When it comes to international business growth, companies need to have a clear understanding of their goals, how the different markets function, how they can can compete in those markets, and the risks involved.
There are a number of ways to expand internationally. The strategy you end up selecting ultimately depends on your products, services, industry, opportunities overseas, amongst other factors.
In this article, we shall go over some of the most effective (and profitable) strategies for expanding your business outside the corridors of your jurisdiction.
What is an International Business Expansion Strategy?
An international business growth strategy is simply a plan on how to grow a company globally. The goal is to expand the company’s sales and influence in new markets, and in the process, create new jobs for the locals.
An international business expansion strategy must be tailored to the specific needs and goals of each company. Companies should also have contingency plans for things such as political unrest or natural disasters that could impact their businesses overseas.
Importance of Expanding Your Business Internationally
There is no doubt that expanding your business internationally can have a massive impact on your overall growth and success. The global market is large and growing rapidly, offering a number of opportunities for businesses of all sizes to tap into.
In fact, according to the World Bank, the global gross domestic product (GDP) was approximately $84 trillion in the last year, and is expected to reach over $130 trillion in the next 3 years. This growth presents businesses with numerous opportunities to expand their markets and increase their profits.
Some other reasons to expand internationally are:
- It can give a business a more diverse and global customer base.
- Expanding your business internationally can help you learn new customs and practices that can be applied back home.
- Expanding internationally can often be less expensive than developing new markets from scratch.
Factors to Consider when Developing an International Business Growth Strategy
When creating your business’ expansion plan, it’s important to first focus on domestic growth. Scaling internationally only makes sense when the business has a stable foundation back home.
There are several factors to consider when developing an international expansion strategy, including:
- Market conditions
- Security
- Purchase power of the target consumers
- Level of competition
- Labor and infrastructure availability
- Government regulations
- Political climate, etc.
The 4 Main International Business Growth Strategies
There are four primary international business expansion strategies: exporting, licensing, franchising, and setting up new subsidiaries. Each has its own advantages and disadvantages. Let’s delve deeper.
1. Exporting
The process of exporting is simple and straightforward and can be done from within a company’s existing infrastructure.
Companies can sell their products directly to consumers in other countries through online retailers or through traditional sales channels such as wholesalers and retailers.
Additionally, exporting can be a great way to tap into new markets that may have a larger potential for growth than those within a company’s current territory. When done correctly, expanding into new markets through exports can lead to increased revenue and long-term success.
Advantages of Exporting to international markets
- Exporting can help businesses gain access to new customers and markets. This can lead to increased revenue and profits.
- Exporting can offer businesses the opportunity to diversify their product lines or increase their product competitiveness. In some cases, international markets may also be more receptive to innovative products or services than domestic markets.
- Exporting can help businesses build relationships with key partners and allies abroad, which could prove beneficial in the future.
Disadvantages of Exporting to international markets
- Exporters may experience higher shipping costs than domestic buyers.
- Exporting to international markets can be more difficult than selling domestically because the products must meet specific safety and quality requirements in other countries.
- Some goods may not be well-suited for international sales because they are expensive or unique.
2. Licensing
Licensing is a popular way to enter new markets. It allows companies to sell their products and services under the name of another company without having to develop the product or service themselves.
This can be an effective way to expand into new markets, as it allows companies to tap into existing customer bases and partner with other businesses that can help promote and distribute their products.
Licensing can also be a cost-effective way to expand into new markets, as it does not require the development of a full product or service. Companies simply partner with other companies to produce their products or services.
Advantages of licensing to international markets
- Licensing can help businesses to get their products into new markets without having to invest in creating new products or manufacturing them.
- It can be a cost-effective way to enter new markets, and it also allows businesses to retain control over the quality of their products.
- Licensing can also give businesses access to a larger pool of potential customers, allowing them to reach more people with their products.
- Licensing can help businesses create brand awareness in new markets, which can lead to increased sales.
Disadvantages of licensing to international markets
- International customers may be more demanding, meaning that a product or service may need to be upgraded in order to meet their expectations. In some cases, it can also be more difficult to secure international distribution deals.
- Some companies find that they have difficulty maintaining customer relationships in an international market due to cultural differences and language barriers.
3. Franchising
When it comes to expanding into foreign markets, franchising is a less common option but one that can be more flexible. A franchisor is not beholden to any single location, and can thus move locations as needed in order to reach new consumers.
A franchisor that has a well-known brand name can easily attract franchisees and consumers in other countries. All told, franchising is an effective way to expand your business overseas.
Advantages of franchising to international markets
Franchisors often have the infrastructure to support international operations. This includes localization strategies, marketing and advertising campaigns, and staffing resources.
In addition, franchisors have an established customer base from which to draw inspiration for new products and services.
Another advantage of franchising in international markets is the potential for increased brand awareness. That enables the franchisee to tap into a larger audience than would be available if they operated independently.
And finally, franchising can offer entrepreneurs the opportunity to start their own business with little up-front investment while still benefiting from an established brand name and customer base.
Disadvantages of Franchising to international markets
There are a few disadvantages to franchising to international markets. First, the licensing and regulatory process can be more complicated and time-consuming in foreign markets.
Second, the cultural differences between countries can lead to incompatibility between franchisors and their franchisees.
Third, there is a greater risk of failure in an international franchising venture because of different economic environments and different consumer preferences.
4. Setting up new subsidiaries
The most complicated way to expand internationally is through the establishment of a subsidiary. Doing so requires creating an entity that is legally separate from the parent company, has a governing structure and management team specifically tailored to carry out the new business venture, and can access international financing.
Creating a subsidiary can be an expensive undertaking, so doing it right is key. First, identify the target market and make sure the new subsidiary’s products or services are relevant and appealing to that market.
Second, select a jurisdiction in which to establish the subsidiary—this will involve assessing factors such as taxation rates, infrastructure availability, regulations, and language barriers. Finally, create a business plan that details how the subsidiary will achieve profitability and grow its operations over time.
Advantages of setting up a new subsidiary in international markets
- Increased marketability. A subsidiary allows you to expand your company’s reach into new markets without incurring the capital costs and risks associated with starting from scratch.
- Greater control. A subsidiary gives you greater control over the operations of the business, which can help improve efficiency and lower costs.
- Improved communication and coordination. Setting up a subsidiary allows you to better communicate with your employees and partners overseas, ensuring that all aspects of the operation run smoothly.
Disadvantages of setting up a new subsidiary in international markets
- Increased time and effort required to establish a new subsidiary.
- Setting up a new subsidiary can be very costly.
- Establishing a new subsidiary in an unfamiliar market can be risky, and there is a chance that the company will not be able to compete with more established rivals.
Conclusion
International business expansion can be an exciting and lucrative endeavor if done correctly. It is important to carefully consider your strategy before starting any international ventures.
If done correctly, international business growth can be a rewarding experience that leads to long-term success.
