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Growing your business to an international level is exciting, but can also be incredibly challenging.
Research by Harvard Business Review found that companies selling abroad had a negative return as long as five years after expanding internationally.¹
While it might sound like the odds are stacked against expansion, many businesses have been able to build their global presence successfully.
In fact, a report by CFO research revealed that in spite of the pandemic, 45% of businesses were already or planning for further expansion.
This article will look at global expansion in more detail, including what global expansion is, the benefits of international expansion, and how to craft a global expansion strategy.
|If your business is about to go global, it’s important to make sure your finances are set up in the right way to avoid getting hit with costly conversion fees. With Wise Business you can pay invoices and get paid like a local.|
|Table of contents|
Expanding internationally is about creating a strategic approach that ensures you understand your target market and have a clear path towards how the business will grow overseas.
Global expansion is when businesses branch out from a home market into a new target market overseas.
Generally, global expansion happens when businesses are very successful in their local market and set their sights on other locations.
But before you expand your business operations into new countries, it’s important to properly research and develop a strategy for how it’s going to happen.
First, let’s look at the pros and cons of international expansion to understand why businesses do it.
|Benefits of international business expansion||Challenges of international business expansion|
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Let’s first look at the benefits of international expansion.
For businesses that are growing fast, there is a lot to gain from expanding internationally.
Multiple locations increase brand recognition for consumers and signal that the business is doing well.
In turn, that can help attract overseas investors and provide more confidence in business performance.
Additionally, expanding a business globally helps get ahead of competitors and create increased market share across different territories.
Finding ways to outsource production, and fulfilling demand in target markets are ways the business can become more profitable as it expands.
However, there are challenges associated with expanding overseas.
Local restrictions can make it challenging to operate the business. Depending on the locations, time zones may make it difficult to manage deliverables and receivables.
Supply chains might be difficult to establish without understanding local laws, trade regulations, and sourcing options.
Similarly, there might also be local and cultural differences that make it difficult to appeal to target markets.
Comprehensive market research can help identify barriers when entering markets and show opportunities for how your business could perform better than your competitors.²
Moreover, international expansion does come with some external risks.
One of the biggest challenges and concerns for businesses thinking about entering a new market is how sales or operations will be affected by exchange rates and currency fluctuation risks, making running the business more expensive and harder to budget without the right tools.
|You can manage and reduce your business’ exposure to FX risk by using a foreign currency account like Wise Business. You can send money internationally at the mid-market rate, get a guaranteed rate for your transfer, or get alerts when there’s a spike in rates, using an exchange rate tracker.|
Before expanding overseas, having a strategy in place is crucial.
That means analyzing your current products, services, and capabilities and how that could benefit your business on an international level.
Strategies for international expansion need to consider gaps in the market across different countries and where the best opportunity is for entering based on what you are currently offering.
Determining how you’ll scale operations as you expand into different locations is also an important part of the strategy.
The Relevant, Appropriable, and Transferable (RAT) test may help you to identify what capabilities could benefit your business internationally.³
The RAT test consists of three questions that help define your global expansion strategy:
Is the product or service we offer in our current or home market actually relevant and of value for customers in the new target country?
Does my business offer something highly specialised or niche enough that it can’t just be copied by local competition? Is the barrier to entry for my product or service hard?
Is it easy to replicate or transfer what my business does in the home country to the target country without driving up costs and getting more value?
You also need to map out challenges and benefits that could impact the business, such as:
- Supply chains
- Customer demographics and preferences
- Supply and demand
- Extra expenses, such as taxes and insurance, that are levied on foreign companies
Understanding your customer base in the target country is one of the most important parts of expanding globally.
If there isn’t enough demand for what your business offers and/or a poor understanding of customer needs, international expansion can prove to be difficult.
That means taking a deeper dive into the nuances of the target market, including culture, trends, politics, and consumer behavior, to better understand where your product fits in the overall landscape.
For example, IKEA’s global expansion in Japan failed due to a poor understanding of the audience.
The Japanese audience had a deep aversion to assembling their own furniture and did not find IKEA’s products appealing.³
However, on the flip side, there are plenty of companies do incredibly well after expanding globally because of their deep understanding of the audience.
As an example, Netflix has expanded to 190 countries in the span of seven years despite massive barriers around cultural preferences, regulations, and licensing deals.
Netflix has succeeded because of how they developed their strategies for international expansion.
They use audience data to create targeted local and international content based on audience preferences.
They entered into countries strategically and based their plans purely on the local market.⁴
|💡 Did you know?|
|Research from Wise in 2021 revealed that 51% of small and medium-sized businesses are put off from going international because of the cost and complexity of managing international payments. Read more and download the report here.|
One of the biggest challenges and concerns for businesses thinking about entering a new market is how sales or operations will be affected by exchange rates.
Whether you’re trying to get in front of new international customers, importing goods from overseas or moving part of your operations to another country - making sure your business banking and finances are set up correctly is critical to expansion success.
Paying the over odds for making or receiving international payments can eat into your profits big time.
Multi-currency accounts let you manage your international finances more conveniently and cost-effectively.
You can cut big exchange rate costs and fees and have the flexibility to move money when rates are at their best.
With the Wise multi-currency account you can manage over 50 currencies in one place and get foreign account details -such as IBAN, routing number and more - allowing your customers to pay you in their own currency.
Using invoice apps make international payments effortless and easier to track, and can prevent late payments.
Make sure that you have created a seamless way for your international customers to pay you in their own currency.
Also it'll be easy for you to bring those payment transactions into your accounting system with a minimum of manual entry.
In addition, managing multiple countries can be a challenge on the financial side, which is why reviewing financial statements periodically is key.
|💡 Even if your business is already operating overseas, it’s worth reviewing your existing accounts and platforms at least once a year to see what other options are available because you could cut big costs by switching.|
As you prepare to expand overseas, having an entry and exit plan based on the aforementioned tips will help immensely.
Different countries have varying requirements for businesses entering and exiting the country. This could make expansion plans complicated or more simple depending on the target market.
While it’s not always the easiest to hear, businesses must prepare for failure after trying to expand globally just as much as working towards success.
That means plotting out the best and worst-case scenario and the impacts it could have on the business within its home market.
There are many ways to enter target markets as part of an entry plan, such as:
- Starting with online-only
- Opening a brick-and-mortar store or some kind of physical presence
- Partnering with local businesses
- Through licensing and franchising
These methods can also be paired with target market considerations such as:
- Building a presence before launching
- Creating a low-price strategy to bring customers in
- Identifying flexible and responsive supply chains to ensure continuous
- supply for the demand
- Strong product localization
Lastly, while global expansion can have considerable benefits, it must also have the right talent at the helm of operations.
Hiring locally gives businesses a significant advantage for operations and marketing, such as:
- Bringing local employees onboard will grant you with deep insight into the local market
- Better understanding of employee expectations in the region
- Targeted campaigns to create campaigns and promotions for local audiences
However, international expansion can also create easier opportunities for cost-effective outsourcing solutions.
Local talent can focus on core strategic efforts to grow the business. In addition, smaller, everyday tasks could be globally outsourced at lower rates.
Doing so can help businesses save money while ensuring that revenue is channeled into where there is most potential for business growth.
Doing business overseas has never been easier but making sure you have the right financial products, services and tools to do it efficiently and cost-effectively is key to it being a success.
International banking and payments can be done easily and cheaply. That’s why over 300K businesses use Wise today.
Wise saves you time on manual admin by letting you move and manage all your currencies in one place.
Additionally, Wise can be 19 x cheaper than PayPal meaning you won’t lose out on hidden crippling fees when paying invoices abroad.
- HBR - Few companies actually succeed at going global
- Research gate - Market selection for international expansion
- Sloan review - Building your company's capabilities through global expansion
- HBR - How Netflix expanded to 190 countries in 7 years
- Open Text WSU - International entry modes
All sources checked 29 December 2021
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from Wise Payments Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.
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