Going global is definitely worth your time and investment. Once you are done establishing a strong customer base in the domestic market, you tend to aim at international expansion.
But there are several challenges companies face in entering global markets and potential opportunities.
In this blog, we will walk you through the several challenges of international expansion. Let’s start exploring!
The Critical Challenges of International Expansion Businesses must Know
As we have already said, there are both challenges and opportunities for global expansion. So, if you are looking forward to tapping the options, you will also have to prepare for the challenges of expansion to a foreign land.
Here is an extensive list of the challenges of international expansion in detail. Read through to create a proper expansion plan and ensure success in the endeavor!
1. Legal and regulatory compliance
The most difficult part of international expansion is complying with the laws and regulations of the foreign land. Perhaps, compliance is one of the challenges of international expansion that you should start preparing for from the beginning.
This specific challenge comes under trading regulations, taxation, employee legislation, trading requirements, and several other aspects. You must review the overall trading scenario in the market before entering.
A few businesses might also need a local accreditation o trading approval from the authority of the foreign land. Failing to comply might result in penalties and even a ban on trading.
So, to overcome this challenge of international expansion, you must have the required knowledge of local regulatory systems. Before starting with the operations, ensure having proper knowledge about FATCA, GDPR, etc.
2. Consider cultural differences
When it comes to global expansion, you must consider the rich cultural diversity around the world. While international expansion opens up new possibilities, the risk of miscommunication due to cultural differences is ever-present.
For example, if you are a company in the US and plan an expansion to Japan. You must be aware of their cultures. Communicating with customers, greeting, beliefs, values, verbal and non-verbal cues of communication, etc. must be understood to ensure business success. Here, the main challenge of expansion to a foreign land would be learning a culture totally different from your own.
On the other hand, you must also understand the markets well. If you use the same strategy as in the domestic market, it might not turn out well.
So, to overcome this challenge of international expansion, you must consider the culture of the new markets. Create your strategy to align with the culture of the new international markets. Taking help from local experts is highly beneficial for making this transition.
3. Understanding political risks
Political landscapes are evolving now and then. So, considering political risks is a key aspect when you are eyeing international expansion. Should you consider cross-border trading risks like Brexit? Can these risks come in the way of business success?
Finding answers to these questions is important.
To overcome this challenge of international expansion, ensure that you are updated with the current political scenario. Understand the key issues such as complexity and corruption levels within the foreign market. This will help you to mitigate the political risks.
4. Managing organizational communication
The way you handle your international expansion determines the success of a business in a new market.
You must ensure that your team communication is well-planned. The way you interact, report and monitor your team efforts impacts the success of a business in a foreign market.
So, setting a few leadership rules, protocols, and an effective system can help you overcome this challenge of international expansion.
5. Understanding the marketing strategy
How well do you know the buying process in the market where you wish to expand?
Learning about your new consumers is the only way to sell your products or services in the new market successfully. Once you know what works for the new market, you will know how you can position and promote your brand.
One key element in successful international marketing is transcreation. Through this transcreation process, you will be able to customize your marketing strategy and content according to the requirements of the new market.
This way, you will adapt better, and your chances of success in the foreign market will also increase.
6. Managing HR operations
Taking your business to a global level requires an adequate workforce. One challenge of expansion to a foreign land involves recruiting and managing your human resources.
You might need to hire a new team and make decisions about sending existing employees and employing new ones. If you decide on hiring local talent (which is beneficial), you must assess and attract the global talent pool.
To ensure hiring the right person, you must plan the entire recruitment process. You must decide the roles that need to be filled up by the local recruits. Make sure to place the local talents in a way that will help you get insights and navigate through the new market.
Also, you can connect to professional recruitment agencies to ensure hiring the right talent for your business.
7. Local competition
One of the crucial challenges companies face in entering global markets is the local competition.
Suppose you are a fast-food chain in the US and you plan to enter Australia. You might be well ready to enter the new market with the expansion strategy.
But what about the other local fast-food brands that already exist in the Australian market? Do you know the brands well? Can you attract customers to your product?
Research on local competition is a must before entering new markets. You have to be aware of what your competitors are selling, their marketing strategy, position in the industry, etc. Also, you must accordingly develop your competitive advantage to counteract the local competition.
To overcome this challenge is to establish working relationships with local businesses. Use their resources like logistics, shipping, etc. Also, with local knowledge and expertise, you can customize your products and strategies according to customer demands.
8. Supply chain related risks
A separate department in large companies generally manages shipping, storage, logistics, imports, and exports. This is because it involves a lot of work.
Managing the supply chain across boundaries can be a real challenge. If you are shipping goods from the US to the APAC region, you will have to consider;
- Geographical distance
- Cost and time involved in shipping
- Taxation rules
- Trading laws
- Customs issues, etc.
You need to consider several risks related to the supply chain. What if there is a delay in delivery? What if customs impound your products? What are your plans for missing parcels in transit?
All of these risks need to be considered and well-planned before trading globally. Understanding how things work will help you prevent the risks.
The only solution to this challenge is a properly planned international expansion. Without a proper plan, you could get overstock or understock products; you might even incur more costs than estimated. Hence, research the foreign land and plan your expansion accordingly.
9. Operating risks related to recruiting staff
One challenge of international expansion is increased pressure. As your business expands, you will need more ground staff in the new country. Moreover, depending on the type of business and the new market, your specifics will vary.
The risks involved in hiring more staff is not only increased overheads but also trusting new people. So, you need to make sure that you are ready to take on the challenge of international expansion.
Consider the number of additional staff needed for the expansion. Also, ensure that you have the required infrastructure, financial, and logistical resources.
Hire staff after you have assessed their expertise, skills, strengths, and attitude to achieve your expansion goals. Once you place the right people at the right place, you can be sure of success.
10. Physical distance can be an issue!
Traveling during Covid-19 is a common challenge of international expansion. Countries are currently going in and out of lockdowns, and several countries have posed travel restrictions. Hence, market research, testing can be a challenge for companies.
Also, there are specific requirements for the boards of companies to satisfy before establishing your business in the new market. So, make sure you know the requirements well before traveling across borders.
The best solution to this challenge has strategic alliances or partnerships in the foreign land. Instead of your home country, being in the new market will help you set up the business.
Also, finding the right partner for recruitment, administrative work, and outsourcing services will help you manage the entire process of international expansion.
11. Understanding international business accounting
We have already talked about legal and regulatory compliance. But accounting can get challenging once you are exposed to new foreign markets. Different tax systems, rates, currencies, and compliance requirements can make the accounting function of a multinational company extremely challenging.
The only way to overcome this challenge is to know the country’s accounting rules you are expanding to. Ensure that you are aware of the regulatory system and how it can impact your tax liability.
Also, estimate the expenses of accounting and ensure that you have professionals with a good sense of trading in foreign lands. You must also consider focusing on tax efficiency so that the business can save bucks to a certain extent.
12. Setting a pricing strategy
What will be the price of your product in the new market? Will it be equivalent to the price in the domestic market? How can you ensure both competitive pricing and profits?
Several questions need to be answered when setting the price of your products in a foreign land. To remain competitive in the new market and still ensure profits, you must consider the costs.
To overcome this challenge of international expansion, research the prices in the local market. The local competition can give you an idea of the standard prices. Hence, you can set a benchmark for your pricing strategy.
For example, consider your labor charges, shipping cost, marketing, distribution costs, and your profit margin before setting the price of your products.
13. Currency rates
Currency rates fluctuation is another challenging aspect of international expansion.
Overcoming this challenge of international expansion needs monitoring of exchange rates and mitigating the risk of unpredictable fluctuation.
Since significant fluctuations can impact your expenses and profit, paying suppliers and production costs in the same currency is better. This might require switching to local production to balance costs and revenue.
You can also set up a forward contract and agree on a price in advance for future sales. It can protect your sales from currency fluctuation risks.
Unravel International Expansion with Multiplier
Global expansion has its own set of challenges. Organizations that are planning to go for international expansion must take note of these challenges. While some of these challenges are unavoidable, there are some that can be easily resolved.
It can help you in the following manner:
- Onboarding freelancers and international employees seamlessly
- Managing multi-currency, international payroll
- Generate compliant employment contracts
To know more, schedule a free demo!