If companies have been operating in one country, they are generally well aware of how to operate efficiently in that region. application-based UBER, in Rio de Janeiro, Brazil, on April 1, 2016. The first solution would be to have your clients pay you in your home currency, meaning that your customer will cover your risks. International expansion reduces the overall risk to the business of any such event. Assistance for exporters When you set up a company in a new country, chances are that you will be getting paid in the local currency instead of your own. Consider the cultural implications of your product or service in the new country. Business growth – Perhaps one of the more obvious advantages is that you are greatly expanding your pool of potential customers by making your product or service available internationally. We then decided to talk to our clients about the benefits and the risks of trading internationally and the key points they highlighted are discussed below: Top five benefits: 1 Grow your business When trading internationally the “universe” of potential clients and suppliers will increase significantly. In an increasingly global business world, it has become common for companies to consider international expansion. You should carefully consider the pros and cons of expansion before pursuing business growth. This may be caused by an economic or political event in that country. © 2021 Forbes Media LLC. We take an integrated approach to ensure growing businesses are protected and able to take advantage of every opportunity. 1 – Unknown trading partners. Or, there may be an event that affects a business in just one country, and not in others. Settlement risk depends on the various risks like risk of the borrowing company’s ability to meet its debt service obligation in time, represented by the risk of its business, financial risk, market risk, labour problems, restrictions on dividend distribution, fluctuations in profits and a … Possibly the greatest competitive advantage of business growth is the ability to capitalise on the economies of scale. Spreading business risk. When a company moves into a new market, business models should be modified to reflect local preferences, customs, and habits. When expanding your business internationally, your communication strategy should therefore be specifically tailored to your target market and to the population you are addressing. There are ways, however, to reduce or avoid the inherent risks in this process. Business Opportunities and Risks: Plan Before You Expand Overseas Expanding internationally may be a great move for your middle market company as it seeks business opportunities. For example, in some countries, the lead-time between initial contact in an export market and a sales agreement can be years. A risk when expanding internationally is remaining compliant in this new country and ensuring you have all the proper procedures in place – failure to do so could result in costly penalties. How to take your business international. International firms have access to a larger workforce and a bigger customer base. Nothing could be further from the truth. Consumer attitudes and behaviours are highly influenced by culture. Many sanctioned countries offer attractive business opportunities, but the challenges to doing business in each of them are both many and different. The first risk that comes with expanding outside of Australia is having to deal with unfamiliar companies. For small and emerging businesses, going global is a significant undertaking that could disrupt existing business activities. Few — if any — small or midsize American businesses are unaffected by the global economy. In general, the risks of conducting international business can be segmented into four main categories: country, political, regulatory and currency risk. Spreading risk – We all know that saying about not putting all your eggs in one basket…the same is true for your business in one market. Human resources play a crucial role in helping businesses expand internationally. In a new book, “Global Vision,” by NYU Stern School of Business scholar and leader Robert Salomon, I finally found some great insights on what to look for, and how to make the necessary changes. The issue that can arise in this situation is that the currency fluctuates and falls before you are paid – although on the flip side, the currency could also rise before you’re paid, leaving you with more money…. The challenge is to know what to look for when stepping outside your native market, be able to quantify the downside risk, and implement the required strategy in each of the new markets. It’s important to understand both the benefits and risks of expanding a business internationally. Business growth brings pressures to a system that may not have had the time/experience to get geared up for increased production or services. In some places, this is a streamlined process. AFP PHOTO / YASUYOSHI CHIBA / AFP / YASUYOSHI CHIBA (Photo credit should read YASUYOSHI CHIBA/AFP/Getty Images). Before expanding your company overseas, however, be aware of the additional risks of the foreign trade market. What Does A Healthy Business In The 21st Century Look Like? Consumer attitudes and behaviours are highly influenced by culture. Both Nike and IBM reportedly gained access to an additional 170 million consumers by launching operations in the Netherlands, and UPS recently followed suit by expanding into European markets. Finally, there may be risks related to political corruption and personal security, especially when doing business in unstable regions like the Middle East. With its esteemed reputation and convenient location to the US, Canada can be seen as a great place to set your sights on when expanding your business internationally from the US. Here are some benefits and risks of expanding a business. Taxi drivers block an avenue to protest against American multinational taxi-booking mobile... [+] application-based UBER, in Rio de Janeiro, Brazil, on April 1, 2016. Business can be interrupted by political problems such as insurrections, problematic diplomatic relations, hostility from locals, and volatile foreign governments. A risk when expanding internationally is remaining compliant in this new country and ensuring you have all the proper procedures in place – failure to do so could result in costly penalties. As U.S. and Canadian businesses plan to expand their business overseas this year, their executives are worried about supply chain failures, data breaches and political instability, according to … By acknowledging the risks, you can seek out solutions, learn from others who have faced the same challenges, and gain confidence in forging on with your business expansion strategies. Domestic companies can greatly increase production and profits by expanding into global markets. What To Consider When Expanding A Business Internationally: Types of risks involved. Before you begin to set up entities and hire staff abroad, it’s vital to understand the new marketyou plan to expand into. What steps need to be taking when launching a branch in a new country? Expanding a business into new markets can bring many opportunities for growth and increased competitiveness. Many sanctioned countries offer attractive business opportunities, but the challenges to doing business in each of them are both many and different. As with any major company changes and business restructures, it opens up a slew of risks and these can simply be amplification of existing ones or new risks created due to expansion. Salomon outlines how to convert the comparisons into “risk spreads” that mathematically capture and accurately reflect global market opportunity differences. The survival of your business depends on identifying and managing them. Entrepreneur & Business Website | Talk Business | Small, Medium Business Advice, Tips | SME | Success, 3 risks of international expansion (and how to overcome them), specialises in international business expansion, Managing your finances as a business owner, Why you should travel alone at least once. By outsourcing your tasks to HR, you can focus on tasks that are paramount in the establishment of your business. The challenges are continually evolving and are, at their root, a product of social interaction, economic evolution, and political dynamics. When a company moves into a new market, business models should be modified to reflect local preferences, customs, and habits. You know the saying that it’s always 5 o’clock somewhere? With the availability of high-speed Internet and social media access around the world, it’s easy for entrepreneurs to assume that the world is just one big homogeneous market, and project their business will scale accordingly. However, companies getting ready to establish their presence within new jurisdictions must be prepared to manage legal and regulatory obligations to mitigate some of the risks that come along with expanding a company internationally. Next time you say “expand my business,” therefore, make sure that you include a business international expansion perspective, which allows you to expand business internationally using a global expansion of business mentality, and your more optimized business plan for expansion. The owner(s) and management may … AFP PHOTO / YASUYOSHI CHIBA / AFP / YASUYOSHI CHIBA (Photo credit should read YASUYOSHI CHIBA/AFP/Getty Images), 5 Tips To Finding The Best City For Your Startup, 8 Secrets To Pushing Your Startup Ahead Of The Crowd, Want To Serve The World's Poorest Citizens? Legal advisors, business insurance experts, and government agencies can all help with international expansion plans. This could be a problem for a newly set up business that relies on a high volume of sales with low profit margins, as it could greatly change your profits. But it isn’t necessarily as difficult as it first appears.There are lots of advantages to expanding to America as a foreign company, and we can help you every step of the way. International business involves exposure to local economic conditions, fraud, and bribery. Expanding a business is a daunting step for any business owner or entrepreneur – but the decision is even more complex and risky when you’re planning on expanding your business internationally whether you’re only going into a single country, a region, or multiple countries. In an increasingly global business world, it has become common for companies to consider international expansion. Setting up a business in America can be challenging if you are not a resident of the USA. Failing to adapt global business models to the local market. Advantages Reaching new customers. Another solution is to seek expert advice from a company that specialises in international business expansion and/or international accounting, so you can receive expert assistance. As your business grows, the advantages of investing in expansion also begin to grow – whether you’re an SME looking to expand nationwide or a national firm planning to go global. Business Risks: Instability, Ineffective Management, Financial Loss. may have different meanings outside your domestic market. Before expanding your company overseas, however, be aware of the additional risks of the foreign trade market. Your goods and services may stay in a local warehouse pending foreign government inspection and the payment of “import” taxes. I am the Founder and CEO of Startup Professionals, a company that provides services to startup founders around the world. However, expansion of any kind comes with some degree of risk and in many cases, that risk is higher when dealing with international … Currency restrictions also can play a part in how you will do business in a foreign country as well as export-import laws. New timings of payables/receivables may create financial strain. Here, we discuss three of the most common risks during international expansion and how your business can overcome them for successful growth. Tags: help your business grow , how to grow a small business into a big business , risks of expanding a business , new business plan , financing new and growing business ventures , small business funding sources Facebook 0 Tweet 0 LinkedIn 0 Print 0. Here, Galvin International explores the ins and outs of an expansion into Canada, from the countless benefits to the challenges that may need to be overcome. It’s true that international business expansion can be daunting, and these are just some of the risks you may encounter. Consider all of these factors before committing resources to a new market. Growing a sustainable export business requires vision, knowledge, planning – and funds. Risk factors involved may be reasons for not conducting business internationally, or risks may be so few that likely advantages will result. Whether you are importing materials or exporting finished products, you will encounter new issues. Clearly, taking part in corrupt activities is not a good approach when expanding your business abroad. What to Consider when Expanding a Business Internationally. But before you take your business global, you'll want to consider the following pros and cons: Advantages of Taking Continue reading What are my responsibilities as a limited company director? What To Consider When Expanding A Business Internationally: Types of risks involved. All Rights Reserved, This is a BETA experience. It’s true. Reasons to enter the international marketplace and how to enjoy new export opportunities, The best way to send money abroad for businesses. According to such theories, it costs less for a company to go into countries that are culturally similar to your own. In the past, people working in international business embraced the notion of cultural distance. Conduct research on your foreign market, evaluating your advertising methods. Expanding Globally into Overseas Markets – Osborne Clarke There are many legal issues to consider when expanding globally – creating new entities, tax implications, employee hiring, etc. Among the countries worth considering are Russia (agricultural products and equipment, pharmaceuticals, franchising), Iran (imports of foreign-made products, construction, medical equipment), Venezuela (agriculture, auto parts, and equipment) and Cuba (selected tourism, agricult… Also called quality risk, it is strictly associated with how well the product can do in a particular market, its demand and the competition … It’s important to understand both the benefits and risks of expanding a business internationally. Benefits of Expanding Your Business Internationally. You may opt-out by. As you do look around for Grow 5 Risks for a Growing Business, and How to Manage Them With growth comes predictable risks. In general, the risks of conducting international business can be segmented into four main categories: country, political, regulatory and currency risk. Settlement risk depends on the various risks like risk of the borrowing company’s ability to meet its debt service obligation in time, represented by the risk of its business, financial risk, market risk, labour problems, restrictions on dividend distribution, fluctuations in profits and a host of other company related problems. Published Feb 23, 2021. It will always take smart entrepreneurs, armed with the latest knowledge and modern analytic tools, to minimize the risks and maximize opportunities. My background includes a 30-year track record as an executive in general management, computer software development, product management, and marketing. Subscribe Now: Forbes Entrepreneurs & Small Business Newsletters. The main cultural risks facing global businesses include: 1. All the trials and triumphs of building a business – delivered to your inbox. If you expand your business to another country, you’re spreading business risk, which is much better than hoping your business interests in a single market will go swimmingly. The major international risks for businesses include foreign exchange and political risks. By Michael Evans | In: Business Planning, International Business, Legal, Starting a Business. A business analysing the options suggest by the Ansoff Matrix might well be tempted to focus on the bottom-left quadrant (market development) and try to enter international markets as part of a growth strategy.Selling into international markets is increasingly attractive for UK businesses. Business registrations, licensing requirements, payroll, statutory responsibilities, insurance, banking requirements, and cultural nuances are just some of the many items on the new country expansion checklist. Companies can start to export and serve international buyers to help increase demand and profits. Failing to adapt global business models to the local market. Advantages of growth. These are all risks you face when trading internationally, and you’ll need to understand how things work in order to avoid them. But once you identify the problems you may face, you can implement solutions to prevent them – making your expansion a success in the process. The Risks and Rewards of Expanding Your Business Overseas. Nevertheless, the global business scene can expose companies to a wide variety of … Taking your company global can be both daunting and rewarding. To make sure that your finances are all taken care of properly, it is often wise to outsource your accounting to a local service who knows the market and will guarantee that your company is compliant. The big picture of expanding a business internationally gets even more complicated when cultural differences come into play: there are countless examples of marketing gone wrong due to an ill-chosen name or packaging that had not been properly adapted. How to Decrease the Risk of Doing Business in Foreign Markets ... internationally because co-employment does not exist in the same form elsewhere. Mastering how to expand a business internationally results in your product’s introduction into new markets, thus increasing sales. How to know when it’s time to expand your business. What type of outside services are best for business, Access inside offshore business information at OffshoreCorpTalk. Take Your Company Public In India, Selling To A Reluctant Audience: Marketing Hacks From Late-Night TV And The Fitness Industry, Seven Reasons Iran Could Become An Entrepreneurial Powerhouse, 7 Questions To Help Kickstart Your Content Marketing. It creates timing issues. Thus, it is for crucial for CEOs and business leaders to understand its full impact and determine if the rewards outweigh the risks. The Internet has opened up a world of opportunities to entrepreneurs wanting to start a business selling products or services. Entering into new markets can be complex. Business, no matter the customer base or industry, will always revolve around the principle of supply and demand. Foreign economic growth creates opportunities to tap into new markets, target new consumers/buyers and expand a company’s brand awareness. In addition to blogging, I recently released my first book titled “Do You Have What It Takes To Be An Entrepreneur?” You can contact me directly at marty@startupprofessionals.com . Conducting business internationally carries many risks that domestic business does not. A business analysing the options suggest by the Ansoff Matrix might well be tempted to focus on the bottom-left quadrant (market development) and try to enter international markets as part of a growth strategy.Selling into international markets is increasingly attractive for UK businesses. Political, Financial & Economic Risks in International Business. Inhouse vs outsourced: Which is best for your business? Invariably, there are risks of expanding a business. 1. Tapping into global markets, especially the large and under-developed ones, not only promises market growth beyond our most optimistic vision, but also empowers people the world over to share in a better economic future. This document evaluates your needs, goals, readiness and commitment to operating abroad. Product risk An SME owner must first conduct research on whether there are certain requirements or expectations that their product can fulfill in a specific market. What follows is a roadmap of risks to prepare for when considering expanding into a global market. However, expanding your business isn't without risks. The 2014 Chubb Multinational Risk Survey identified the top overseas business threat as supply chain failure (19%). I'm now in "give-back mode" as a mentor to startup founders, and an Angel investor. Employees may be uneasy about all the changes. The risks of business are real, otherwise everyone would grow their business. Your company’s materials, supplies, and services might already be purchased from outside the country. Therefore, there are two key questions you need to ask yourself before moving into a new market: However, let’s say the currency does go down. Obstacles may not even be huge – several small hindrances, however, can add up to create a testy work environment that doesn’t allow organizations to fully capitali… Here are some of the risks of doing business internationally that Australian organisations should be aware of. As if there are not enough uncertainties being in business, risk factors are multiplied when you expand into international trade. Expansion comes with a variety of risks, including regulations that vary by country, supply chain disruptions, political upheaval, and employee safety. Growing businesses invest considerable time and energy pursuing new contracts - the bigger the better. And for businesses who have achieved stateside success, the allure of expanding internationally can be tempting. Solution: Develop a strategy, a business plan, and a budget The absolute worst thing you can do is rush into international expansion without proper planning. However, expansion of any kind comes with some degree of risk and in many cases, that risk is higher when dealing with international factors. Growing your business at home comes with its challenges – and these are only accentuated when you expand your business internationally. How many global scaling opportunities are you missing today? Although when it comes to how to expand your business internationally strategy is paramount, there’s a whole world of business opportunities out there just waiting to be uncovered. Compliance risk. But don’t look for any magic algorithmic procedure to solve the complex globalization problems. Foreign economic growth creates opportunities to tap into new markets, target new consumers/buyers and expand a company’s brand awareness. Customers may feel underserved. Yet, I believe the conclusions and strategy recommendations are equally valuable for every new entrepreneur who intends to expand outside their local country: My summary recommendation is to quantify the context difference or institutional distance to each new market. It’s important to know what to consider when expanding a business internationally. While taking advantage of these opportunities, organizations need to properly identify and manage the risks. Preparation for expanding globally can be the difference between success and failure. Countries and emerging markets that may offer considerable opportunities for expanding global businesses may also pose challenges, which more established markets do not. Here are some ways in which international expansion may or may not be the right move for your business. When expanding into a new market, a business must adapt and operate accordingly to the country’s regulations. My experience with investors includes roles on the selection committee of two local Angel groups, and working from the other side of the table with several VCs in Silicon Valley. Establishing an entire HR department can strain your initial set up budget and take away a huge chunk of your time during the initial establishment. You should choose the means of communication you are going to use, according to the targeted audience’s habits. Here are the steps to take, the mistakes to avoid, and the basics of exporting and importing. The greater the difference between your current and the new context, the more challenging it will be to expand there. Expanding a business in China, then, should not fear a cold shoulder, rather the overwhelming business environment that the country has wholeheartedly constructed and consumed since the 1970s. That won’t always be the case when it comes to opening a new firm abroad – differences in work culture, social acceptance, laws and compliance factors can make the transition much more difficult than anticipated.