Whether you’re a large enterprise, small or midsize business (SMB), your operation’s underlying goal is to grow. But maintaining business growth without pushing boundaries is impossible—it’s more likely to lead to stagnation than an increased consumer base.
As brands expand in a digitized global economy, a foreign market represents a limitless growth opportunity as well as potential gaps in products and services.
So, why should you look to expand to new markets and what are the benefits?
First, why expand to foreign markets?
Building a business that’s oriented for success requires forward momentum. Key drivers for growth start with honing your internal efficiency and effectiveness while establishing your brand reputation and integrity. Once you’ve perfected both, it becomes possible to direct core competencies toward new applications and markets. As Harvard Business Review notes:
“Growth plateaus are common, even for healthy and strong midsize enterprises, and they occur when firms seem to have exploited all available opportunities in current industries. To grow, managers should encourage their firms to find ways to transfer their capabilities to new industries.”
From a business perspective, expansion makes sense. If the market demand is there, growing from one location to two increases your consumer reach and builds your brand name while driving revenue streams. Going from two to four, four to eight, and so on multiplies those factors further.
Naturally, the larger you grow, the greater the risk—alongside the reward. Even iconic global brands like McDonald’s are not satisfied with the status quos. In the U.K., for example, the company—which already has 1,400 restaurants—plans on adding 50 new outlets in various locations throughout England and Ireland.
Similarly, the e-commerce giant Amazon is not content to simply control 13% of e-commerce sales worldwide. This is why it’s looking to significantly expand its presence in Europe and China.
Put simply, a business that wishes to be the top enterprise must continuously spread its roots.
Benefits of expanding into new markets
Aside from the obvious benefit of more consumers equaling more money, there are several direct and indirect benefits to new market expansion. These include:
1. Growth potential in new markets
For American companies, especially tech companies, the rest of the world represents a massive market of potential consumers. There are billions of ready-to-buy potential customers currently untapped. According to a Wells Fargo survey, “87 percent of U.S. companies agree that international expansion is needed for long-term growth, with emerging markets providing the greatest opportunities.”
Naturally, you must carefully pick and choose your locations. There are several factors that might make a potential market more attractive than another, including:
- GDP growth
- Availability of skilled workers
- The complexity of regulatory landscape
- Quality of infrastructure
Currently, the most attractive markets for expansion are Asia and Western Europe.
- Asia – Particularly places like China, Hong Kong and Singapore have undergone rapid growth and progression and have more than a billion adults between them.
- Western Europe – As a more established market, Europe—with its dense populations, close proximities and western consumer base—is the natural staging point for international expansion.
Through global expansion, you increase your company’s purchasing power. New consumers generate higher revenues, so long as the new profits generated exceed the expenditures of entering the new market.
2. New talent pools
Remote work is not going anywhere as hiring international employees to meet new needs has proven to be successful. Likely, it will remain an integral facet of the modern workforce, at least in some capacity. The pandemic has demonstrated that it’s possible to operate in a decentralized fashion, which allows companies to recruit and hire from a much broader talent pool.
Similarly, if you’re setting up shop in a new territory, it’s often much more cost-effective to hire from the local population. They not only have the requisite skills you need but also a better understanding of that region’s culture and consumer base. As Business Journal points out:
“When Netflix expanded to Amsterdam earlier this year, the company praised the city for enabling Netflix to hire multilingual and internationally minded employees who can expertly ‘understand consumers and cultures in all of the territories across Europe.’”
Additionally, hiring locally reduces the costs of relocating talent, particularly when it comes to dealing with the complexities of taxes, regulations and immigration.
Along these lines, each country may offer a uniquely trained and skilled workforce. For instance, if you wish to set-up shop offshore in Mexico and use that as a base of operations for Central and South America, you get access to a maquiladoras labor force that’s both inexpensive and highly skilled at engineering and manufacturing. This is thanks to the fact that the country has embraced its role as a manufacturing hub and actively pushed its young population to enter engineering and technical training programs.
Gaining access to a new group of talented workers is an enticing prospect but there are international business staffing challenges that should be taken into account. Understanding a country's rulings on compensation and benefits packages, worker classification rules, and intellectual property protections are just a few things to consider as your company investigates new opportunities.
3. Economies of scale
Economies of scale are simply cost advantages that companies can enjoy when they increase their output and become more efficient. By expanding to new markets, companies drive their production and thus lower their cost per unit. This occurs because costs—both fixed and variable—are spread out over a wider number of goods and services.
With economies of scale, the larger the business, the greater the cost savings. This largely is due to three factors:
- Specialization of labor and integrated technology increases output
- Bulk ordering from suppliers lowers the cost of capital
- Spreading internal function costs across more units helps lower overall expenses
Over time, this empowers your business to invest the savings back into the company in order to become more profitable and efficient.
4. Diversify your assets
Diversification protects you from risks, both predicted and unforeseen. It’s why financial advisors recommend that clients spread out their investments across a portfolio of assets and asset classes rather than simply pouring all their money into a single blue-chip stock.
Similarly, many companies view international expansion as an easy way to diversify their assets and protect their bottom line from market shocks. Having multiple locations provides a counterbalance; should one market struggle, another may act as a buoy.
International expansion also allows you to diversify by aligning your new product with clients and their location or by taking advantage of different economic protections. While that may depend on your specific good or service, chances are, there are benefits that justify moving into a new market.
5. Competitive advantage
By entering new markets, particularly emerging markets, you can get a head start on your competition. If they don’t already operate in a specific country, you have the first-mover advantage and a chance to establish a brand presence as the go-to destination.
As mentioned, new places also represent new opportunities. You may have access to technologies, labor pools or industrial ecosystems that are perfectly aligned with your organizational goals.
This builds your brand name and gives you a reputational edge. And over time, the company’s image and notoriety can continue to grow.
Tips for expanding into new markets
Expanding into new markets is easier said than done. It requires a thought-out business and marketing strategy. And you must also determine that it is, indeed, a good fit. Even an agile company that’s experiencing great success may struggle against an established competitor in a new market.
With that in mind, here are a few tips for navigating these waters: articulate what makes your brand valuable to that specific market, rebrand for your new region and work with professionals.
Finding a partner for global expansion
While expansion can be intimidating, for companies that are properly positioned, the benefits are certainly worth the risk. A global employer of record can help you hire workers and enter new markets quickly and compliantly, while providing expert guidance on the local HR requirements and employment expectations. Learn more about the benefits a trusted outsourcing partner can provide.