The Advantages and Disadvantages of International Business Expansion

You may have an existing business but are looking for ways to tap into the potential for building success in Europe or worldwide or even expanding your business into multiple countries. This then leads to several questions that may or may not have been considered up to this point. Where do I locate the business? Do I need a licence to trade in my business sector? Do I need an office? Do I need immigration support? What about banking? What about language expertise – will I need to learn a new language?  Expansion internationally carries risk, but if you mitigate these risks and ask these questions before you launch, then you will be less likely to come up against unknown obstacles.

Advantages of doing business in Europe and worldwide

New customer engagement

As a successful business, you understand how your business performs in its home country, but who knows how many more consumers and clients you could reach in a new location?  With the right amount of research and investment, you will reach a new potential pool of prospects who are enthusiastic to purchase your products or services. It is important to take some time to look at the demographics and tastes of each country to ensure that you are selling your product and service to the right market.

Spreading business risk

As a multiple business owner with companies in various locations in Europe and Internationally, it may relieve some pressure should one location suffer from a recession or crisis such as the epidemic we are coming through. The more countries in which you have a presence, the more the ups and downs of business fortune will become smoothed out and easier to manage. Sometimes, setting up a business in multiple locations brings economies of scale to the start-up process.

Recruiting new staff

Your company’s success may depend as much on the people you work with as the actions and decisions of you personally. Expanding to an international location could give you access to talented, invaluable new employees and business partners who would take your enterprise to the next level. Please consider issues such as employment figures and skillsets when looking to set up your business in Europe or Internationally. High unemployment rates may mean better access to skilled workers.

Increasing brand awareness

Expanding your business out from its home country will have the effect of increasing the visibility and therefore brand equity of your name, logo and ethos. You can enjoy a reputation boost from international growth, and your new customers in the target location may perceive your products or services as a novelty or even prestigious.  You will also have a great opportunity to extend the reach of your intellectual property, trademarks and copyrights to new regions. You just need to be aware of cultural differences in taste, behaviour or attitude and alter your product or service to reflect this.

Securing foreign investment

Investment firms and individuals are not distributed evenly across the globe, with large concentrations of investment money available in some areas and little in others. Depending on the target country for expansion, you may find that growing your business internationally gives you access to investment capital far beyond that which is available in your original location. Fortunately, data is easily available to identify which countries are the best and worst for investment fund opportunities.

Lowering costs

The economic landscape has changed and some countries are more expensive to set up and run than others – it is important to look at this as an exercise as you are making decisions to enter the market. However, operating in multiple locations will quite naturally increase the number of products and supplies you need to order, allowing you to negotiate lower prices for your growing bulk purchases. Essentially, there is an inversely proportional relationship between the size of your operation and your per-item costs. Additionally, If you are looking to enter into Europe, Asia, the USA or Dubai for example then there could be one port of entry through one consignment which will allow for split and ease of distribution across continents.

Increased immunity to trends

No business wants to be in the situation of realising that its main product or service has gone out of style. Having a presence in more than one country can help you to ride out the winds of trends, fashions and fads – a product or service that has become dated in one location may still be going strong in another, buying you time to rethink your approach.

Improved consumer confidence

An advantage of a physical expansion against selling things to the target country from afar via e-commerce is that your customers are likely to have increased trust in the company if you have a registered, localised office or stores in the country – particularly if after-sales support is an important factor in your industry. The Fall 2020 FedEx Trade Index says that in 2020, small businesses are adapting rapidly to embrace e-commerce and extending their reach to new consumers beyond their borders. Small businesses believe in the benefits of modern free trade agreements to enable their growth.

Improving Your Company’s Reputation

International trade can enhance a company’s reputation, making it a trusted global brand. Recognizing an international player can strengthen customer loyalty and attract partnerships with reputable organizations. It can also lead to positive media coverage and increased public interest, further bolstering the company’s image.

Potential Disadvantages of International Business Expansion

Foreign rules and regulations

International business expansion certainly isn’t short on confusing paperwork, as every country has its own tax and employment laws as well as business registration and trademark considerations and papers that must be filed in a foreign language. The good news is that we are always on hand to help with these situations. We are happy to review your requirement in a free initial consultation whether one specific company or another would be more suitable practically based upon your current needs.

Handling logistics

An unavoidable consequence of any business expansion is that many logistical considerations will quickly become more complicated with questions about how to efficiently handle communication and organise the shipping of physical goods between sites. Of course, shipping from one country to another can take a long time, and what do you do in the event of delays (or even missing shipments)? Another consideration is that not every country has the same resources and infrastructure, and it may be best not to make any assumptions about the things you need to operate in the new country. We have access to warehouse and logistics networks that may support you when transporting or storing in the country.

Speaking the language

More than three-quarters of the world’s 195 countries don’t speak English as their primary language, and even if you are expanding to one of the many nations that speak it as a secondary language you will need to get to grips with the local tongue if you intend to communicate properly with your new customers. Don’t skimp on localisation and translation services – countless stories abound of high-profile business humiliations due to badly translated slogans and product names. If you do not have language expertise then hire a trusted individual in-country to ensure that you have a manager who can look after your interests and ensure that your business goes smoothly.

Coordinating time zones

Another consequence of expanding internationally is that you can introduce a time zone disconnect between your sites – as an example, an American company expanding to India might find themselves in a predicament, as the 9 am-5 pm office hours in America would correspond to 6:30 pm-2:30 am Indian time! Not all time zone conflicts are this severe, but it’s important to minimise inefficiencies; if each site has to wait until the following morning for a reply to an important email, everything slows to a crawl. Make sure you have a co-ordinating team on the ground that are aware of the timings and hire accordingly should this be the case.

Monitoring currency fluctuations

The value of your home currency relative to your target location at any given moment can have huge significance for the success of your business. If your home currency is weak by comparison, this can allow you to offer competitive pricing in the secondary location – it is actually a strong home currency that is worse for international business (in simple terms, customers with a weaker currency will struggle to afford your products). This may force you to either drop your prices or make fewer sales, both of which will hinder your bottom line. On the other hand, a shrewd business owner may be able to time their purchase orders to make their money go further during a favourable moment in the currency fluctuations.  Alternatively, you need to build in a percentage to take into account currency fluctuations. FX exchanges help to hedge those currency fluctuations such as Wise.

Mitigating credit risk

A domestic customer who defaults on their bill can represent serious trouble, but that goes double for foreign clients, as depending on the location there may be no guarantee at all you will be able to recoup outstanding debts from non-paying customers. This is known as credit risk, and the solution may be to identify the credit rating of new prospects upfront or to take out trade credit insurance. You may also want to look at invoice financing which will support you when you have clients who are paying you on 30-60 day terms.

Following foreign politics

Assuming that your target country has the same political environment as your own nation could be a recipe for disaster. Staying abreast of developments is crucial, as political events can affect your business dramatically – what are you going to do if the foreign government embargoes or outlaws something you rely on? As with credit risk, securing political risk insurance is an excellent idea, as is establishing backup plans for your most crucial supply chains. Having access to local news helps to understand whether there is a risk to your business and if there is a trend that you can take advantage of.

Gathering market research

Depending on your business, you may find it necessary to rebrand your company or rethink your products for best results. This could potentially involve expensive market research to discover what the locals in the new country respond to best and to understand the needs of a completely different culture. However, there are many ways of studying a foreign market on a budget, and creative thinking can help to keep the costs down.

Tax and Compliance

Navigating foreign tax laws and compliance regulations can be complex and time-consuming. Entrepreneurs must ensure that they are fully aware of the tax obligations and reporting requirements in their countries.

Final Thoughts

Ultimately, there are pros and cons with any business expansion, and international growth is no exception. With careful forethought and planning, your business can go to the next level and take advantage of a whole world of opportunities. Read about the advantages and disadvantages of foreign-owned subsidiaries

For help and advice on multiple company incorporations or one-off setups, please don’t hesitate to call us on +44 (0)208 421 7470 or contact us via the website.