What is global expansion?
International expansion is, simply, a business undertaking to enter a new market beyond a given enterprise's home market. By looking for business opportunities for different reasons, companies find, in international expansion, yet another way to enhance a local product or service and also increase exposure to different segments of customers internationally for more diversified revenue streams.
International expansion can be understood as a systematic and well-planned business process informed by in-depth market research to engage customers in a different jurisdiction. This process is always guided by an international expansion plan or strategy.
The specifics of international expansion vary significantly not only from one company and one market to another but also to a wide range of factors including:
- Local and international business and regulatory climate
- Bilateral and multilateral trade agreements between different markets
- Internal business capabilities
- Availability and readiness of international business partners
- How informed market research is about local ways of doing business, habits, culture, and language
That said, companies, big and small, have strong reasons to venture into a new, international market, a risky undertaking as is.
Why your company should expand internationally?
There are many general and specific reasons why organizations expand internationally. The most important reasons making international market expansion increasingly attractive to organizations include:
Having a foothold in less mature markets is, for companies operating in more developed economies, an opportunity not only to grow more rapidly into a less saturated market but also to diversify the business into more areas, products, or services, a home market may not well receive but is quite welcome elsewhere.
This should be a no-brainer for any business. Having profit as one ultimate goal, companies are always looking for more opportunities to increase revenue, more so if a local market is particularly crowded. Taking a calculated plunge into a new, international market increases the chances of companies increasing revenue streams beyond limited options in local markets.
Often, a local product or service can get a boost by going international. Tapping into all possible marketing strategies locally but failing to enhance brand positioning against competition may push companies to go beyond borders to get a brand makeover. There are too many examples to count. Consider, for example, TikTok. Initially a "Chinese app," TikTok has grown to be social media's dominant non-Facebook app in many countries, including in the U.S.
More ways to do business
Expanding into a new market is not only about breaking into a new business opportunity. Instead, when companies engage local stakeholders — such as local regulatory authorities, business partners, customers, and more — culture is always a meeting point where understanding culture (or not) could make or break deals. It also enhances the organizational learning curve of new entrants by gaining different perspectives in doing business.
Therefore, expanding internationally needs extensive knowledge of many particulars to succeed and grow in newly entered markets.
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How to create your global expansion strategy?
To capture what is best in your chosen new, international markets, you need to be prepared for the following:
Finding your right partner
Engaging customers you know a little of when you're new to a given market is challenging. Having local business partners, who know ins and outs of doing business and local culture best, is a good first step to ensure your long-term success.
Doing extensive market research
To cut costs, many companies do not invest enough in market research to understand new markets. Happy generating rapid revenue, such companies only hit a hard wall of not only declining revenue later but also irreparable brand damage due to negative customer perception. That is, by focusing primarily, and often solely, on sales aspects when entering a new international market, many companies fail to properly engage local customers, and as a result, quickly lose a short-lived stint of rapid but misleading growth shortly after starting operations.
Customizing product and service offerings
Every market has unique properties. This is an intuitive but often overlooked reality in international expansion. Introducing highly successful products or services from one market into another often results in negative business and reputation consequences. That's why, understanding local culture, habits, and ways of doing business are crucial for success in international expansion.
Establishing an international expansion framework
Expanding into an international market involves quite a lot of research and resources you, as an international employer, may not have enough of or gain access to readily. That's why having expert local consultants aboard is critical to help you establish a broad expansion framework to inform your international market expansion strategy.
Developing an international expansion strategy
This should be in a later phase after you've already researched your chosen market, engaged local partners, developed initial product or service prototypes to suit local preferences, created an operational model, and more.
Pros and cons of global expansion
For organizations planning to expand internationally, it is essential to understand the benefits and drawbacks of global expansion and how it affects your business.
Benefits of international expansion
Access to new markets
Being able to carry out business activities in the global market is essential for organizations with plans to grow, especially for companies that operate in smaller markets. For many organizations, expanding into new markets is a crucial metric for growth and global expansion provides access to the untapped potentials of a new market.
Hiring from the global talent pool
Access to the global talent pool provides organizations with specialized and highly skilled professionals. As an added advantage, global talent gives organizations an edge over their competition as they can also help navigate the new market with experience.
Increased business growth
An advantage of international expansion is the increase in the organization’s business growth. Taking the business to foreign markets is a growth strategy organizations use to increase their customer base, diversify product offerings and increase the company’s brand on a global scale.
Challenges of international expansion
Cultural and language barriers
Several global markets have unique cultural and language differences, which might hinder the smooth process of expanding internationally. Therefore, it is crucial to research and learn the culture and language differences for organizations to scale the challenges they present.
One of the most significant global expansion challenges is the complexities of compliance across different countries in the world. Compliance is an essential element of every international expansion endeavor and efficiently managing compliance solves a huge part of an organization’s global expansion plans.
Difficulties in managing a global team
Managing global teams requires handling country-specific compliance, making payments in various currencies and a higher level of HR support and administration. However, suppose organizations need help managing the complex situation of managing a global team. In that case, it is best to outsource the functions to a global employment and payroll platform that can efficiently handle activities like global payroll and compliance with international employment laws and tax regulations.
When should you expand internationally?
The answer depends on many factors and questions only you, as an international employer, can have a full picture of to proceed further. For example, while planning to enter one or more international markets you, as an international employer, may need to ask yourself several questions before you can decide when exactly you can expand internationally including:
- Which market(s) suit(s) my business best?
- What legal, financial, and administrative resources do I have or will need to enter and stay in one or more international markets?
- Is entering an international market rewarding more next month, year, or decade?
- Do I expect most of my revenue to be from my international or local markets — and when?
- How and when expanding into a new international market may impact, positively or negatively, my current home operations?
- How much time is needed to fully understand local cultures, habits, and ways of doing business?
- Do I need constant or on-demand international expansion consulting so that I can operate smoothly, effectively, and compliantly?
These and many more factors and questions should inform your international expansion framework and strategy in your market entry journey. Two options usually stand out for companies wishing to enter one or more international markets:
Choosing to enter a new, international market independently could be informed by a corporate culture driven by an aggressive growth strategy. Fine. Still, you should be super cautious about a wide range of regulatory, business, and cultural risks you might run into if you don't do your job right, carefully researching your chosen market, understanding target customers, and having a complete understanding of local laws and regulations.
Partnering with an established employer of record (EOR)
Choosing your business partners in your new market is crucial for your international expansion plans. Having an established EOR as one of your business partners not only makes you more deeply informed about everything local in your new market but also spares you a wide range of legal and regulatory liabilities you may be subject to before or during operation.
Should you open a foreign subsidiary?
A subsidiary is a company owned or controlled by a parent or holding company based in a different country. They are usually separate legal entities that own their assets and handle their taxes.
When organizations plan to expand into new markets, they sometimes establish foreign subsidiaries to ease their entrance into the new market. Usually, larger organizations with prior experience with global expansion use this means to expand internationally. However, midsize or smaller organizations have the alternative option of utilizing or partnering with a global employment and payroll platform, which enables them to expand into new markets without setting up subsidiaries.
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Hiring international employees is is an essential way to ensure your organization stays relevant in the global marketplace and gain crucial access to the best talent in the world.
At Skuad, you can expand, hire international employees, and manage payroll compliantly so you can scale business operations with an efficient global team.
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What are the benefits of global expansion?
- Access to new markets
- More opportunities for increased revenues
- Enhanced brand positioning against competition
- Creation of a diverse workforce
What are the things to know when expanding globally?
- The product value to the new market
- The right expansion partner
- A developed international expansion strategy and framework
- Cultural differences
- Accessibility across multiple time zones
Is establishing foreign subsidiaries necessary for international expansion?
Establishing foreign subsidiaries is one way of entering new markets. It is usually suitable for large organizations with prior expansion experience. However, companies can leverage the expertise and services of global employment and payroll platforms like Skuad to hire, onboard, pay, and manage compliance when expanding internationally.
What are 5 international expansion challenges?
- Managing global distributed teams and workforce
- Currency exchange and inflation rates problem
- Navigating different local cultures
- Managing local legal requirements
- Managing payroll for global teams