Thinking about taking your business international? It's an exciting prospect for small to medium-sized enterprises (SMEs), and for good reason! International expansion opens up a world of opportunities, from tapping into flourishing economies to navigating domestic financial crises more effectively.
But before you set sail on this exciting journey, it's essential to approach it with caution and careful planning. Going global presents its own unique set of challenges, and the risks can multiply when you step into unfamiliar territory. That's why crafting a well-thought-out growth strategy is vital for ensuring long-term sustainability and prosperity.
To help you navigate the waters of international expansion successfully, we've curated a five-step action plan that covers all the crucial aspects of going global. From devising your go-to-market strategy to figuring out the ideal local presence, recruiting, and safeguarding your profits from currency exchange fluctuations – we've got you covered! Keep reading to embark on your global growth with confidence.
1. Do your research
While it might sound obvious, many SMEs find themselves skipping this crucial step, as they are uncertain of how to proceed or fear it might burn a hole in their budget. But here's the thing: when it comes to international expansion, comprehensive research and market analysis are your secret weapons against costly mistakes and aimless endeavours. So, let's get right into what you need to ensure your new international venture thrives while keeping costs in check:
Identify the perfect target market
The key to a successful internationalization process lies in pinpointing the right target market for your products or services. For businesses like yours, finding markets that genuinely align with your offerings is essential. Here's how to tackle this efficiently:
- Focus on market potential: Prioritize markets with high growth potential and an evident demand for what you bring to the table. Look out for regions experiencing economic upswings, demographic shifts, and changing consumer preferences.
- Tap into secondary research: Don't reinvent the wheel; valuable insights can often be found in publicly available data, market reports, and industry studies. Government websites, trade organizations, and reputable research firms offer treasure troves of information to guide your market selection.
Did you know?According to European statistics, 90% of global growth is expected to come from outside Europe, and emerging markets are expected to account for 60% of world GDP by 2030.
Evaluate market entry barriers
Before diving in headfirst, it's crucial to anticipate and address potential market entry barriers. By doing so, you can minimize risks and maximize opportunities. Here's how to approach this essential task:
- Dive into regulatory research: Dive deep into the legal and regulatory requirements relevant to your industry and offerings in the target market. Consult trade associations, government resources, or legal experts to navigate the compliance landscape successfully.
- Evaluate trade agreements and tariffs: Analyse existing trade agreements and tariffs between your home country and the target market. Understanding how they impact your import/export costs and competitiveness is vital.
- Cultivate local partnerships: Team up with local partners, distributors, or consultants who boast in-depth knowledge of the target market. Their insights will prove invaluable in navigating local regulations and business practices.
Understand the pulse of the local customer
Getting inside the minds of potential customers in a new market will make or break your success. Gaining a precise, at-scale understanding of their preferences and needs will be key to tailoring your products, marketing messages, and customer experiences effectively. Here's how to do it without stretching your resources thin:
- Leverage online surveys and social media: Engage your potential customers directly through online surveys and social media platforms. This cost-effective approach allows you to gather specific feedback and gauge customer preferences on a personal level.
- Analyse competitors: Study your competitors in the target market to uncover valuable information about customer behaviour and preferences. Analysing their product offerings, pricing strategies, and customer feedback will help you identify gaps and seize opportunities.
2. Develop a go-to-market (GTM) strategy
You've done the groundwork, and now you stand armed with comprehensive knowledge of your target market. The time has come to turn those precious insights into action, paving the way for success in uncharted territory with your go-to-market strategy.
Answering the following questions comprehensively will help you define an effective, localised go-to-market strategy for your international expansion:
- Goals setting: What are the specific and measurable goals you aim to achieve in the target market? How will you translate those goals into key performance indicators (KPIs) to help you track progress and measure success?
- Product and service localisation: How will you adapt your products or services to suit local preferences, regulations, and cultural norms?
- Marketing strategy: How will you tailor your messaging and value proposition to resonate with a local audience? What pricing strategy will you adopt to align with local market conditions and customer purchasing power? Which marketing channels will you use?
- Fulfilment strategy: How will you set up an efficient distribution network to ensure timely delivery to customers across the target market?
- Market entry method: Which market entry method (exporting, licensing, franchising, joint ventures, strategic alliances, local branches, or subsidiaries) is most suitable for the target market, considering competition and resources?
- Budget allocation and resource planning: How will you allocate budgets for each aspect of the go-to-market strategy, such as marketing, sales, distribution, and local team setup?
- Launch plan: Will you consider a soft launch to test the market and gather feedback before a full-scale rollout? Will you time the launch with consideration for seasonality or cultural events that may impact the market's receptiveness?
3. Establish a local presence
The next phase in your business expansion strategy involves establishing a local presence in your target market. As an SME, you have various options at your disposal, each offering unique advantages and challenges. Let's explore these avenues and find the best fit for your international venture:
Selling through online marketplaces is particularly relevant for SMEs looking to establish a swift and cost-effective international presence. It is especially advantageous for businesses focused on rapid expansion and wanting to test the viability of their products in new markets.
Advantages of marketplaces:
- SMEs can leverage the existing infrastructure and customer base of the marketplace, saving time and resources on building their own from scratch.
- Joining reputable marketplaces can enhance your brand's visibility and credibility, as customers trust these platforms for their purchases.
- Marketplace partners often offer efficient logistics and fulfilment services, ensuring timely delivery and customer satisfaction.
Disadvantages of marketplaces:
- Online marketplaces are highly competitive, with numerous sellers vying for customer attention. Stand out by focusing on unique selling points and excellent customer service.
- Be mindful of the fees associated with selling through marketplaces, which can impact your profit margins. Carefully evaluate costs and pricing strategies.
Local sales representative
Opting for a local sales representative grants you the advantage of flexibility, giving you time to assess your offering's viability before making significant investments. This option enables you to gain valuable insights through a trusted local partner, which may lead to a more successful hard launch down the line.
Advantages of a local sales representative:
- Local sales representatives operate as independent agents, maintaining a purely contractual relationship with your company. This provides the freedom to explore the market without establishing a physical presence.
- They take charge of prospecting, sales, and product distribution abroad, allowing you to gauge potential challenges and opportunities.
- Local representatives possess invaluable knowledge of the local market, consumer preferences, and trends.
- With established connections and networks, local representatives can open doors to potential customers, partners, and opportunities, giving your business a head start in the market.
Disadvantages of a local sales representative:
- Scaling delivery might pose challenges if demand rapidly increases.
- As local sales representatives operate independently, maintaining consistent alignment with your company's values and sales approach may be challenging, potentially impacting the overall customer experience. Establish guidelines and provide training to address this challenge.
Considering a local branch office? It's essentially an extension of your existing company, but there are important points to consider:
Advantages of a local branch:
- A local branch provides greater control over your customer base, brand representation, and communication efforts in the new market. This level of autonomy can be crucial for maintaining consistency and aligning with your global business strategy.
- In some cases, local branches might not be subject to local taxes, but rather those applied in the country of origin (do check local tax policies before proceeding).
Disadvantages of a local branch:
- Establishing and operating a local branch typically involves significant initial investment and ongoing overhead costs.
- The parent organization is liable for any debts or legal problems incurred by the local branch.
Operating a local branch entails more complex internal accounting and HR processes. Managing payroll, payments, and local compliance requires expertise and careful attention.
- Your existing fintech stack may not be optimized for cross-border financial transactions, necessitating internal adaptation and change management to ensure seamless international operations.
For those seeking a more significant local presence, a subsidiary is the way to go. From an accounting perspective, it is considered its own legal entity. As a result, launching a subsidiary is equivalent to setting up a local business, both administratively and fiscally.
Advantages of a subsidiary:
- A subsidiary benefits from significant resources, providing the company with the means to establish a robust and influential presence in the new market. This level of commitment showcases a long-term dedication to local customers and stakeholders.
- They are considered independent taxpaying entities, and profits are taxable in the country of operation, potentially offering fiscal advantages in tax-favourable regions.
Disadvantages of a subsidiary:
- The process of setting up a subsidiary can involve considerable upfront costs, including legal, administrative, and registration fees.
- Governance can be complex and costly, requiring increased oversight and expanded internal expertise.
- The subsidiary's financial strategy and profitability models may need adaptation based on local taxation and regulations.
A joint venture can be a beneficial way to tackle a challenging market. In certain jurisdictions, a joint venture becomes a necessity for foreign investors.
Advantages of a joint venture:
- Partnering with a reputable and well-established local company lends credibility to your business, enhancing your brand image and instilling confidence in your target customers.
- Your joint venture partner brings valuable insights and an established local network that can help you assert your business's presence swiftly.
Disadvantages of a joint venture:
- A joint venture involves shared decision-making between your company and the local partner, necessitating a well-defined partnership agreement to establish clear roles and prevent conflicts.
- Bridging cultural differences between partner organizations can present challenges. It requires open communication, mutual understanding, and a willingness to adapt to each other's working styles and business practices.
Did you know?In some countries, collaborating with a local partner is a regulatory obligation. China, for instance, has seen deregulation efforts in recent years, but certain sectors remain relatively closed and require local partnerships. For example, foreign investors are prohibited from holding more than 50% of shares in commercial vehicle manufacturing companies.
4. Recruit locally
Congratulations! By this phase, your international expansion strategy is well underway. As you lay the foundation for your presence in the new market, it's time to consider the crucial aspect of local recruitment. This phase is all about finding the right talent to carry out your plans and drive your success on foreign soil.
However, it's important to note that recruiting locally may not be necessary depending on the market entry mode you choose.
What you gain from local recruitment:
- Local talent brings valuable in-depth knowledge of the target market, including customer preferences, cultural nuances, and market trends. Their insights can be a goldmine for tailoring your offerings to resonate with the local audience.
- Having local staff onboard adds credibility to your business, enhancing trust among customers, partners, and stakeholders. Additionally, their existing connections can open doors to potential opportunities and partnerships.
- In countries where wages are lower, hiring local staff can lead to significant cost savings. Employers' social charges or fiscal contributions may be more favourable, contributing to overall cost efficiency.
Considerations for local recruitment:
- Familiarize yourself with local labour laws and requirements to ensure compliance with employment regulations. Understanding the legal framework will help you navigate hiring, contracts, and employee benefits smoothly.
Managing cross-border payments, including payroll for full-time, part-time, and contract workers, can be challenging. Avoid common mistakes by working with international financial experts who understand the intricacies of global transactions.
5. Develop a currency hedging strategy
As you venture into new markets abroad, it's essential to be aware of the currency risk and volatility inherent in the foreign exchange market. Why is this crucial? In short, unfavourable changes in foreign exchange rates can significantly impact your company's financial health. Here are the key areas where currency volatility can have a serious effect:
- Import and export costs: Currency fluctuations can directly impact the cost of importing raw materials and goods or exporting products to foreign markets. Sudden changes in exchange rates can lead to increased costs for imports or reduced revenues from exports, affecting the overall profitability of the business.
- International payroll: If you have staff abroad or make cross-border payments, currency fluctuations can impact the amount you need to pay them, creating uncertainty in budgeting and forecasting payroll expenses.
- Cash flow management: Currency fluctuations can disrupt cash flow projections and planning. For SMEs operating in multiple currencies, unpredictable exchange rate movements can lead to cash flow challenges and difficulties in managing day-to-day expenses and investments.
Implementing a currency hedging strategy is often overlooked, but it can make a world of difference in safeguarding your profit margins when expanding internationally. It empowers you to focus on growing your business with confidence, knowing that you have measures in place to mitigate currency risk. And the good news is, we can help! Talk to our experts to learn more.
iBanFirst, your trusted partner to take your payments across borders
With these five essential steps, you are now equipped with the necessary framework to confidently expand your business internationally. But hold on, before you set sail, there's a crucial piece of the puzzle that demands your attention—handling cross-border transactions.
At iBanFirst, we understand the challenges that SMEs face when it comes to international payments. Navigating through a maze of red tape, prohibitive fees, slow processes, and unpredictable currency exchange rates can be overwhelming.
That's precisely where our expertise comes into play. You can experience fast, reliable, and effortless currency conversions and payments while safeguarding your business from currency market volatility. Speak to one of our experts today and discover how iBanFirst can be your trusted partner in making global payments a breeze.