Geographic expansion is about augmenting your business operations and reaching new geographic locations with the motive to upscale your operations. But is it easy?
Not really. Expanding a business involves so many tasks, multiple risks, and opportunities. Add to that various types of challenges make geographic expansion almost impossible for many businesses.
Does the idea of geographic expansion freak you out? Then you have landed at the right place.
This piece post will highlight the geographical spread business definition and the challenges that come with it.
So, let’s begin!
What is Geographic Expansion and Why is it Important?
Geographic expansion is a business growth strategy that aims to spread to other geographical areas from its original location. For example, Samsung, originally a South Korean company, is currently present in 213 locations across the globe. It is present in 84 countries and has employed over 300000 employees outside of South Korea .
Geographic expansion is important if you want to keep exploring new opportunities and possibilities. It lets you access new markets, talent pools, and helps in reducing costs. Most importantly, geographic expansion gives you the necessary resources to fuel your brand’s future growth.
5 Proven Methods for Geographic Expansion
Detailed execution of this growth strategy requires intensive research and strategically laid-out methods.
Here are the five proven geographic expansion methods with their positives and negatives.
1. Centralized hubs
Do you want to expand your commercial reach into new markets?
The centralized hub is one of the best geographic expansion methods for you before setting up a physical firm in a different location.
Here, instead of physically expanding over a geographical expanse, you can recruit individuals from the target country. These hired individuals can work in a centralized hub with centralized resources.
For example, say, Apple desires to expand its commercial reach into different markets. The brand executes the expansion by balancing into the ones that can be sold in-country and that could be serviced remotely from its office in Dublin.
Following the centralized hubs geographic expansion method, Apple hires talent from Hungary and brings them to Dublin and few other nationalities. This group of individuals find and service the local advertisers but in a wholly centralized system.
Positives: The benefit from a centralized system is a common culture, standard practices, and might be a few tax incentives.
Negatives: Opening a local office in the target country results in the ex-pats returning to their native country, which might not be the desired option for the already settled ones.
2. Scouts
Following this geographic expansion method, a firm hires consultants from the target country. These local consultants help the company conduct a market assessment before entering. The market-entry assessment lets the company gain insights into the new market conditions.
Plus, the group of local consultants works closely with the company management to lay the groundwork for the geographic expansion.
For example, Google had used this method for its international expansion. After determining the country for geographic expansion, a group of scouts (read consultants) were hired. This group evolved to be the first formal employees laying the groundwork.
Positives: A cost-effective way to know different markets and choose the appropriate entry option.
Negatives: The consultant groups require active management to represent the company culture and norms as they are not really company employees.
3. Partnerships
Ideal for SaaS companies, partnerships are also relevant for B2C businesses.
There are several System Integrators or Value-Added Resellers in the software industry who can help you enter a geographical expanse.
For consumer-centric businesses, partnerships with local partners or even joint ventures with competitors work well.
For example, several Western internet companies have created partnerships in China to establish their sales team in the country.
Positives: Speeds up the market entry process with the ground team already at work.
Negatives: Partnerships involve low cost initially, but, in the future, they might have a tax based on its structure.
4. Landing Team
The landing team geographic expansion model requires choosing a proven team from the headquarters and land them to your targeted geographical expanse.
Now the team is responsible for handling the specifics of setting up the business in the new geographical location.
The landing team model was followed by Google when expanding to Europe and Asia-Pacific Countries. Similarly, Facebook also used the landing team method for launching its engineering offices.
Positives: The leaders responsible for the business set-up are known, and placing them in a new market might boost their productivity.
Negatives: For a few specific functions (like closing a sale) in the local language might be tricky as the team may not be aware of the proper cultural aspects of the new market.
5. Move the Team
An expensive call for businesses, this method of geographic expansion might not always be feasible. This method involves moving the company (or a part of it) to an entirely new location. Geographic expansion following this model might result in losing a lot of bucks and talents as well.
The Move the Team method has not worked out well, in the case of most companies. But Spotify and Skype were able to pull this off. They successfully executed this strategic geographic expansion and have yielded successful results.
Positives: If the method is critical to your brand’s success and is executed in the initial stages of the company, it might allow the business to thrive deeper in the ecosystem.
Negatives: The method is expensive. Plus, you might lose the best of your employees if everyone is unwilling to move.
7 Pro Geographic Expansion Strategies
Let us now take you through some of the most useful geographic expansion strategies in this section of the article:
1. Check organizational health
Get started with an organizational checkup. Do not rush into making transformations without mending the errors in your system. Spend some time and observe the basics like communication, teamwork, coordination, etc. Ensure that these aspects are good before executing a geographic expansion.
2. Know your capabilities
Identify your limitations. Do not assume that your in-house team is capable of anything and everything. Get a list of the areas where you need specific expertise. And then get the required resources. For example, your previous international consultants might know about Europe, but not about Japan.
3. Categorize your business as global or multinational
Identify yourself as an international company. A global brand has one set of practices implemented across the globe. But multinationals hold different companies in different geographical expenses and focus on integration. For example, if the selling process in your Paris store, and your Japan store, are different, you are not a global company.
4. Study the labor laws
Know the employment laws before hiring and firing to avoid any legal complications. Understand the laws of the target country to ensure smooth hiring practices. For example, in a few European states, the lifetime employment clause is applicable. It may impact your company costs in a different way than the at-will employment status in the US.
5. Set clear goals and expectations
Not just the management, make your expectations and goals clear to everyone involved in the geographic expansion. Let the people executing the expansion plan know what you want and plan the meeting of the set expectations.
6. Be informed about the local talent pool
The hires for a manufacturing facility are different from a software development firm. Know your target country’s talent pool and education system to understand the qualified population and their availability.
7. Prioritize involvement
Nobody can transform your business for you. So, do not think about outsourcing the work that you must do yourself. Put your back into the work and get it done. Stay involved in the entire process of transforming your business.
3 Major Challenges of Geographic Expansion
Geographic expansion has its own set of challenges and it is better to be aware of them before you start your venture. Here are a few:
1. Talent acquisition and onboarding
Hiring a top-notch team in geographic expansion is a must. Experienced individuals with specific expertise will be needed to keep the momentum of your expansion running. The onboarding process might also be challenging due to remote hiring. Plus, you might not be able to gauge whether or not the candidate is a perfect fit.
2. Extreme competition
Competition in a new market is not surprising. The market might have sellers selling the same products as yours. Develop a competitive advantage by offering something extra to your unique market consumers. Develop good relationships, and gather information about the market. If needed, hire local talents and get insights into the market culture, language, and other vital aspects.
3. Compliance issues and risks
The geographic expansion comes with compliance risks as you need to deal with the laws of more than one country. Know your market and be well-informed about taxes, trade tariffs, labor laws, etc. To avoid any adverse impacts, be aware of the trading standards and keep up-to-date with the changing regulations.
Simplify Global Expansion with Multiplier
Global expansion is tricky. There are some critical challenges associated with global expansion including:
- Organizations often find it difficult to hire employees in a new market without a legal entity
- Onboarding new employees in a new market also becomes a challenge as keeping up with compliances can be tedious
- Processing global payroll is also critical since employees expect salaries in local currencies
- Staying compliant with the local tax laws is also a necessity and organizations often face trouble getting familiar with foreign tax regulations
Want a solution to all these challenges?
That’s when Multiplier comes into the picture. Here’s what it can do:
- Onboarding and managing and payroll
- Prompt generation and signing of contracts
- Access to unlimited global perks and benefits
- Compliant with local regulations and tax laws
Want to explore further? Book a free demo!
Frequently Asked Questions
Can Multiplier assist with setting up payroll & compliance in new markets?
Yes. Multiplier’s PEO services provide various HR and employment services, including payroll administration, compliance management, and benefits administration. Their team of experts can help businesses navigate the complex legal and regulatory requirements of different countries and can provide guidance and support on local labor laws and tax regulations.
How does Multiplier ensure that businesses are compliant with local laws and regulations when expanding into a new market?
Multiplier’s PEO and EOR services are responsible for complying with all legal and regulatory requirements related to employment in a given region. That includes payroll administration, tax reporting, and benefits administration. Multiplier also works with local partners and providers to ensure businesses have access to the resources and expertise needed to operate effectively and compliantly in new markets.
How can businesses determine if they are ready for geographic expansion?
When deciding on a geographic expansion, financial stability, cultural fit, operational capability, and market demand are some factors that businesses must consider. If all of these factors outweigh the risk of expanding in new areas, businesses can be rest assured that geographic expansion can be an opportunity worth exploring.
