Things You Need to Know Before Expanding Your Business Globally

schedule 01 Oct 2016


There’s a strange similarity between continental drift and business expansion. When two continents drift, some elements of flora and fauna pass over and that’s why plant fossils, similar rock formations and animals are found in both continents.

The native and the foreign co-exist. But the odds are stacked against the foreign species: Not all of them survive. They can’t cope with climate change, competition from native species, and fail to adapt to a new environment.

Likewise, in business, when companies decide to spread their wings and expand to other continents—or even countries—many collapse. They can’t cope with local competition, they don’t get the pulse of the customer, and they fail to adapt to the market realities of the host country.

That’s where the similarity ends. Continental drift is a natural phenomenon, but expanding your business globally—and failing--is a man-made disaster. It doesn’t have to be one. Here are four things to bear in mind when expanding your business globally and how digital ways of working can lend a hand.

KYC: Know Your (Foreign) Customer
You need to ensure that there’s demand for your product or service in the country that you want to expand to. This means understanding the customer and walking in his shoes.

Some of the biggest and well-known companies have botched their global expansion strategies by assuming that what works in one country will work in another. Learn from their expensive failures.

Take for instance, when Groupon wanted to foray into China. The company hired a slew of foreign managers who didn’t have a strong understanding of the Chinese customer, and were using marketing tactics that countered what Chinese consumers preferred. This lack of understanding of the Chinese market and customers pushed Groupon to the background in China. Today, Groupon holds a minority share in Chinese daily deals website Gaopeng.

Getting to know who you’ll be serving is one of the most crucial factors in determining your success abroad. Feel like the locals, get into their minds, and research your customers before you plunge into unknown waters.

One way to understand customers better is to turn to new-age digital tools like mining social media data to figure out the expectations and preferences of online customers in the country you want to expand to.


An Eye on Local Competition
Local competition can put you out of business before you know it. They have an upper hand because they know the culture, market dynamics, and the pulse of the customer.

When American e-commerce company eBay entered China, it faced tremendous competition from Chinese heavyweight TaoBao, founded by Jack Ma. Why? TaoBao’s built-in instant messaging system was a huge hit among customers. That’s something that eBay China didn’t offer. Customers wanted the ability to communicate with sellers online easily and this function wasn’t incorporated into eBay China’s system. Which is why, eBay lost most of its customers to TaoBao. After a fierce battle, eBay bowed out of the country in just two years.

Before you set foot in an unknown territory, you should keep your ear to the ground and read your competition. Ask yourself: Will your business thrive in this market? Who is your competition? How will you cope with them, or better still, how will you beat them?

You should leverage digital technologies to get closer to customers and provide them with an experience that acts as a competitive differentiator and takes you ahead of local competition. Using digital customer interfaces—especially those that local competition isn’t providing—can make all the difference.

It’s All About the Money
You can’t travel to a new land in search of treasure without having the means to do so. Needless to say, entering a new market is heavy on the purse.

Apart from user acquisition fees, legal fees, funding for sales and marketing activities, and hiring new staffers, your expenses will shoot up as you get closer to product launch day. Prior to building your business abroad, you’ll also have to spend on travel, research, and hiring experts to help you understand the local market.

You’ll also need to invest in shipping, inventory, storage, and of course, real estate. Another important cost to bear in mind depends on your import-export pricing strategy. For small companies, indirect exporting—using intermediaries to handle promotions, setting up distribution channels, etc—is the best way forward.

What many companies forget--or don’t pay enough attention to--is the need to evaluate the cost of exiting a country. Experts say that tearing down a foreign subsidiary can cost up to three times the money and time it took to establish it. That’s something you need to watch out for. Build a solid exit strategy before you enter a new market.

Alternatively, you could also look at setting up digital workspaces—instead of setting up full blown office spaces that need heavy infrastructure investment—which can enable employees to work from any part of the globe, without actually being present there. That’s because they are equipped with all the apps and data they need that’s accessible from any device.

Law of the Land
Get this wrong and you could land in a soup. It’s extremely important for organizations expanding to new geographies are aware of the legal framework of both countries—the origin and the destination.

This includes tax laws, monetary transactions, and labor laws among others. For example, if you are expanding your business to Mexico, you should know about Mexican Aguinaldo--a mandatory Christmas bonus provided to every employee in Mexico; equivalent to 15 days wages or more.

In addition, you should also be aware of Foreign Direct Investment (FDI) rules, export licenses, and regulations around joint ventures and other partnerships.

You should also pay close attention to industry-specific regulations to ensure that you have obtained the necessary compliance and certifications. Don’t forget to initiate a patent and trademark analysis to ensure your products aren’t copied by competitors in your host country.

These four aspects are a great starting point for businesses that want to expand globally. The journey is tedious and time-consuming but the destination is well worth the effort.


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