Are you planning to expand internationally?
Then, perhaps, you need to know about the international expansion methods.
There are several methods of international expansion that you can go for. However, it is essential to choose the best fit for your organizational resources.
In this blog, we’ll walk you through the methods of global expansion, their pros, and their cons.
We’ll also provide you with a briefing about partnering with PEO & EOR as a method of international expansion.
So, let’s get started!
6 Methods of Global Expansion Every Business must Know
What’s the best way to enter a foreign market?
Well, there’s no one best method of international expansion. You might choose one mode of global business expansion and shift to other ways laton.
For instance, several companies start with exporting and then move to license to a higher investment strategy.
Each of these modes of international business expansion has specific advantages and disadvantages. Let’s get into the details!
1. Exporting
Exporting is a standard international expansion method. It involves marketing and direct sale of domestically manufactured products in foreign markets.
Exporting is one of the most established and traditional methods of international expansion. It does not require setting up manufacturing units in the target country. Hence, the investment is low.
Pros
- Exporting ensures fast entry into the market
- The degree of risk is low in exporting
Cons
- Low degree of control
- Inadequate access to local market information
- High transportation costs and risks
2. Licensing and franchising
Licensing is a popular method of international expansion. Here, a licensor gives a licensee the right to use its intellectual property (like patent, copyright) for a royalty fee.
Suppose you own a restaurant in the US popular for a special Chicken wrap. Now you want to expand the business to India. Producing the product in the US and sending it to India is not possible in this case. And setting up a production factory requires high investment and resources.
Here, licensing is the best way. You can enter into a licensing agreement with an Indian company. This agreement will allow the firm to use your process and manufacture the Chicken wrap. You can then sell the product under your brand name in exchange for a fee.
Franchising works similarly. As the franchisor, you sell the rights to a franchisee to use your brand name.
Pros
- This mode of international business expansion allows fast entry
- The cost of entry and risk is low
Cons
- The degree of control is less
- There is a risk of legal or contractual issues
- The franchisee or licensee may become a competitor
3. Partnerships & strategic alliances
Among the international expansion models, partnerships and strategic alliances are mutually beneficial. It involves forming partnerships or alliances with local firms in the new market.
This method of international expansion allows both businesses in partnership to achieve their goals.
For example, you form a strategic alliance or partnership with a local firm in a new market. It will benefit you because your access to market information will be easy. On the other hand, the firm will also benefit from your resources. Hence, it’s a two-way deal and beneficial for both.
Pros
- The risk involved is low.
- The investment reduces due to shared costs between partners
- Partnership firms or strategic alliances are considered as local entities
Cons
- The business-related costs are higher compared to methods like licensing or exporting
- There might be integration issues between cultures
4. Mergers & acquisitions
A merger is when two businesses merge or come together. And acquisition is when one takes over the other.
One of the best international business expansion methods, mergers and acquisitions, lets you enter the new market quickly.
With mergers & acquisitions, you are either merging or acquiring an already established organization. So, several resources, supply chains, and distribution channels become yours. Thus, the entry is pretty quick and easy.
Pros
- Mergers & acquisitions offer quick entry to the new market
- Provides easy access to various resources, market information, supply chain, distribution channels, etc.
- The risk involved in this entry mode is comparatively low
- Apt for industry consolidation
Cons
- The method involves high investment as currencies play a significant role
- There might be integration issues with the home office
5. Greenfield venture
Businesses often use this as one of the entry modes of international expansion. This method involves establishing a new, wholly-owned subsidiary in the foreign market.
Also, known as Foreign Direct Investment (FDI), this method is comparatively slower as it takes time to set up the operations in the new country.
Greenfield venture provides direct ownership and a high degree of control. However, the method also demands high-level investment and resources.
Hence, most companies use this method of international expansion only after they have gathered experience in foreign markets.
Pros
- It offers a high degree of control
- Provides new opportunities to the business
- Appropriate as a long-term international expansion strategy
- Businesses can gain local market knowledge easily
Cons
- Greenfield venture requires high investment
- It involves high risk
- It takes time to enter the market using this method of international expansion
- The international expansion entry mode demands high resources and complex strategic planning
6. Working with global PEO or EOR
Besides these five common methods of international expansion, this is another entry mode often used for entering new markets.
Partnering with a global EOR also ensures that any entry mode you select becomes enhanced. A global PEO or EOR works with you and assists you to determine how well-suited your infrastructure is for the expansion process.
A PEO conducts the research and collection processes and analyses the legal implications. They can also support talent acquisition, legal compliance, and global payroll obligations.
Pros
- A PEO can save your money and time
- It can protect you from legal risks
- It can also assist you with talent acquisition and managing workers’ compensation programs.
Cons
- You may experience a delay in communication
- As a business, you might be liable for PEO’s mistakes
- You might lose control over internal HR processes
Opt for a Smooth Global Expansion Process with Multiplier
Figuring out different global expansion methods can be tricky! To not make it any harder, make sure that you’re using a SaaS-based onboarding platform called Multiplier. It can simplify your global expansion process and help you with:
- Onboarding freelancers and independent contractors
- Manage a multi-currency, global payroll
- Generate relevant, compliant contracts
For more information, start your free demo now!
