Growing enterprises frequently consider going global, venturing into foreign markets, and broadening their customer base beyond their local clientele. Though the prospect of global expansion may seem appealing, the intricate process of expanding internationally requires careful consideration and a detailed plan to minimize risks and optimize outcomes.
As long-standing professionals in the industry, we understand the importance of global expansion strategies, risk management, and the implementation of best practices to ensure success in the global business arena. For all these important topics, we present this comprehensive guide to assist you in your quest for global expansion.
What is Global Expansion?
Global expansion is the process of a company expanding its operations outside of its domestic markets and into new regions or countries. Since the reasons for international growth is diverse, you can expand your business globally in various ways.
What are the goals of Global Expansion?
Global expansion aims to disclose new opportunities for organizations, increase profitability, generate new revenue streams, and enhance the company's reputation. There are numerous benefits to expanding a business globally, and international organizations can push the boundaries of what is feasible for their brands and target customers.
Just like business founders have distinct reasons for starting their companies, business leaders have diverse motives and objectives for global expansion.
Types of global expansion strategies
Global expansion strategies are vital for businesses to operate internationally and access opportunities in different parts of the world.
Multinational companies operate in multiple countries, unlike domestic companies, which are limited to a single country. This strategy is often adopted to tap into new consumer markets or to supply products to new business-to-business (B2B) markets.
Typically, companies pursuing global expansion follow one of four key strategies:
- International strategy
- Multi-domestic strategy
- Global strategy
- Transnational strategy
Each strategy has its unique advantages and disadvantages, and choosing the right approach depends on various factors, such as the company's goals, resources, and capabilities.
Strategy for expanding into international markets
The international strategy for global expansion involves entering a new market without making significant changes to the product features or pricing strategy. The products or services are sold at similar price points, with the same branding, functionality, and design across all markets.
The international strategy does not involve adjusting the pricing to compete with local alternatives, nor does it reframe the product or its selling approach based on cultural differences or expectations. This approach assumes that buyers will appreciate and favor the product's foreign nature, and they may purchase it based on the company's overall brand reputation.
A notable example of international strategy at work is Rolex watches, manufactured in Switzerland and appealing to buyers for their high-quality reputation. Regardless of location, customers can expect similar pricing and designs across all markets where Rolex operates. The Rolex watches sold in Switzerland have the same quality and design as those sold in the United States, Italy, France, the UK, or any other market.
Strategy for adapting products and services to local markets
The multi-domestic strategy for global expansion takes a different approach by adapting to local cultures and markets. Each country's unique tastes and preferences are accounted for with customized products or services that are designed to be more competitive in that particular market. Similar to the international strategy, the multi-domestic approach does not primarily compete on pricing.
In a different domestic market, a company's brand may offer a significantly different version of the product than what is sold in the current market. Adapting to local customs could make the products more profitable, as customers view the changes as a sign that the company is better suited to their needs and preferences. However, this approach of unique modifications for each market can be expensive, and the multi-domestic strategy does not focus on reducing prices to gain market share. The products retain their pricing across all markets.
Lay's, a potato chip brand owned by PepsiCo, follows a multi-domestic strategy by offering different brand names in various countries. In the UK, customers purchase Walkers' crisps in unique flavors such as paprika, which are uncommon or unavailable in Lay's domestic market.
Strategy for standardizing products and services across all markets
The global strategy for global expansion aims to establish cost-effective operations for international markets, minimizing local and regional variation. Products or services remain largely the same across all markets to reduce costs and establish leadership in the industry. Companies that follow this approach aim to undercut competitor pricing in every market they operate in.
In a global strategy, a company seeks to differentiate itself from competitors through pricing leadership. They aim to win market share in their countries by offering the best prices without adapting the products unique to each culture, even if there are local preferences to consider.
A global strategy is particularly suitable for products where the price is essential, but customization is not. An example of this is components supplied for manufacturing consumer products.
Coca-Cola is one of the most recognizable companies following a global strategy. Their soft drinks are relatively uniform around the world. Although a "Coke" may be packaged, distributed, or promoted differently in different markets, the taste is likely to be consistent whether you purchase it in the US or Germany.
Strategy for balancing global standardization and local adaptation
The transnational strategy is a global expansion approach that combines customization and reduced costs. This strategy aims to optimize product fit within each market while also managing costs and process efficiencies. Most products remain very similar, allowing the use of the same suppliers and avoiding the need for separate supply chains, thus reducing costs associated with selling to multiple markets. Minor customization can be added without creating too much change or additional costs.
Baskin Robbins, an ice cream company, follows a transnational strategy by selling different flavors of ice cream in different countries, often drawing inspiration from local cuisines. Customers can find matcha and chocolate ice cream in Asia, which may only be available at some Baskin Robbins stores worldwide.
Advantages of expanding globally
Global business expansion presents several tangible benefits for organizations. It is a proven way to grow a business, create new revenue streams, build brand recognition, and access global talent. This is why interest in global growth is high among companies.
International expansion boosts business growth
Expanding a business internationally provides companies access to additional markets, which helps them grow beyond their original customer base. This access to a worldwide market provides more potential buyers, markets with different needs and preferences, and markets operating within different regulatory requirements.
International expansion generates new sources of revenue
Organizations can generate additional income by entering new international markets, making them more resilient to market shocks and changes in domestic market conditions. Revenue growth from global expansion could be as simple as making products available online in additional countries or as complex as building new factories and fulfillment centers overseas.
Regardless of how an organization enters a global market, the potential for revenue growth is significant, strengthening profitability. This increased revenue can be reinvested to strengthen the organization's financial standing further.
International expansion enhances global brand recognition
Expanding globally helps organizations build brand awareness and recognition among potential customers in new markets. This increased recognition allows companies to establish a recognizable reputation, opening up new possibilities for product promotion and strengthening their brand.
Once a company gains recognition outside its home market, reaching additional markets often becomes easier as they already know how to communicate relevance to a new market with new customers. Success in one market can be leveraged to launch a reputation into nearby countries, the rest of the continent, or a new region. For example, a company may more easily expand into the United States after successfully expanding into Canada.
Global expansion provides access to a global talent pool
Expanding globally provides access to an international talent pool, making it easier for companies to hire talented individuals from other countries. As a company grows across borders, better brand recognition and familiarity with other markets can be helpful when recruiting new talent. Access to an international talent pool allows companies to hire the best individuals, regardless of location, leading to a more diverse and skilled workforce.
Risks associated with global expansion
As with any business decision, there are risks involved with global expansion. Knowing these risks and developing risk reduction and mitigation strategies is important before beginning the expansion process.
Lack of cultural understanding and awareness
Another example of cultural differences impacting business is the use of language. A word or phrase that is perfectly acceptable in one country may be considered offensive or inappropriate in another. This can lead to misunderstandings and damage to a brand's reputation.
Cultural differences can also impact business practices and etiquette. For instance, in some cultures, it is customary to exchange gifts or engage in small talk before discussing business, while in others, such practices are seen as unnecessary and time-wasting.
In order to mitigate the risks associated with cultural differences, companies should invest in cultural training for their employees and conduct thorough research on the cultures they will be interacting with. This can help avoid misunderstandings and ensure that business practices are respectful and appropriate in different cultural contexts.
Incomplete insight into political, legal, and compliance environments
Companies need to completely understand the political, legal, and compliance environments of the countries they are expanding into. Failing to comply with regulations or laws in a foreign market can result in serious legal and financial consequences, damaging the company's reputation and bottom line.
Possibility of high initial investment and long-term return
Expanding globally often requires a higher initial investment than a domestic expansion, which means a longer wait for long-term gains. Before you decide to expand your business globally, it's important to consider the costs and have a realistic assessment of when you'll break even or generate a profit on your investment. International businesses may face higher costs and unexpected expenses that can eat away at profit margins. That's why conducting upfront research, projecting profits, and creating estimates are crucial to minimizing financial risk.
Lack of focus on marketing and advertising needs
Marketing and advertising can vary significantly from one culture to another. Even if you’re using the same platforms or channels for reaching potential customers, you may have to follow a different process to get started in another country, which could be much different from what you anticipated. Additionally, what is important to your market today may not be valued in other markets.
For example, different countries often use different social media channels: while Facebook is popular in the US, VK (Vkontakte) is Russia's preferred social media platform. Similarly, planning around the popularity of Google Search isn’t as helpful for businesses planning to launch a website in China, where Baidu is a more popular search engine. This highlights the need to adapt your product to the habits of your target audience if you want to succeed.
Strategies for expanding globally
By following these steps to enter international markets, your organization can prepare for a successful global expansion.
Importance of market research
Market research is essential for successful international business expansion. During this process, consider exploring the following areas:
- Target audience: Who is your ideal customer? Creating a customer persona will help you understand their needs and preferences in each target market.
- Market demand: Is there a demand for your product or service? Determine the demand size and quantify your estimate as much as possible.
- Trends: How do customers perceive your product or service? Understand what customers seek and how they choose between brands or products. Analyze the level of stability and change in the market.
- Market entry strategy: How will you enter the market, and what factors will influence your strategy? Consider logistical details, business goals, action items, and expected timeline for market entry.
By carefully considering these areas during market research, you can plan resources, mitigate risks, and prepare for an effective global expansion.
Utilize PESTEL framework analysis
Another useful tool for research is the PESTEL framework, which represents political, economic, social, technological, environmental, and legal factors that can impact your business. Researching and planning for each PESTEL aspect in every target country you plan to operate is important.
- Political: This includes the country’s government, leadership, political stability, and climate.
- Economic: It refers to the general economic outlook of the target country, as well as the economic health of your industry.
- Social: This covers cultural values, social beliefs, religious and philosophical points of view, cultural history, and memory.
- Technological: This includes the benefits and limitations of the technology available in a particular market and the regulations surrounding its use.
- Environmental: This covers local environmental issues, regulations, and history.
- Legal: This refers to the regulatory standards and processes your company must comply with.
To conduct a PESTEL analysis of a target market, it’s essential to research and document as many political, economic, social, technological, environmental, and legal conditions as possible. It is necessary to consider the following:
- How do the PESTEL factors differ from your original market?
- What risks are present using the PESTEL framework, and how do they impact your brand?
- Are there any advantages or benefits that your brand has over competitors in these areas?
- What should you watch for, such as developing news or current events that could change your market entry strategy?
When unsure, it is better to conduct over-research than to make a guess or act without good information. Research helps protect your business from risk and achieve your goals more effectively.
Learn from your competition
Learning from your competition is a valuable strategy when entering a new market. By closely examining your competitors, you can gain insights that will help you position your own brand in a way that stands out. Here are some key factors to consider:
- Who are your competitors in the target market?
- Are they local or foreign companies?
- What do you think they are doing well?
- What are their weaknesses or areas for improvement?
- What advantages does your business have over these competitors?
- Will your investment be able to generate a return, despite the competition in the industry?
By studying your competitors, you can learn from their successes and failures, saving you time and resources in the long run. Your competitors can also provide valuable insights about the market and help you make informed decisions about your market entry strategy.
Leverage local expertise across various fields
Local expertise is a valuable resource for organizations expanding globally. It is recommended to hire local personnel or seek experts who have experience in your target market whenever possible. These individuals can provide subject matter expertise and insight into important cultural differences and localization considerations that might be overlooked.
Before engaging with a local expert, consider the following questions:
- What specific fields or areas of expertise do I need local support in?
- Does the expert have relevant experience in this target market or culture?
- Will this expert help build our business's global reputation and local trust?
Relying on local experts can help you navigate unfamiliar territory and improve your chances of success in your global expansion efforts.
Customize products for international markets
It's essential to adapt your product or service to meet the needs of international markets to gain a strong position in the highly competitive global marketplace. Understanding the differences between markets is crucial since potential customers must understand and emotionally connect with your product or service to make a purchase decision.
For example, you need to respect local date and time formats or online shopping habits in your online store to signal that your product is not of inferior quality or even illegitimate. It shows that more than translating content is required for a successful global product launch; it requires customization to meet local requirements.
Localization is crucial for successful global expansion
Making your product accessible to people across markets means adapting it to cultural differences, linguistic particularities, local expectations, purchasing power and habits, and legal requirements—just to name a few aspects of a process as complex as localization. Integral to global expansion, localization requires a clear strategy and robust technology.
A clear localization strategy will ensure that localization results in a product that potential users can’t identify as an adapted version of an existing original. This means that people in your target market will compare your localized product with “native” offers and find no difference in understanding, buying, and using your product or service.
The key to effective localization is in allocating the most resources to everything that can’t get automated—think global strategy, product design, or campaign copywriting—while automating as many repetitive and time-consuming tasks associated with your localization workflow as possible. In that respect, localization technology can be your greatest ally on the way to global domination.
Establish a strong presence in international business
Global expansion offers significant benefits to companies, which is why many choose to adopt international growth strategies. It can provide additional revenue and help build a company's reputation. Implementing one of the four global expansion strategies provides a solid blueprint for a successful transition.
Having a well-developed market entry strategy can help mitigate risk, ensure compliance, and generate more interest in your product or service. Localizing your product is essential to reaching customers more effectively and positioning your company for better results.