Do you think globalization is a trend that businesses follow?
Well, then this article will change your perspective.
Globalization is now a necessity to achieve success in this super-competitive space. Though there are several reasons for international expansion, business growth tops the list.
So, when consumers from international markets are interested in your products, it is an obvious motivation for global expansion.
But being fully prepared for international expansion is a must as it has both benefits and risks associated with it.
Let’s take you through the advantages and disadvantages of global expansion.
5 Factors that Affect International Expansion the Most
Reasons for overseas expansion are many. It depends on the business type, goals, and strategies. But, regardless of the reason, businesses must consider these factors before planning the entry into an international market.
1. Cost and time
When you plan an international expansion, estimating its cost and the average time for completion is crucial.
- Because it will help you set a budget for the expansion
- You will know the investment for the project success
- Also, it will help you execute and complete the expansion process on time
2. Human resources
Who will look after the new establishment? Who will perform the groundwork? Will you hire local talents or transfer capable leaders?
Answer these questions before you plan to expand internationally. Consider how you will staff the office in the new market. Plus, make a list of the other considerations like;
- Educational qualifications of the human resources;
- Their capabilities
- Employee compensation;
- HR laws, benefits, cultural norms, etc.
3. Market opportunities
Before you check the traditional and cultural considerations for global expansion, analyze the market’s growth potential.
Once you test the market potential, you’ll know if your ideal customers exist in that specific international market or not. Also, you will get an idea about the amount of investment you need to make in the market.
So, to avoid wasting resources, it is necessary to know the market’s growth potential.
4. Tax and legislative compliance
You must have extensive knowledge about the taxation system (local taxes), immigration rules, trade systems, and establishment issues. You’ll need to comply with the country’s tax system and laws.
Here, professional help might be beneficial as consultants know better about the taxes, laws, and financial regulations.
5. Local trends and flavors
One of the reasons for international business expansion is the opportunity of exploring a new market. But, when you are venturing into a new country, it is a must to learn about the local cultures, people, preferences, and beliefs. It helps in understanding how the new customers will perceive your business.
Get every detail you can about the local cultures, traditions, and other things that you’ll need to adapt.
Also, know the population demographics like age group, income, etc. It will help you boost sales and increase your chances of success.
5 Crucial Benefits of International Business Expansion
Along with the global expansion, there are several benefits for firms.
Because of these benefits of global business expansion, firms look forward to expanding the business beyond borders.
Below, we have explained a few of the main advantages of global expansion. Let’s have a look!
1. Access to new markets and growth opportunities
One of the biggest motivators for international expansion is access to new markets. Being able to sell in a global marketplace is very attractive to companies, especially those that operate in smaller markets.
Once a firm is successful in the domestic market, it makes sense to take the business beyond borders. Because with the access to foreign markets, there’s a huge possibility of growth for the company.
Once a firm enters a foreign market, it can also identify other untapped potential markets. For instance, a firm that expands to India will have access to many other Asian countries through open borders.
2. Access to the global talent pool
One of the advantages of international expansion is access to new talent and new markets.
With the international expansion, you open doors for hiring talents from the global markets. You can find a pool of potential employees with the right skillset for your business.
Also, hiring from the international market will give you an edge over the local competition. The overseas hires can help you navigate through the market and understand the nuances of business in the market.
3. Cost-effective production
Among the benefits of international expansion, cost-effective manufacturing is one benefit that leads many businesses to expand internationally.
Several firms outsource their production function to countries where labor is cheaper, and the infrastructure costs are also low.
For instance, several US and European companies have manufacturing units in China or India. Outsourcing production to these countries can result in actual cost savings.
4. Create a new global customer base
When you successfully conquer the local market, finding new customers and expanding the customer base becomes difficult.
Customers become used to your products. After some time, they might also start experimenting with your competitors’ products. Hence, it comes as a battleground for you to win over customers. Again.
The benefit of global expansion is that it gives you access to a new customer base. These customers are not generally aware of your product. Thus, you can sell your products repeatedly to this whole new set of customers.
However, to avoid risks of international expansion, evaluate the new customers well. Plus, hire international talents who can prevent the risk of global expansion failures.
5. Get a competitive advantage
When there’s overwhelming competition, globalization becomes less of an option and more of a necessity.
International expansion is the most widely used growth strategy to outpace the ever-growing competition. So, taking your business to foreign markets open new growth opportunities. You get access to new talents, customers, and options for cost savings.
5 Critical Disadvantages of Global Expansion that You should Know of
If you have benefits, you also have internal risks of international expansion that require attention.
So, when you plan a global expansion, it is always necessary to consider the pros and cons of international expansion.
Once you know the disadvantages or risks of global expansion, you can chalk out mitigation strategies.
1. Language and cultural barriers
The regional markets like the EU or Southeast Asia have several cultural and language barriers. For example, if you are a Europe-based business and decide to expand to Malaysia or Thailand, you will have to research and learn about their culture and traditions.
2. Risk of compliance
International expansion is full of complexities, especially when it comes to compliance.
When entering a new market, you must adapt and abide by the country’s regulations, payroll obligations, other taxes, and labor laws. These regulations are generally different from your home country.
Hence, it is significant to connect with the right people who can help you stay compliant with the business rules and processes.
3. High costs of setup and termination
Whether you test a new market or plan a long-term expansion, you’ll need to bear the setup and termination costs, building infrastructure, setting up the office, paying local workers are few to name. Plus, hiring professional consultants to help you with your taxes, legalities, and finances is additional.
Overall, the disadvantage of global expansion is that it is an expensive affair.
4. Government restrictions on immigration
In the face of stringent immigration regulations for long-term workers, establishing a branch and hiring staff is quite challenging.
So, stay updated on the rules. Plus, expect a tight review from the government. So, make sure you have the necessary documentation and work permits ready for the employees.
5. International employee management
One of the disadvantages of international expansion is managing the HR and payroll obligations.
Though hiring international talents works great in global expansion, it also demands a whole new level of HR support.
Because, in a new market, employment regulations and tax systems are different than in the home country of a business.
So, a strong HR administration to look after the international employee taxes, laws, and compensation is necessary.
Embrace the Benefits of Global Expansion with Multiplier
If global expansion is something you’re looking up to, Multiplier will be happy to help!
Multiplier is a SaaS platform that manages global payroll and onboarding to ease global expansion for your business. Here’s how:
- Hire freelancers and contractors from any part of the world
- Manage a global payroll and make payments in any currency
- Generate compliant employment contracts
To know more, schedule a free demo now!