When you decide that your business is ready for the global market, it’s not as easy as calling up the international expansion company and ordering one. It takes a plan and a committed team to execute something as big as a international expansion. Here are some things that you should be thinking about when your company becomes large enough.
It’s important to have reasonable expectations going into an expansion. There are certain things that you can achieve and there are certain things that can potential hazards. Taking your business abroad can offer your business several opportunities and benefits if planned and executed properly. There are a great deal of factors to pay attention to in the initial research phase. For example, does your target country offer a more favorable business climate compared to where you are now? A higher tax rate, raising wages or other increasing costs might signal that international expansion might be an option for you. A recession or a depression might also be a signal that international expansion is a good idea. If you are in a recession, diversifying your revenue stream might insulate you from domestic losses. Conversely, your business or product might be in a good position to do well in a down market. In this case, you could take advantage of lower costs to do business in that country. This situation provides an excellent opportunity for a company to build trust both with the local consumers but with the local government as well.
Similarly, if demand for your product or service are down, reaching an untapped market abroad may provide your business with very lucrative gains. Being able to offer a product where it is in high demand but low supply can very much make headway into the market. In the right climate, doing this can create a sustainable and loyal customer base. By being being the only provider of a good or service will very much endear you to the local consumers. In time as you continue to provide good service you can build forward and solidify new partnerships and relationships. This is an excellent base for ensuring that you have a platform to continue to expand and grow. Without this trust, the path to expansion becomes more muddied and more difficult than necessary.
When preparing for an international expansion, it’s a good idea to try to think up as many potential pitfalls as possible. You probably know your company’s weaknesses better than anybody else does. After understanding these weaknesses, the next step would be to put them into the context of where you are expanding. You can start by researching your target market as thoroughly as possible. The more information you have, the better you will be placed to succeed. This would be a good time to do a SWOT, gap and market segmentation analysis. Gather as much information as possible before moving forward. Some things to consider are how big the market is, what is your timeline for success, is the target market compatible with your own market? After you have much of this information, you can proceed to develop your strategy for the target market.
One of the next things to consider is whether or not your organizational structure is indusive to a positive international expansion. If you are expanding into a new culture with different languages and customs, it’s important to have a workforce that is flexible enough to adjust to the situation. It is important that you have a set of guidelines in place that makes that integration into a new country as smoothe as possible. Its also important to think about how to integrate technology and your workforce. If you are looking to hire new employees in the new region, it’s important to know what kind of compensation and what you can offer that is customary. If you go in expecting their customs to be the same as yours, you will fail to build the trust that is necessary for further expansion.
There are so many example of international expansion gaffs, from large companies to small, independently owned businesses. The path itself is one of uphill, but it isn’t impossible. For example, Subway, the american fast food icon has transformed itself from wholly domestic brand to an international staple. Subway started with more manageable aspirations, targeting only 10 countries. These countries were chosen due to strong growth, high tourism and an ability to coexist within the culture of the target country. After making strong headways initially Subway started to open themselves up a little more. They went back to their data and examined countries that they had looked past for expansion. By doing this they were able to identify Russia and UAE as prime destinations for their stores.
Subway has kept up their international growth by identifying trends and less obvious opportunities. For example, after expanding into india, Subway began to feel a slowdown in their growth. WHat they did was try to target local entrepreneurs as potential franchise establishers. They recognized that India was not only growing, but there was a rise in small business ownership and entrepreneurial ventures. They were able to cultivate an untapped group of partners.
For as many success stories like Subway, there are an equal amount of failures to learn from. We can look to Target for a story on what not to do. Targets failed expansion into Canada is one of the more recent failures that we can draw upon. Target is a retail giant that was founded in 1902 that is currently headquartered in minneapolis, minnesota. Target is currently the second largest discount retailer in the United States. The main competition coming from Canada. The expansion was first announced in 2011 after decades of growth and success in the united states. The retailer was expecting to extremely rapidly recoup their massive $4 billion investment into the expansion. The hope was that store in Canada would become profitable by the year 2013, but an unbiased international analysis concluded that there was no possible way of profitability until at least 2021. In January of 2015, Target decided to close all 133 stores in Canada
What could have led to such a catastrophic failure? To put it simply, their information gathered was both incorrect and incomplete. To start off, Target decided to buy all 133 pre existing stores from Canadian retailer, Zellers. This was a great way to cut costs, but in the end turned out to be a mistake. This was a mistake for two reasons. First, instead of having locations that were researched and picked out, they were stuck with whatever location the existing store was in. On top of that, many of the stores couldn’t support that amount of merchandise and had to be renovated. This renovation ended up being a lot more than was initially planned. These locations weren’t always that accessible for receiving products as well.
Many of the times canadian shoppers would chose to go to a canadian target, the shelves ended up being mostly bare. Targets problems lied in their supply chain. They had to decided to expand so rapidly that their stores could not supply many of the items featured in their stores. Their entrance strategy was poorly planned, but they also failed to the requisite research on their customer base. Often times customers would find that shopping at walmart was significantly cheaper and had already had 2 years of familiarity to overcome. When Target finally did withdrawal the market in Canada, it left over 17,000 people out of a job and created a negative ripple through the rest of their business operations. This might have been a grand failure for Target, but offers a lot of insight for the rest of us.