5 Common Pitfalls to International Expansion
Crossing borders for business seems fun and adventurous at first glance. A new culture, a new audience, more potential revenue, the list goes on. But with more power comes more responsibility. Unfortunately, companies are not exempt from international failure, big or small. Let’s discuss the top 5 common pitfalls of international expansion.
1: Going Abroad for the Wrong Reasons
To put it simply, it’s just like going on an impulsive solo trip out of the country to escape your own personal problems back home. You may be in a different location, but if your issues aren’t properly dealt with they will eventually come back to haunt you.
The same thing can be said about starting your business in international markets. If you are attempting to break into the Japanese market because you’ve heard there are great opportunities, but your core business in your home country is not thriving, you probably won’t have the funds needed to finance a cross-continental business feat. It will end before it even started. Some say you should have a minimum of USD $50 million in sales per year before even considering going global.
You should sort out your priorities and focus on how you can succeed back home first. Take the time to figure out the “why” before you can figure out the “how”.
2: Not Having a Plan in Place
If global expansion were easy, everyone would be doing it. Remember each country is different. The early bird doesn’t always get the worm, at least, not in international business.
Do your due diligence on the market you are targeting. What may work in one country is not going to succeed in another. What kind of demographic are you targeting in the market? Is there local competition, if so, what is it like? Is the country’s market homogeneous or is it different from region to region? Is there a demand for your product in the market you are targeting? How have other companies entered this country? For an idea of what can go wrong here are ten successful US businesses that failed abroad.
Studying your market will give you the resources you need in order to succeed. Make sure to do your homework.
3: Failing to Find the Right Partners
Don’t make the mistake of going at it alone. It is inevitable that you will face local competition when expanding into new territories. While this may pose a challenge, think of this as an opportunity to network and build business relationships. Working alongside a local partner may save you a significant amount of time, money, and energy.
Not only can these overseas partners provide local nuance and knowledge, but they can also provide you with resources that you may be lacking, such as shipping, storage, or local talent. A business partner that can help you serve your customers can help your business build your own company’s reputation. It will also make the transition into a new country much smoother.
4: Neglecting to Take Local Culture and Preferences Into Account
Business and marketing mistakes can be the death of your business abroad. For example, in 1988 Walmart opened 16 stores in South Korea in an attempt to break into the market. By 2006, all stores shut down and operations were put to a complete halt. Walmart is just one of the many examples of companies that did not try to understand the cultural differences between their home market and their target market.
What can we learn from Walmart? They didn’t adapt the height of marketing signs and shelving to South Koreans. This made it particularly difficult for consumers to physically reach certain products and thus became a barrier to purchase. Walmart also sold prepackaged fish. This alienated the local consumers as they were used to seeing fish that was still alive in a fish tank prior to purchase.
Tiny details can make all the difference when targeting a foreign market. Don’t be the kind of company that neglects that.
5: Operational Risks with Hiring Staff Overseas
Expanding means more manpower. You are going to need more staff in order to run the growing entity that is your business. Sometimes that means hiring employees overseas.
Having local talent means that they will have a better understanding of the culture and business practices in that country. However, hiring overseas does come with some risk. You are trusting your business with new people that you may barely know; the logistical aspects of hiring overseas can also be a painful process.
One way to resolve this is hiring a Global PEO (Professional Employer Organization) which helps companies expand into markets around the world. With a Global PEO, companies can hire employees overseas in a short amount of time without needing to set up an entity in that country. You can rely on the PEO service provider to take care of employment and payroll and benefits so that you don’t have to. This model allows you to spend more time on your business’s global expansion strategy.
It’s important to know how you can fail so that you can learn how to succeed. Success is also never a straight upward line, there are valleys and peaks. Don’t let the fear of failure prevent you from working toward your professional goals. Figure out why you want to expand, create a strategy, partner up, do your research, and hire the right people.