employee benefits (healthcare, pensions, etc.)
- Protection of employees from unfair discrimination
- Health and safety in the workplace
- The right to strike and unionise
Sourcing local partners
One of the surest ways to make sure you get to grips with the market, consumers, culture and language of your new territories is to source local partners to work with. This may already be a core part of your expansion strategy, or may be something you choose to include later.
5) Branding for an international audience
If your goal is to retain your branding throughout international expansion (i.e. rather than resorting to joint ventures and partnerships, or mergers and acquisitions), then you first need to ensure you have a brand package which can be easily translated.
One way to do this is to create a ‘brand manual’ which standardises your brand, covering everything from the company mission, values, and ethics, to your brand logos, colours and fonts. Having this to hand ensures that your brand remains consistent no matter the market it is introduced to.
NB: When standardising your brand, it’s a good idea to consider how certain elements of it may be received in different countries. For example, whilst the colour red is considered auspicious (associated with luck, long life, wealth and happiness) in most Asian countries, in South Africa it represents mourning. Similarly, whilst the number 13 tends to carry negative superstitious connotations in the West, it’s the numbers 4 and 9 which have this same effect in China and Japan, respectively.
6) Tailor your product/service to the new target market
Just as you might consider tailoring your branding to an international market, it’s also worthwhile reimagining your products and services so that they appeal as keenly as possible to the consumers in your new target market(s). This is a process called ‘translation and localisation’, which helps to make your brand and your products feel more like insiders than intruders.
7) Make the most of asynchronous work (be available at all times)
Asynchronous work – work completed around the clock – can prove extremely valuable to businesses, ensuring that their presence is felt across their consumer base 24/7, and increasing overall productivity.
However, it’s no use enjoying a-synchronicity internally, if your customers and clients don’t also feel the benefits. Ensuring your customer support services are also localised in new territories ensures that wherever in the world you reach people, they can engage with you on their watch.
8) Create a long-term, KPI-led budget for the expansion
International business expansion requires a serious injection of cash and assets to succeed, and due to the protracted nature of the expansion process, any budget created must look to the long-term. Your budget should also provision for unexpected bumps in the road, and set realistic expectations on return. To measure the success of your venture against your investment, establish monthly KPIs (key performance indicators) by which you can check your progress and make amends in real-time.
9) Know the risks to global expansion (so that you can avoid them)
As we made clear at the start of this article, international business expansion comes with plenty of risks. Whilst this shouldn’t put you off, you should make sure you’re aware of all the possible risks you face, so that you can mitigate them in advance. Business expansion risks include:
- Global compliance with local tax and labour laws.
- Running out of the resources required to establish an international presence.
- Risk of permanent establishment.
- Lacking the scale to absorb risks abroad.
- Misclassifying employees as independent contractors, or vice versa.
Partner with a leading global business solutions provider – Tip #10
International expansion of business is a defining characteristic of the modern era, and can be just as advantageous to the SME-owner as it can to the board of a giant corporation like Coca-Cola or Shell. However, the process can be costly, long, stressful, and is often full of pitfalls: not least with regards to global payroll, tax and labour law compliance.
Many of these challenges, including strategic international workforce planning, can be dealt with simply and effectively with the help of a dedicated Employer of Record like Mauve Group. Mauve offers a range of services tailored to global business expansion.
Begin your journey into international business expansion by getting in touch with the team at Mauve, today.
The information provided has been checked for accuracy as of the date of publication, and is intended as a general guide and for information purposes. It is subject to unanticipated and unexpected changes and does not constitute legal advice.