With internet saturation rates consistently increasing all over the world, the temptation is there for businesses large and small to expand internationally. In some ways, just being online creates a global presence. If you want to build relationships with people, however, it may be necessary to have some boots on the ground in local communities around the world. The benefit is a chance for increased profits, of course, but there’s always a risk of investment failure.
Expanding might be the right thing to do. It might also not make much sense to focus on expansion for certain companies. Here are the key points to consider when looking at the pros and cons of expanding a business internationally.
Here Are the Pros of Expanding a Business Internationally
1. It is a way to broaden your horizons.
When companies are in multiple countries around the world, they are strengthened by the different cultures they are exposed to on a daily basis. We all have something to teach each other if we’re willing to listen. The international business has a natural advantage because the differences of each culture make it stronger while exposing their products or services to more overall people.
2. The visibility of the business brand will increase.
When a company’s market is able to expand, the visibility of its brand expands along with it. A growing international presence will therefore also make it easier in the future to continue expansion opportunities because of the increased brand recognition. This helps a business be able to recruit locally, negotiate better deals with distributors, and create media contacts that will help continue the marketing push.
3. Sales will typically increase when more customers are exposed to a business.
It is rather easy to recruit an international sales force these days. From freelancers to distributorships to the internet, marketing can happen at a local level better than ever before in almost every corner of the world. This increased localization helps to establish local relationships, develop customer loyalty, and ultimately promote an increased level of sales.
4. There is actually less overall competition.
Although it seems like it would be the opposite of this, there is less competition for a business that can expand internationally. This is because a good product that sells well will actually deflate local-level competition. There will always be customers who prefer the local mom and pop shops over an international business, of course, but more markets internationally mean a greater global market share and that drives away the competition.
5. You don’t have to do all of the work yourself.
Instead of putting your own boots on the ground, it is possible to expand internationally by bringing in agents and distributors who can do the work for you. Some businesses forge partnerships with local companies to help balance their risks, like a joint venture or a franchise. It might even be possible to manufacture goods through an international subsidiary to further limit risk.
6. The business becomes less vulnerable to changing trends.
Business trends change from time to time. Customers tend to work in mobs more than individuals because everyone likes to be popular. An international business is guarded against the changing trends of business because there is more access to markets within their targeted demographics. If a product isn’t popular due to changing trends in one market, it may be in high demand somewhere else, allowing the international business to transfer their inventory.
Here Are the Cons of Expanding a Business Internationally
1. It creates timing issues.
A business with an international presence must deal with the different time zones that exist on the planet. You know the saying that it’s always 5 o’clock somewhere? It’s true. It also means that when it is 8am in Seattle and you’re just getting to work, it’s 11pm in Singapore where your other business might be. The changes in hours can make it difficult for an international business to coordinate.
2. Language can become a tremendous barrier.
If a business is entering into a new market, especially a new business, then the local language can become a barrier toward success. This barrier is slowing coming down with apps and software that translate words into a workable language, but this technology is still very imperfect. What a small business owner may think is a compliment might actually be a grievous insult.
3. Currency fluctuations can completely eliminate profits.
American companies experienced this in 2015. With the dollar strengthened against the Euro at near historical levels, anticipated profits suddenly disappear based on the fluctuations of value in international currencies. There might also be fees in currency exchanges, especially through credit card transactions, that further dip into the profit margins. When the home monetary unit trades lower, it’s actually better for business, and that isn’t always better for the consumer.
4. There is no possible way to ignore local politics.
The political environment internationally can look very different than the domestic political environment. It isn’t uncommon for international governments to seize control of a business if they determine it is their best interest to do so. Should that happen, the entire operational profits can disappear, yet there would still be an expectation to work and function as normal. Not every country lets a company operate as it wants, so this must always be considered.
5. International businesses are going to have timing issues.
Delivery of product is a constant challenge for the international business. It is standard procedure for new manufactured items created internationally to take 60+ days for them to be shipped to a preferred location. Payment guarantees, tariff considerations, and other costs are all required to be in place. Products are going to need to go through customs checkpoints as well. If there’s a breakdown in the shipping process, it could be 6 months or more for a product to make it to the market.
6. You can’t do business somewhere when you don’t know the market.
Going global often means visiting the foreign market in person to understand local needs. The value proposition that works locally will not likely work internationally. Even if this is partnership or franchise, without seeing the market personally, an authentic presentation can never really be developed.
The pros and cons of expanding a business internationally show that there are some increased costs, but there is a good chance to experience increased profits as well. If a business can absorb the costs of expansion and has their international manufacturing process nailed down, then a company of virtually any size can develop a global presence. This gives everyone the chance to access the most valuable and affordable goods that can meet their needs.