In 2021, the market capitalization of the Global Top 100 companies was valued at $31.7 trillion.
This figure is a testament to the lucrative nature of international business. But, expanding businesses internationally carries its share of risks. In a global market, failing is just as easy as succeeding.
Luckily, there are lessons to be learned from companies that have expanded before you. Heed them, and you will enjoy the benefits of tapping into international markets.
Here are nine business expansion mistakes and how to avoid.
1. Not Assessing the Costs of Expansion
Most businesses fail as a result of underestimating the costs of doing business in foreign markets. Many think that foreign markets are like domestic markets in terms of costs.
But, this is rarely the case. Conducting business is expensive even in the most business-friendly countries. Though market entry is easy, some frustrate businesses through other costs.
Do your due diligence before creating your business expansion budget. Let it reflect the real-life costs of operating in your target market.
2. Poor Financial Management
This is one of the leading causes of business failure. Managing your funds in a foreign market can be daunting if you don’t have the right partners.
Hire financial experts from your target country to help you stick to your budget. Avoid spending on non-basic products and services in your first years of operation.
Remember, the first years are the most critical. Survive them, and you can start paying attention to the non-essential products.
3. Insufficient Risk Assessment
Foreign markets pose inherent risks to businesses of all sizes. You open your business up to political troubles and foreign exchange risks by expanding.
However, risks are an inevitable part of business development, and the higher the risk, the greater the potential reward. So, what should you do?
Start by understanding all the potential risks you face in each market. Then, develop proper mitigation plans before undertaking the expansion.
Also, when engaging in risky ventures, only use assets that you can afford to lose. Otherwise, the expansion may affect business in your domestic market too.
4. Overlooking Market Testing
Your product may be popular in your domestic market but unpopular in a foreign market. Ensure you assess your target market’s response to your product before expanding.
You can use surveys to gauge the market’s general perception. Or, you can use interviews and focus groups for more detailed feedback.
Interviews allow you to understand the reasons your product may be unpopular. But, they’re costly, so you need adequate funding before moving forward.
5. Inadequate Preparation
Expanding businesses focus on marketing, assuming that selling products is enough to survive. But, there’s more to international business than this.
Consider not only operational processes but also administrative ones. Research the best market entry strategies for your target country.
Businesses often forget that foreign direct investment is not the only way to expand. Sometimes, forming a joint venture or franchising may be the best entry strategy. Create a business expansion strategy based on your target country’s market conditions.
6. Failing to Seek Strategic Help
Understanding the rules of conducting business in a foreign country is difficult. That’s why you’ll need strategic global expansion expert help to help you every step of the way.
You don’t need to find an expert in your target country. You can partner with an international company experienced in navigating new markets.
Consider the kind of businesses your chosen strategic partner has worked with before. Are they in your industry or a related industry? If so, you’ll have a high chance of succeeding in your new market.
7. Underestimating the Need for Local Talent
Some businesses make the mistake of relocating their current employees to foreign markets. While this is necessary for control, you should not fill all positions with workers from your country.
Instead, let local workers fill most positions in your foreign office. That’ll improve your image in the new country, increasing your products’ acceptance.
Local workers will also provide valuable insights into how businesses operate. This way, you won’t make mistakes that can affect people’s perception of your business.
8. Not Considering Alternative Payment Methods
Don’t assume that customers in your new market will use the same payment methods as your domestic market. You may end up losing them if you don’t accommodate their preferences.
Today, people are moving from cash and credit cards to online payment systems. PayPal is one of the fastest-growing systems with over 300 million users. Research whether the system is popular in your new market.
9. Failing to Understand the New Market’s Culture
Workplace etiquette differs from country to country. It’s common for people to sound assertive and express their opinions loudly in the US. But, the contrary is true for countries like Japan and China.
Assuming that you’ll fit into your new market can cause friction with other parties. First, take time to learn what people consider polite and rude behavior. That’ll go a long way in helping you create long-lasting relationships.
Is Global Business Expansion Worth the Risk?
Expanding your business is risky. But, the benefits of business expansion surpass the disadvantages.
An expansion increases your earning potential because it introduces a new market. When conducted properly, it’ll take your revenue to unimaginable heights. Look at McDonald’s, Apple, and Coca-Cola.
Expansion also allows you to access a new talent pool. Foreign markets are an excellent source for unique mindsets and valuable skills. A new talent pool may be just what your company needs to beat competitors.
You also get to enjoy more financial incentives. Some countries impose low taxes on multinational companies to encourage their development.
Avoid These Business Expansion Mistakes to Gain a Competitive Edge
Nothing is stopping you from enjoying the benefits of expansion. Don’t use these business expansion mistakes as a clutch because they’re avoidable.
All you need to do is research your target market and hire a strategic partner. Then, you’ll be ready to enter international markets.