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Expanding into foreign markets, whether you are a European, American, or Asian enterprise seeking to gain access to a bigger client base, must be carefully prepared to avoid common mistakes.
Entering a new market can be very exciting, but there are many challenges along the way!
It’s not just about new customers; it’s about finding new customers who will provide a consistent revenue stream over time and help grow your business overall.
To expand abroad, you’ll need to study local customs, attract new customers, recruit new dedicated resources, familiarize yourself with foreign laws and regulations, and invest time and money.
The following steps will detail what you should consider before doing it.
1) Determine if the firm is ready to expand.
First, ensure your business is stable in your home market.
Don’t expand internationally to counterbalance your country’s sales drops or financial problems.
Make sure your company is ready for expansion by assessing your current infrastructure, corporate culture, network, and whether your company is prepared.
Second, consider whether your company has the resources and capability to expand internationally.
Are you able to provide enough financial support for the expansion?
Do you need additional capital before expanding into foreign markets?
If so, how much money will it take, and how to finance it?
What are the sources of funding?
Does your firm have a strong management team and a good reputation in the industry?
What are your strengths and weaknesses as an organization?
These questions will help determine if your firm is ready for growth.
Third, consider if you need to change anything before expanding.
For example, do you need more staff training, or will your marketing campaign need to be modified?
Are any new products or services that you need to develop before the expansion?
There are many benefits of entering foreign markets, but there are also costs involved.
It’s important to consider everything before deciding.
Consider also the right time to expand.
Perhaps it would be better in six months? Or a year? When have more changes been made to prepare for growth?
2) Do extensive market research.
Discover as much as possible about the market you want to enter.
It will help you better understand the culture, language, and other special factors that may affect your business.
It’s important to know the difference between countries so that you can have an understanding of their cultures and the best way to approach them.
You might be successful in one country but not another because of the cultural differences.
Doing your research will help you to understand why things work in certain ways in particular countries and how people think about your products or services.
It will also help you understand laws or regulations that differ from those in your home country.
To enter a market successfully, it is important that you understand what type of market you are considering entering and how best to approach it from both a strategic and tactical perspective.
You must understand the economy and the business environment in which your product would be sold and used.
Once you have identified a potential target market, it is important that you develop a thorough understanding of how consumers would use your product and what their requirements are regarding its performance characteristics, durability, reliability, and safety.
Ask yourself: Who is your customer?
What do they want?
How do they shop?
Think about all aspects, including purchasing criteria, the preferred distribution channel, and purchase timing.
It will provide an accurate understanding of what they expect from your product and give insight into how they respond when they encounter problems with it or if they find that your products do not meet their expectations.
It will also help determine which competitors offer similar products within this niche and which might pose threats to your business model.
The right questions are:
Who are your competitors?
How are they different from you?
What is their competitive advantage?
Where do they have weaknesses that you can exploit?
It will lead to knowing your differentiation:
What is your competitive advantage?
How are you different from your competition?
What makes you better, and how will this be showcased to your customers?
All this information will indicate whether or not your product can be successful in the marketplace and, if so, whether you have a sustainable competitive advantage or not.
Investing based on gut feelings is not advised.
3) Developing a plan.
Once you’ve figured out the markets you want to enter, and the best time, you must develop a detailed plan.
That includes your resources, how you will communicate with your existing teams and customers, the results you hope to achieve, and the steps you’ll need to take to reach that objective.
Including marketing budgets, localization efforts to appeal to your target audience, and operations to achieve a superb customer experience.
It is essential, but it is not enough by itself.
You must also monitor the market regularly to ensure your plan works and adjust as needed.
In the execution phase of the business plan, you’ll need to measure progress against your original objectives and make changes as needed.
It is not uncommon for a company to find itself in a position where it must change course or abandon its business plan because of unforeseen circumstances.
If you are dedicated to your strategy, you can overcome even the most difficult situations through perseverance and innovation.
Firms typically adopt two international strategies: the low-cost or differentiation approach.
These strategies allow the firm to compete based on price or quality.
The low-cost strategy is based on efficient production and selling at a lower price than local firms.
The differentiation approach is based on product quality, customer service, company reputation, and other intangibles such as image and prestige.
It requires more investment than the low-cost approach.
It includes activities aimed at differentiating products from competing brands.
Product improvements, advertising campaigns emphasizing product characteristics such as quality or performance, customer service programs emphasizing customer satisfaction, and image-building programs are designed to enhance the corporate reputation for reliability and trustworthiness.
There are two main limitations of the differentiation approach.
First, advertising and promotion may be costly, especially when directed at brand building and image enhancement rather than increased sales of current products.
Second, the differentiation approach may not be feasible in some industries because of intense competition or high levels of product quality.
4) Build up your production capacity.
Depending on your current manufacturing and labor costs, you may benefit from economies of scale by increasing your production and delivering to new markets.
However, you may have to open a new production facility in the target country for legal reasons or reduce costs and delivery time.
Operating costs in many foreign countries are lower, particularly labor costs.
But you should consider the quality of production in your target market.
It would help if you took the time to research the local quality standards.
In some cases, local manufacturers can produce goods at a lower cost than what is possible in your home country; however, the quality may not be as high.
You want to ensure local manufacturers can produce goods that meet international safety standards.
Then you will also need to consider local government regulations and red tape before setting up your manufacturing facilities.
It is particularly important if you plan on selling your products locally, but it is also very important if you plan on exporting goods back into your home country.
5) Meet all the legal requirements before you start.
You must follow all local legal requirements in setting up and operating international operations.
Seek the advice of a trustworthy local legal professional to acquire a thorough grasp of the issues you will face in new markets.
This list comprises some of the legal areas you should research.
It would be best to start by registering your company name, trademark, and patent in any country you want to open. Some countries, like the E.U., provide bulk registration with different tax regulations and international agreements.
6) Review the possible operating models.
It is important that you take a critical look at your operation and determine how it might be improved to improve your ability to compete for a larger market share.
Consider the possible operating models and determine how independent the H.Q., the new company, and any outsourced services will be.
There are cases where the decision process and execution are more obvious, such as corporate logos, missions, and visions, or the hiring of high-ranking management, in which everything is decided and carried out in the headquarters.
You’ll lead marketing initiatives and allocate funds and strategies, but local offices will be responsible for implementing them and reporting on results.
You may choose to manage the company from your home country, or you may want to keep the company headquarters in the home country to manage it more easily.
The most common model is having one or several subsidiaries/operating companies managed from the host country and operating as if they were independent companies.
These subsidiaries are often called “local operating entities” (LOEs). This model assumes that local management will be more efficient than direct management from the parent company’s headquarters.
For example, a subsidiary could take care of sales, tax, customs, or other government affairs that the parent company does not need.
The subsidiary can give local management a competitive advantage in its home market over foreign competitors.
It is easier for a local operating entity to sell products (or services) locally than for foreign subsidiaries because they have less experience with local customers and competitors and less knowledge about local laws and customs.
Learn more about reviewing the operating model in this post.
7) Recruit local experts.
You will have to investigate the local culture, recognize the consequences of various languages, cultures, and histories on your company culture and management approach, and employ a collaboration tool to bridge the gap.
You may compare locations regarding the accessibility of multilingual talents in your industry, business efficiency, operational expenses, and hiring costs.
In the end, you will have to master the differences between your traditional marketplace and your target market regarding employment laws.
You must hire people who understand their local market and culture.
There are two important things to remember:
First, do not always assume that an individual from one country is a good fit for another.
Each country has its management style with its norms and traditions, so a person from one country may not work well in another.
Second, when hiring managers in international markets, ensure they can motivate team members (local staff) and inspire customers (local customers).
Hire only those who know the culture well enough to work effectively.