By Larry Harding of Radius
It’s no secret that companies that have gone global have many advantages over those that remained focused on local markets alone. The former typically benefit from new sources of revenue, greater customer diversity and access to a larger group of investors and an expanded talent pool.
(Photo courtesy of Larry Harding)
Common drivers of expansion, including innovation, greater market opportunity and decreased barriers to trade, continue to ignite conversations in the boardroom. Why? Because overseas market growth shows no signs of slowing down in the next few years, according to the World Bank Group Global Economic Prospects report.
Emerging markets in Asia and Africa in particular are expected to grow at a faster rate than the world this year, according to a Bloomberg report, which surveyed economists in 57 nations.
When considering international expansion, most companies will first look closely at how their products or services will be priced, whether sufficient demand exists and whether all investments made to enter the market can be recouped. But this merely scratches the surface.
Closer scrutiny almost always uncovers previously unforeseen costs. These can include complex and expensive target-country labor and tax laws. Once identified, these challenges often provide an excuse for executive teams to delay or even abandon their expansion plans. The task simply seems too daunting.
But in today’s global economy, companies can’t afford to be put off by the prospect of encountering challenges. Instead, they need to make informed decisions, weighing the realistic costs and benefits of a potential expansion. These will vary by target country, industry and other factors, but generally speaking a company should consider the following indicators when making its decision.
8 Indicators To Consider Before Going Global
1. Demand exists.
Is there a strong and consistent need for your product or service domestically? If so, it’s likely that demand exists in other geographies too, especially in those markets that most closely resemble the one you now serve.
2. GDP growth rates are strong and/or trending positively.
While data on a company’s own industry is critical to evaluating market potential, GDP (gross domestic product) growth rates by country can be a good early indicator of overseas expansion promise. While the GDP growth rate has dipped slightly for developing countries — from 5.4 percent in 2014 to 4.4 percent in 2015 — this is still very favorable growth. Moreover, it is expected to bounce back to 5.3 percent in 2016-2017.
3. Slow growth domestically is isolated.
If your market is slow or stagnant — be careful. But there are many reasons why markets can slow. It could be market saturation or that the company is doing business within a weak economy. Conditions may be more favorable in other regions, however. According to The World Bank, for example, the economies of China (+7 percent) and India (+7.9 percent) are expected to be further ahead of the global average (+3.3 percent), even with the turbulence both economies have seen in 2015.
4. You have product advantage.
Product development teams should already know their company’s international competition. Lean on these teams as you make your decision, starting with these questions:
- Does our product have a clear advantage over foreign competitors’ offerings? If yes, you may have an opportunity to enter their market quickly and seize market share.
- Are there any regulatory or cultural barriers to product entry in other countries? If yes, research those issues before considering the expansion into those countries.
5. Competitors have already paved the way.
If competitive products are already doing well in a particular country, yours could too. Market potential and acceptance are already proven.
6. You already have a toe in the market.
If 5 to 10 percent of your customer base is already in a certain country, that’s a ready-made market. Think about putting your foot on the accelerator and getting people on the ground.
7. Product is there, but there’s room to improve service.
It’s easy for global customers to feel unappreciated by a faraway organization. Simply having resources in the same time zone who speak the same language — perhaps IT support — lets customers know how valuable they are. When customers feel valued they become repeat customers and sources of referral business.
8. No formidable competitor exists — yet.
Markets do not remain wide open for long, especially today. If a market opportunity seems too good to be true, don’t assume that’s the case. First-mover advantage can be powerful and profitable.
Once you’ve considered these indicators, you’re ready to start tackling the bottom-line assessment. Build an expense checklist that reflects the actual costs of operating in the target country, not a checklist based on your domestic costs. You’ll almost certainly need outside experts to help you determine your employer and tax obligations in the target country, which can be very different from those in your home country. You’ll also need to consider the costs of sending expatriate employees, establishing an optimal legal entity, office expenses (rental equipment and communication), and much else besides. Only when you understand each target county’s unique laws, business environment and customs can you begin to make an informed decision about the advantages of expanding globally. Next, form a team or taskforce that includes representatives from finance, operations, tax and human resources and charge them with making a final recommendation. If all signs point to yes, good luck!
This article is written and provided by Larry Harding. Larry is vice chairman and executive director for corporate development at Radius, an international business software and services company created with the merger of High Street Partners (HSP) and Nair & Co. In this role, he consults with dozens of businesses each year, helping them to know when, where and how to expand their businesses internationally.
The views, opinions and positions expressed within this guest post are those of the authors alone and do not represent those of CBS Small Business Pulse or the CBS Corporation. The accuracy, completeness and validity of any statements made within this article are verified solely by the authors.