When your business seems to reach a ceiling in your home market, it’s natural to start looking abroad for new revenue streams. Maybe you feel hemmed in by local market saturation, or maybe you have growth-hungry shareholders who want to see year-over-year revenue surges. Whatever your reason, the time has come to embark on a global expansion strategy, taking your business to international markets in search of new customers and revenue.
In this article, we’ll take you through an overview of global expansion and some guidance for expanding your business operations overseas.
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What is global expansion?
Global expansion in business refers to the strategy of extending operations, products, services, and presence into international markets. You might embark on a global expansion strategy to drive business growth, increase market share, and tap into a global talent pool of skilled workers.
Expanding globally can take many forms. Establishing business operations in foreign markets can include:
- Establishing a physical footprint: This includes establishing physical offices, manufacturing plants, or distribution centers in a foreign country or multiple countries.
- Establishing an ecommerce footprint: If you’re an ecommerce business, you can enter global markets without a literal ground presence. You can expand into international ecommerce by allowing customers to pay in their local currencies and setting up shipping logistics that let you send packages to those countries.
- Franchising: Some international expansion strategies center around franchising, which is where independent business owners operate under a company's brand, following the parent company’s guidelines and giving it a share of the profits.
- Mergers and acquisitions: Yet another path to global business expansion is via mergers and acquisitions. You can choose to merge with an existing company that already has a foothold in that country or you could acquire a company outright to gain international market access.
- Building partnerships: You can team up with companies in your target market without going to the extent of a legal merger. Your global market entry strategy may simply involve partnerships with established international businesses. Together, you can create agreements to sell and market each other’s products.
Benefits of global expansion
Overseas expansion can give businesses a competitive advantage over others in their industry. Here are five benefits that companies may experience when they expand internationally:
- Increased market reach
- Increased revenue
- Diversification
- Economies of scale and cost efficiency
- Expanded global talent pool
Increased market reach
Expanding internationally lets you access new markets and customer bases. This can contribute to a broader business growth strategy, especially if the domestic market in your home country is saturated with competitors. Your international expansion efforts may produce global brand recognition and a new source of demand for your products.
Increased revenue
With new consumer markets come potential customers and new revenue streams. It’s common to find your company hitting a financial ceiling in your home market. By adding more customers around the globe, you can unlock a pathway to revenue growth.
Diversification
Operating in multiple countries helps mitigate risks associated with economic downturns or market fluctuations in specific regions. Diversification can balance out revenue streams and provide stability to the overall business. Even if you falter in one foreign market, you can potentially offset your losses by thriving in another.
Economies of scale and cost efficiency
Taking your business global lets you tap into economies of scale in production, distribution, and sourcing. Your business benefits from bulk purchasing, larger production runs, and streamlined logistics as these business practices typically come with more favorable marginal costs.
Expanded global talent pool
An international expansion strategy gives you access to local talent in your target markets. Local hires may be highly educated, both academically and in their knowledge of local competitors. They may also be more affordable than the workers in your domestic market, which can allow you to hire more employees and enjoy cost savings.
Challenges of global expansion
The global expansion process comes with a set of growing pains as you navigate the laws and customs of different countries. Here are three challenges to be mindful of as you pursue international growth:
- Cultural differences and adaptation
- Regulatory and legal compliance
- Logistics and supply chain management
Cultural differences and adaptation
Every local market has its unique cultural norms, values, and consumer behaviors. Adapting products, services, and business practices to fit these cultural nuances can be challenging. A global business must find a balance between respecting cultural differences to appeal to new customers while staying true to their brand ethos and values.
Regulatory and legal compliance
Global businesses need to comply with laws, trade regulations, tax systems, and labor practices across multiple markets. Failure to understand and adhere to these can result in fines, legal issues, or operational disruptions.
Additionally, entering the global market may include operating in countries that lack economic and political stability, which can jeopardize your operations. Research the socioeconomic and political landscape of regions where you intend to operate, and be prepared to adapt as you conduct business abroad.
Logistics and supply chain management
Managing global supply chains involves dealing with multiple vendors, shipping across borders, and handling regulations that may be unique to local markets. Logistics issues like customs delays, transportation challenges, and currency fluctuations can stifle a company’s growth and increase operational costs.
Types of global expansion strategies
- International
- Multidomestic
- Global standardization
- Franchising or licensing
There are multiple ways to expand a business internationally. Here are four types of global brand strategies:
International
An international strategy involves selling products or services outside the domestic market without significant customization. This strategy focuses on making inroads into new markets while keeping operations centralized to achieve economies of scale. Companies often maintain a central hub for decision-making and production and export goods to various markets.
Multidomestic
In a multidomestic strategy, companies adapt their products or services to suit local preferences and conditions in each market. Decentralized operations allow for significant customization to meet diverse customer needs in different countries. Each market operates somewhat independently, tailoring strategies to local tastes and preferences.
Global standardization
Companies following this business strategy aim to offer standardized products or services globally. The focus is on uniformity and consistency in products, branding, and operations across all markets. This opens the door to global mass production.
Franchising or licensing
Rather than directly operating in international markets, many businesses opt to expand through franchising or licensing agreements. A license or franchise agreement grants others the rights to use branding, products, or services in exchange for fees or royalties. This allows for rapid expansion without the need for direct operational involvement in each market.
Best practices for building a global expansion strategy
- Conduct thorough market research
- Pursue one new market at a time
- Hire local experts
Your international expansion strategy is more likely to succeed if you have a focused plan. Here are three essential tips to guide you as you pursue global growth:
Conduct thorough market research
Before diving into new consumer markets, carefully research the local economy, customs, and existing competition. Your market research should gauge whether the local culture is open to the notion of business with foreign companies, whether there’s enough local wealth to sustain your growth strategy, whether there’s demand for the products or services you offer, and whether socioeconomic and political conditions will support your growth.
Pursue one new market at a time
Some business novices make the mistake of trying to enter multiple markets simultaneously. This can divide focus and water down rather than enhance an international strategy. Concentrate all your resources on one new market at a time. Once you’re firmly established, you can turn your eye to further expansion.
Hire local experts
Rather than transport existing employees from your home market, consider hiring local experts versed in the local culture of your new market. These people will help you navigate everything from laws to cultural customs as you build out your business. Ideally, you can combine preexisting staff and new local staff to create a truly global team that fosters your brand.
