7 Things To Consider Before Expanding Your Business Internationally
Expanding a business (internationally) is a big investment decision. It can open up many possibilities and opportunities but comes with a heap of risks and potential pitfalls. It is therefore important to consider various aspects of the expansion before stepping into international markets. Most small business owners only work in one country, never considering the possibility of expanding overseas. However, if you are ready to take your business to an international scale, here are seven critical things you should consider before jumping in.
When you decide to expand your business internationally, don’t assume that customers from around the world will understand your product in the same way you do.
While your product might appeal to people in your country, you must consider the cultural differences of other markets. Thanks to globalization, virtually every country is interested in importing products from different markets. However, just because you can deliver a product does not imply that it is in demand. Even closely connected cultures, like the United States and Germany, have cultural divides that can impact how they consume products. A car designed for the United States might perform poorly in a German garage. Certain products, like prescription drugs, might not be approved for sale in certain countries.
2. Freight Forwarders
One of the first things you need to figure out before expanding your business is how to ship to your new market. International shipping is complicated, but by using freight forwarders, you can simplify the process. They act as middlemen, helping you find carriers and negotiating rates on your behalf. They also act as the liaison between you and the carriers, notifying them of your shipment details and issuing the shipping documents.
Before choosing an international logistics company, ensure it has experience shipping the kind of products you sell. Look for freight forwarders that handle shipments for companies in your specific industry. Also, make sure that they have plenty of experience working with companies in your industry from the country you are shipping to.
3. Understanding Costs
The most important decision you have to make is determining exactly how much money you are willing to spend on your business. Many entrepreneurs start a business without creating a budget and never realize how much money they are spending and how little profit they make. Before expanding globally, it is critical to identify your core costs — those costs that you incur no matter where you operate. To do so, you will need to conduct a thorough evaluation of your business, including your fixed and variable expenses. The general rule is that you should aim to spend between 5 and 10 percent of your business’ revenues on taxes, rent, supplies and equipment, and salaries. After that, budget for 10 to 20% of your income to go towards things like business development and hiring.
4. Brand Recognition
If you plan to sell internationally, your brand will be competing with products from many countries. To consumers, your brand may be too exotic or unfamiliar to be trusted. And, if consumers do not know you, they will not purchase your product. To grow sales, you must build awareness in international markets. Thus, you need to advertise.
Advertising can be expensive, and you may not know where to advertise. But smart advertising can reap big rewards. The strategy you choose for these efforts depends on whether or not the country has entered a recession. If the country’s economy is healthy, you can use traditional advertising methods — billboards, radio, television, print, and so on — to build your brand. But if the economy has taken a downturn, you have to spend a lot more money to establish your brand. You can use traditional advertising, but you will also have to invest more in social media, where your target audience might be spending much of its time.
5. Starting Small
Starting small in international markets is one of the best ways to test the pros and cons of your expansion. Business ideas take time to come to fruition. However, if you put all your eggs in the international basket in one go, you risk losing money if something does not work out.
Trying a single market overseas has less risks as compared to expanding in multiple markets. You shouldn’t be overly cautious when you start small. It is better to make a few mistakes when starting small than to make big mistakes later when you have established a multimillion-dollar business, and there is more at stake.
6. Training Program
Completing a trade or export training program, such as an export course, can be a great way to learn about the international market. It is often the first step to becoming fluent in the language of trade. Although trade schools have become rare, they remain one of the best sources to learn about specific products. These may include software, hardware or other products that are on the leading edge of the global trade market. Online training programs, such as trade courses offer more access and flexibility than schools but may not allow you to network with people in your industry.
7. Learning about Regulations and Tax Schemes
International business can be complicated. Knowing how to navigate international regulations, tax schemes, and trade agreements can give you an edge. Doing business in a foreign country comes with a set of challenges that you need to be aware of and prepared for. This includes knowing about local regulations, trade agreements and knowing what your consumer base expects and wants.
It is vital to be informed about the laws that affect your business. This includes local regulations, such as zoning, employment, and rules on hours, safety, and products. Taxation and trade agreements are also important. For example, when shipping products internationally, you will have to deal with local and country-specific import taxes and duties. You will want to be familiar with local, state and federal tax rates so you do not overpay. Finally, pay attention to what your consumer base expects and wants. Different countries have different consumer expectations. They will expect different standards of service and packaging, delivery speeds, and different warranties.
Knowing these regulations, tax and trade agreements can help you avoid expensive, time-consuming legal disputes.
When expanding your business internationally, it is critical to do your homework on everything from international market trends to culture to business structures to freight forwarding regulations. Before expanding your business internationally, the seven factors listed above should be at the top of your list of things to consider.